AusTrade Investment Breakfast
13 April 2016
Australia is in its twenty-fifth year of consecutive economic growth.
We got through the Global Financial Crisis, the Asian Financial Crisis and the dot-com boom and bust unscathed.
Only one other developed nation has had a longer period of consecutive economic growth, and that was the Netherlands that had twenty-six years which completed in 2008. So, we are on track to become the country with the longest run of consecutive economic growth.
Some of our friends, that are also resources-dependent nations, let’s say like Brazil, indeed Canada, last year had consecutive quarters of negative economic growth, and Australia has continued to grow.
Our GDP numbers are at three per cent annual growth which puts us ahead of the United States, puts us ahead of the UK, Japan and other friends around the world.
Last year, interestingly, we saw more women enter into the Australian workforce than men for the first time – more than 60,000 more women – and we created over 300,000 jobs.
So, we are, as an economy, in a very strong position, and one of the reasons we are is because our economy is very diverse.
Resources and energy represents around ten per cent of GDP.
Seventy per cent of our economy is services – education services, health services, tourism services, and we have a very vibrant financial services sector – and one of the big growth areas for Australia will be in the export of those services, and they include, by the way, mining, engineering and technology services which is a $90 billion sector here in Australia.
The export of those services to the region – and we’ve been fortunate to conclude free trade agreements with Japan, with Korea, with China, and the twelve nation Trans-Pacific Partnership –and you’ll see a real growth spurt across the Australian economy as a result of a country such as ours, just twenty-four million people, getting into the sweet spot of nations with much larger populations.
Now, we as a country, despite that positive economic record, need to continue on the path of economic reform. I’ve just come from doing an interview with CNBC, and the first question they put to me was: isn’t Australia a high cost jurisdiction for doing business? And the answer is, we are probably more expensive than some other comparable jurisdictions, and we are trying to drive those costs down.
People invest here because we are a reliable, stable supplier of high-quality product, whether it’s in the hard commodities or whether it’s in the energy space or indeed other areas as well.
We have a very transparent legal system and that is important for investors who are putting tens of billions of dollars of money at risk.
But, how are we going to drive down the cost of doing business here? One area is labour market flexibility, and we have before the Parliament important legislation called the Australian Building and Construction Commission, which will bring greater productivity to our workforces by putting what is called ‘a cop on the beat’.
We are undertaking significant taxation reform.
We have also been putting in place a $50 billion rollout of key infrastructure, so that the infrastructure is there for major projects to go ahead.
I mentioned the free trade agreements.
Another area that we are pushing in relation to the energy industry is to lift some of the moratoria that are around at the moment in some of the states on unconventional gas extraction. I believe that it is very important to put the facts on the table and to explain to the public that 40 per cent of the gas supply on the eastern seaboard of Australia actually comes from unconventional means, but predominantly that all comes from one state, namely Queensland.
Over 98 per cent of that gas that is created in this country from unconventional means, particularly coal seam gas, comes from one state – Queensland – and they have over 5,000 land access agreements between the gas company and the landowner and it works very effectively.
But in other states, there has been a move from some environmental groups and others to put pressure on the farmers not to give access to their land. This is going to create problems for us down the track in terms of not only supply but also in terms of price and attracting the necessary industries.
I see one of my priorities as the Minister for Energy is how do I put the facts on the table and show that unconventional gas extraction can sit very neatly with, for example, agricultural development. Just the other day I was in a part of Queensland, the Western Darling Downs, where I went and saw some of these coal seam gas wells, which could be half the size of a tennis court with the infrastructure around it, sitting side-by-side with corn fields or feedlots or other key forms of agriculture.
I think it’s incumbent on people in this room with vested stakes to help put some of the facts on the table as I will seek to do as the Minister so that we can get a more free-flowing debate and a more accurate debate about the need for further unconventional gas extraction.
I should just say on that, one of the differences between here and the United States is in the United States the farmer owns the resource. Here, in Australia, the state owns the resource – not the Commonwealth, the state owns the resource – so obviously the payoff for the farmer is not as much as it is, for example, in the United States. So, there is that difference in incentive, but the issue is still the same.
You can have peaceful and effective and productive and beneficial co-existence between the developer of that resource as well as the owner of that particular land.
So, I’m upbeat about the Australian economy. I think we have a very positive story to tell, and the LNG story has been a key part of that.
That’s the second thing I wanted to touch upon.
Australia has seen $200 billion worth of investment in the LNG sector between the years 2003 and 2014.
We started in 1989 with one LNG project. That was the North-West Shelf. 1989.
By 2020, we will have ten projects up and running.
We will be the only country in the world that is producing LNG from conventional means, unconventional means, and when Prelude is up and running, from a floating LNG structure. Today, I head to China with the Prime Minister and then after that I’m going to Korea, and I am going to go and see in the shipyards the Prelude facility being built.
