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Transcript of speech to the Energy Users Association of Australia Conference



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GARY GRAY MP

SHADOW MINISTER FOR RESOURCES SHADOW MINISTER FOR NORTHERN AUSTRALIA SHADOW SPECIAL MINISTER OF STATE MEMBER FOR BRAND

SPEECH

ADDRESS TO ENERGY USERS ASSOCIATION OF AUSTRALIA

TUESDAY, 14 OCTOBER 2014

***CHECK AGAINST DELIVERY***

I acknowledge the traditional owners of the land on which we meet - the Wurundjeri people of the Kulin Nation - and pay my respects to their Elders, past and present.

Thank you for the opportunity to address the Energy Users Association of Australia.

I congratulate Phil Barresi and team for pulling together such a comprehensive two day agenda.

I’m extremely pleased that Ministers Hunt and Northe participated in yesterday’s sessions and I hope that the day was productive.

We need to sponsor a bipartisan pathway in energy; energy is after all one the foundations of our economy.

I would like to acknowledge the Victorian Shadow Minister for Energy and Resources Lily D’Ambrosio whom I know has been hard at work on her agenda.

I’m also looking forward to hearing from Tony Wood. Tony’s work is thoughtful and insightful and I thank him for his contributions to shaping our national energy debate.

The Federal Government is reviewing the Renewable Energy Target and the Eastern Australian gas market is under serious pressure so this is a timely conversation and I am very glad to be participating today.

I’ve been asked to speak today on Federal Labor’s energy position.

As you will understand - we will review the positions we took to the last election. Labor has started a process that will take us to our next National Conference, due in July next year.

There will be substantial dialogue between myself, other Shadow Ministers, importantly my colleagues Mark Butler and Chris Bowen and the energy sector including the Energy Users Association of Australia in the build up to our National Conference, then to the Federal Election due in 2016.

Energy is front and centre of national debate and I want to reassure you that the Labor Party is committed to an efficient, transparent and responsive National Energy Market and a robust, harmonised national energy framework.

And we are committed to efficient renewable energy.

We are not committed to renewable energy simply because we know renewable energy is good for the environment, and it helps us to lower carbon emissions.

We are committed to the renewable energy industry because deployed effectively it makes economic sense.

On this, Dick Warburton and his RET review committee agree.

Diversity of energy supply through the vast solar, wind, wave and thermal resources we have at our disposal makes sense, but we need more, we need a market that is efficient and can be responsive to whatever disruption comes next.

You know that Dick’s RET review was not the process Labor would have done.

But a review of the RET was necessary and Dick Warburton and his committee worked hard as did all contributors to it.

I thank Dick, Shirley In’t Veld, Dr Brian Fisher and Matt Zema, and all contributors - including the Energy Users Association - for their work.

I think the transparency that underpins the review is important. But Labor, and as of last week the Government, reject any view that the RET be abolished.

Over recent years we have seen complexities which enable and which weigh on the very capability and efficiency of our energy market.

And just as in Europe and in North America we have seen falling demand for energy.

The wholesale electricity market and the market for renewable energy certificates are sending clear signals - they are tending to oversupply.

I’m sure these issues will be important factors as we work with the Government to find common ground.

The current RET has a history of bipartisanship under the leadership of Prime Ministers Howard, Rudd and Gillard.

Bipartisanship provides certainty for this industry.

It was what led Ernst & Young to put Australia in the top four of its Renewable Energy Attractiveness Index alongside powerhouses China, the United States and Germany prior to last year’s election[1].

And bipartisanship is in the hands of the Government and the Opposition.

We have commenced our discussions and we welcome the Government’s willingness to engage.

We will not talk about removing the RET but we do need to talk about improving our electricity markets, rationalising our national approach to renewables in light of current energy market trends and securing a growth future for our renewable energy industry.

Labor does believe that aluminium presents a unique case regarding the impact of the RET, and Bill Shorten has made this view clear in industry consultations over the past couple of months.

We could ensure stability on the demand side in our energy markets by keeping such large sophisticated energy users like aluminium smelters in the market, perhaps even by exempting any user of over, say, 2000 GWhs.

I know other sectors, including many resource companies which also fall into my Shadow Portfolio, have raised concerns at their RET related costs.

I know that the submission the Energy Users Association made to the Warburton Review raised a number of concerns you have with the current RET.

[1] EY, Renewable energy country attractiveness index, August 2013, http://www.ey.com/Publication/vwLUAssets/Renewable_energy_country_attractiveness_indices_-_Issue_38/$FILE/RECAI%20Issue%2038_August%202013.pdf, retrieved 9 October 2014

And I know you understand that during this phase of discussions with the Government I cannot go into the detail of these talks.

The discussions are ongoing and Labor is committed to a workable solution.

As well as ensuring stability in the electricity industry we also need to be responding to the pressures facing the Eastern Australian gas market.

Natural Gas is important.

It warms our homes, fires our industry, cooks our food and keeps it cold - it makes life easier.

Cleaned and frozen to minus 161 degrees Natural Gas turns to Liquefied Natural Gas (LNG) and it earns very significant export income.

Our Australian standard of living is built on income from exports.

Today over 50 per cent of Australia's gas production is exported[2]. Next year, after the three new LNG facilities in Queensland come on line this will rise to 66 per cent.

Then, the Gorgon and Wheatstone gas plants in WA come into production.

Is that bad? Some say it is.

