Interview with Melinda James, ABC Illawarra
23 April 2020
Subject: Interview discusses Australian fuel security, oil prices, Australian fuel reserves and reduction in wholesale energy prices
MELINDA JAMES: I'm joined now by the Minister for Energy, Angus Taylor. Angus Taylor, good morning. Thanks for joining us.
ANGUS TAYLOR: Thanks for having me, Mel.
MELINDA JAMES: Let's talk first of all that the announcement you made yesterday about this stockpiling of fuel over there in the US, taking advantage of these rock bottom, extraordinarily low at some points in time oil prices. It's been something that's been talked about as being necessary for a long time - that we here in Australia have been very, very vulnerable to low stockpiles of fuel at times. What's your thinking here?
ANGUS TAYLOR: Well look, that's right - we actually have ample fuel at the moment so there's no need to go out to the petrol station and fill up in reserve - but what the Government is doing is establishing a strategic reserve so that in the event of a serious disruption we would have enough fuel to meet the needs of our essential industries, our manufacturers, our miners, our farmers, our truckies, our commuters who have got to get to work. So we're building up this fuel reserve. As you say, initially, it'll be housed in the US, just because there's no storage here. We've run out of storage essentially, partly because of COVID-19. And the aim, of course, then is to -
MELINDA JAMES: How would COVID-19 have made a difference in what we’re storing?
ANGUS TAYLOR: Because, sadly, because we've seen a very significant reduction in demand and that means that the refiners have been filling their tanks - it's as simple as that - and that's been happening all around the world. That's part of what's contributed to the very low prices at the moment. We can access storage for the moment with our partners in the US, and then of course the goal is to establish local storage here in Australia. We've been in discussions with the refiners now for some time, working through the best options to do that. And what that ultimately means is we really have the back of our fuel using industries. You know, if you're a farmer and you're coming up to harvest and there's risk of a fuel disruption and you missed your harvest because of that, this is a calamitous event for you as a business. So these are the sorts of things, the reasons why people have said we need to build up this reserve. We went out of compliance with our international obligations back when Labor was in power in 2012, and we're now addressing the issue. Ultimately, this is all about making sure Australia has control over its own destiny in those critical supply chains which is so essential to our country.
MELINDA JAMES: So what capacity is there to continue to stockpile while prices are low over there in the US and eventually bring that over to Australia? And are there plans to increase our capacity for storage here, locally?
ANGUS TAYLOR: Yeah. Well clearly, there is, there are plans to increase storage locally absolutely. And you know, the COVID-19 situation has stretched our storages to the limit, but even independent of that we're in discussions with refiners on that. You know, $94 million in the current market actually goes a long way because prices are so low - so this is good value for taxpayers. Now, having to buy a strategic fuel reserve back when the oil price was $80 was a very, very expensive exercise and this is why there were concerns about doing it because of the impact on taxpayers or in fact there've been proposals around to pass this through to consumers. We won't do that because we can buy at a very, very cheap price historically. Historically low prices. Indeed, we saw just the day before yesterday, prices going negative because there was no storage. So essentially buyers were being paid- buyers so-called, were being paid to take fuel because there was nowhere to store it.
MELINDA JAMES: Very hard for most of us to wrap our heads around that one but are you anticipating-
ANGUS TAYLOR: It's a bizarre situation, but the point, the broader point here is this is a really historic opportunity to start building a fuel reserve without imposing a big impost on taxpayers so that's why we're getting on with.
MELINDA JAMES: And are you anticipating the prices will remain low for some time given that other countries, for example the US, might take even longer to kind of claw their way out of where they're sitting economically at the moment?
ANGUS TAYLOR: Look, forecasting commodity prices is a mug's game - whatever forecasts you make, you'll probably get it wrong. But that being said there's clearly, you know, very strong suppression of demand right now because of COVID-19 right around the world. There's been excess supply. Saudi Arabia, Russia and the Americans are all producing a lot more than the market needs and that means the dynamic of strong supply and weak demand pushing down prices is not going away overnight. So it is a very, very good time to move, build this strategic reserve and protect our future. You know, if there's one thing with learned from COVID-19 it's that these critical supply chains, we're seeing this in our medical supply chains with PPE safety equipment, you really have to think hard about these things. Now is the time to be striking on making sure we've got control of those supply chains.
MELINDA JAMES: Can I just ask finally on energy about gas? We're obviously about to have this huge gas import terminal here at Port Kembla. What's the situation with gas? Gas prices? How easy is that to store?