At more than 600,000 tonnes, the Prelude floating LNG facility will be five times bigger than the largest aircraft carrier in the world. An unbelievable technology and it will be here in Australia. Malaysia will have their first floating LNG structure first, but this will be bigger and it will be here in Australia.
We need to emphasise how Australia has seen this enormous amount of investment in LNG which will see us overtake Qatar by 2020.
People say to me, ‘Well, Josh, we saw $140 a barrel oil, then we saw it down to $30, now it’s crept up a little bit. What’s the future for the price?’ Many of you will know a lot more about it than I, but as I’ve travelled around the world, whether it was to CERAWeek the other day in Houston or IEA meetings or G20 meetings or APEC energy minister meetings, my sense is, talking to my ministerial colleagues from around the world, that the supply dynamics in the gas sector have changed irrevocably.
What I mean by that, is that you’ve got 96 million or 97 million barrels a day that are consumed by the world, but the US shale oil and gas revolution has in the last five year alone put 4.2 million barrels of oil a day into the market, and you’ve got Iran which is unshackled from international sanctions which is putting three million barrels of oil a day into the market, and they hope to put another million barrels. And then we’ve got the Saudis, who, as you know, at some of their biggest fields can have a cost-per-barrel of about $5 or $6, so they’re still making money at low prices even though they would want higher prices to balance their budget. They don’t want some of these other countries to grab market share, so they are pumping out supply, so in January the Saudis increased supply by five per cent alone.
This new dynamic, which is shaping the price structures, is more about supply than it is about demand. Even though the cost-per-barrel of production in the US is higher than other countries, once that technology has been put in place, it’s hard to put that genie back in the bottle. That’s why I see the prices, sure, they’ll jump around, they’ll get higher than where they are, I have no doubt about that, but going back to $140 barrels of oil? Unless there’s some global conflagration, some major geostrategic incident, I can’t see that happening any time soon.
So, what does that mean for your sector? What it means is to focus on innovation and productivity. I have been amazed in the time I have been the Minister, when I have visited these plants, to see the level of innovation and productivity.
The Gorgon facility, to think that that is not just the largest private-sector investment ever in Australia at US$54 billion, but to think that it’s the largest subsea infrastructure ever built, that their carbon capture and storage facility, at a cost of $2.5 billion, will reduce the emissions by up to 40 per cent by taking the Co2, stripping it away from the gas, sending it two kilometres below the surface into a saline formation. Incredible technology on an incredible scale.
Woodside, an Australian company, are using underwater autonomous vehicles at their Pluto plant.
Santos, an Australian company, has partnered with IBM to use big data analytics on their pipelines to predict some of their problems before they actually occur.
This level of innovation and productivity right across your sector is what is going to drive down costs at a time when there are lower prices.
I want to encourage further investment and I want to encourage further exploration, and as a Government we will be doing various things in the not-too-distant future to try to leverage off the Commonwealth’s resources, particularly as it applies to geoscience and geological data and mapping, to actually provide industry with some help to encourage further investment.
I just want to finish on this particular point by saying I’m very upbeat about the sector’s prospects, particularly because of the demand.
The demand for gas will be driven by these mega-demographic trends in our region. Between 2010 and 2030, the world’s population increases by 23 per cent; the world’s middle class doubles; there’s a huge amount of urbanisation; and gas, according to the IEA, is the only fossil fuel that will increase as a percentage of the overall energy mix.
This is a very positive story for you, and when you see the increasing demand out of countries in Asia, countries in Europe and obviously the Americas, that is a very important story.
The market is going to be different, because the US is now exporting LNG for the first time, and I was there when the first shipment went from Louisiana off to Brazil, and with changes to the Panama Canal they are going to compete for markets with Australia here in Asia.
But Australia stands ready to compete with them.
Just finally on northern Australia, this is the part of our country which is above the Tropic of Capricorn. It is parts of Queensland, parts of Western Australia and all of the Northern Territory. It’s 40 per cent of our nation’s land mass but only five per cent of our nation’s population.
The Government has a blueprint for reform in our north which will see us rollout a $5 billion concessional loan facility to focus on key economic infrastructure in the region – transport, water, communications and energy infrastructure.
We see enormous potential for Australia’s north because it’s on the doorstep of Asia.
So, ladies and gentlemen, there are huge opportunities for you to invest in Australia’s north. There is not only an abundance of resources but it’s got proximity to markets and the Government stands ready to assist in that development of key economic infrastructure.
So, ladies and gentlemen, thank you very much for joining us this morning. Thank you for gracing us with your presence in Australia for LNG18. It’s a time of both challenges and opportunities for the sector. The challenges are our price and declining exploration, and the opportunities are around growing demand, particularly in our region, and the enhanced productivity and innovation which continues to amaze me.
Thank you very much.