ANGUS TAYLOR: Yeah, it's more difficult to store than crude oil but the good news is, we've just seen numbers coming out from AEMO, there's been significant reductions in wholesale prices. Indeed, that was happening even before COVID-19 came along. In fact, the last, first-quarter of this year, most of which wasn't COVID-19 affected, the price was down to below $6 a gigajoule, from close to $10 a gigajoule - so around a 40 per cent reduction, it's a very significant reduction. That's great for manufacturing. It's great for our energy intensive industries. It's actually great, interestingly, for the renewable sector because it creates that complementary parity to solar and wind with flexible gas generation. It's very, very important to allow more renewables in to the system. So, on a whole bunch of fronts this is good news.
MELINDA JAMES: I was just wondering about the guarantees of it being passed on to us?
ANGUS TAYLOR: Yeah, it's a great point. We've put legislation through the Parliament to make sure that we're seeing energy prices being pushed through to consumers. Typically, the wholesale price is something, as much as half of the total cost for a retail customer, a small business or a household customer and we do want to see it passed through. Just as we've been having the discussion in recent weeks about the lower oil price being passed through. It is going through now, we're regularly seeing prices below at $1 a litre. We can argue about whether it should go even further. But we want to see exactly the same with gas, making sure that both big users, big industrial users and smaller customers get the advantage of these lower gas prices which, as I say, were happening well before COVID-19 came along.
MELINDA JAMES: And just quickly, the disparity between prices at the bowser for people in metropolitan Sydney compared to people in outer regional areas is extreme at the moment. You're talking in some instances a 40-50 cent difference per litre. I don't know, what's that about?
ANGUS TAYLOR: Well it depends where you are. I mean, here I am in downtown Goulburn - we've had pretty good prices, it's a very competitive market, as people come off the Hume. You go up into the Southern Highlands, there's been occasions where we've seen some of the retailers not passing that on. The independent retailers, by the way, tend to do it much faster. This is something that I've alerted to the ACCC Chairman, Rod Sims. He is now, right, in recent weeks been keeping a very close eye on that. It is an important issue. It depends where you are, it's not sort of across the board. We have largely seen very significant reductions, 50 cents or so a litre, over recent weeks. But there are locations where we've seen retailers not doing the right thing and we're alerting the ACCC of that wherever we see it.
MELINDA JAMES: Now, we're hearing a lot about a rocket having to be put under the economy in order to get it going again. We're talking about more, more wholesale kind of economic reform having to be on the agenda. There are plenty of commentators saying that the way our economy and our tax system is structured at the moment just can't, won't cut it when it comes to trying to emerge from this stronger. The Financial Review says: ‘Company tax rate back on the table’, ‘Cuts to the company tax rate under serious consideration’. The Sydney Morning Herald, interestingly from the same stable, says: ‘Cutting company taxes and increasing the GST are not in the Morrison Government's plans to recover from the coronavirus’. Which is it?
ANGUS TAYLOR: I'm not going to speculate on the budget which is a long way off, it's not until later in the year this year. We're not going to get into the rule out game - rule in, rule out. We are, of course, the party of lower taxes. But you know the point I'd make about the recovery is we have these lower gas prices. We also have lower electricity prices at the wholesale level which need to be passed on, very important. We have legislation in place, which we put through the Parliament that requires those to be passed on, and we want to see those lower energy prices fuelling growth in our manufacturing and energy intensive businesses. Of course, the Illawarra is a region of Australia that's been reliant on those, access to affordable energy for a long, long time for many jobs and much of its industry and we want to see that passed through. And that is, that gas-fired recovery if you want to call it that, energy fuelled, affordable energy fuel recovery I think is a tax cut of sorts at least a cut in costs for businesses, that offers enormous opportunity and we really want to make the most of that.
MELINDA JAMES: Yeah, but it's not structural reform, which is what people are talking about being the strategy-
ANGUS TAYLOR: Well no, let me challenge that. If you look at the energy prices we were seeing significant reductions in wholesale prices before COVID-19 came along. And ultimately that's about more supply coming into the market and a whole series of reforms that have happened over a period of time to drive that. We're now seeing the real benefits of it. It's true that COVID-19 has accelerated that process but the key point now is to take advantage of the sorts of energy prices we got used to in Australia - we lost that for a period of time, we're seeing it returning now. This is a great opportunity and as a Government we really want to make use of this gas-fired recovery.
MELINDA JAMES: We'll have to leave it there. But Angus Taylor, thanks very much for your time this morning.
ANGUS TAYLOR: Thanks for having me.