“Aussie resources for Aussies” they say.

Over 80 per cent of Australia's wheat is exported[3]. Even more in my home state of Western Australia.

Almost 70 per cent of Australia's beef is exported[4]. Even more in Queensland.

If we restricted wheat and beef exports could we get cheaper hamburgers?

Not for long, I’d guess.

Within days of banning wheat and beef exports, farmers would begin cancelling orders for farm machinery and agricultural industries would begin letting workers go, supply of wheat and beef would fall.

For how long would the price of hamburgers fall before dwindling supply of beef and wheat pushed up the price?

A sort of Aussie beef for Aussies campaign!

[2] BREE, 2014 Australian Energy Update, July 2014, Tables 7 and 9 [3] ABARES, Agricultural Resource Statistics 2013, Table 195 [4]

ABARES, Agricultural Resource Statistics 2013, Table 137

Or should we reserve just some beef cattle and some wheat just for consumption as Australian hamburgers?

We live in a global economy.

We already use an international pricing structure for petrol and crude oil, this has been the case since the 1970s.

Before 1978, the Federal Government fixed the price of domestic crude below the world parity price.

What was the result of this policy?

It created a disincentive to explore for crude oil in Australia as it did not maximise the true value of local crude. The Government realised this and introduced import parity pricing[5].

When it comes to petrol and diesel the Singapore benchmark sets the prices that Australian motorists pay.

We are in an important discussion about gas price and gas availability in Eastern Australia.

The same discussion is taking place in my home state of Western Australia. Actually it's a discussion that is happening in energy economies around the world, in the US, in Russia, Canada and elsewhere.

One common proposal - gas reservation - actually exists in WA and it was a policy of the NT Government until they quite properly scrapped it last year.

The independent Economic Regulation Authority in WA has recommended the Government rescind the policy “as soon as is practicable” as there is “no economic justification” for its continuation.

The Authority goes on to say that “repealing the domestic gas reservation policy will drive innovation, reduce the State’s reliance on subsidies, and create incentives for investment[6].”

Big expensive off-shore gas projects like Gorgon, Wheatstone and Pluto in WA are designed to meet overseas LNG demand at export prices, like LNG on Curtis Island, they are paid for by customers in Japan, Korea and China.

[5] APPEA, Grave reservations, 29 September 2014, http://www.appea.com.au/media_release/grave-reservations-awu-should-call-for-a-free-market-not-a-free-lunch/ retrieved 9 October 2014 [6]

Government of Western Australia, Inquiry into Microeconomic Reform in Western Australia: Domestic Gas Reservation Policy, Economic Regulation Authority, July 2014.

Wheatstone and Gorgon do provide domestic gas feeds - but both are about one third of the Western Australian Domestic Gas Reservation stipulation of 15 per cent. However, both Wheatstone and Gorgon were going to provide gas for the WA domestic market regardless of the Government policy of the day.

The fact is there wouldn't be abundant new gas resources available to Australians if export projects had to subsidise domestic customers.

That is there wouldn't be massive new gas available, if we did not export gas.

Gas reservation effectively works like a tax on gas production and would add to gas costs, not reduce them.

Labor understands that rising gas prices are a concern. We will take this concern to heart as we develop future energy policy.

I do not think we will face a shortage of gas tomorrow, next week or next month.

The Queensland export LNG projects, while still on track to achieve a remarkable outcome, are a little late in ramping up their full demand for gas. This gives a little time to work on alternative gas strategies for the domestic market.

And it gives decision makers an opportunity to do some real things rather than playing politics.

Australia does face very real difficulties in gas supplies, particularly in NSW, and we need to think very seriously about how we address NSW gas needs. The hard decisions have been delayed for too long.

So, let us get more gas production in NSW.

The best hope is the Santos project at Narrabri.

According to Santos, this potentially could provide up to 200 terra-joules of gas per day to NSW which could meet half of NSW gas needs[7].

Santos will make the gas available to the NSW market via a dedicated pipeline heading south to Sydney. This gas can meet most of the predicted immediate demand shortfall.

Let us step up the Gloucester project, move it quicker through rigorous approvals to production and prevent it being stalled and held hostage by activists.

The Federal and NSW Governments must stop running chaotic hot and cold gas policy processes. For instance;

[7] Santos, Narrabri Gas Project, http://www.santos.com/our-activities/eastern-australia/new-south-wales/narrabri-gas-project.aspx retrieved 9 October 2014

 Santos and the NSW Government sign an MOU to progress the Narrabri development. But then the NSW Government apply the handbrake by brokering an agreement between Santos, AGL and NSW farmers on conditional land access[8]; the Federal Government sits on its hands.

 The NSW Government stops an approved Metgasco conventional gas well[9] and the Federal Government is silent.

 The NSW Government approves pilot wells at Gloucester in August[10], activists rally hoping Federal and State governments will back down, and my guess is they will. They should not.

 The NSW Government puts a moratorium[11] on all new coal seam gas exploration a week before the NSW Chief Scientist releases an Independent Review which stated that “the risk associated with CSG exploration and production can be managed[12].” The Federal Government again, has been silent.

Here in Victoria the State Government’s moratorium extends even to conventional gas exploration.

Gas policy made for the social media cycle rewards activists and compromises the interests of families, communities and industry. We need sound approvals processes, based on good regulation, creating confidence and certainty.

The Productivity Commission is currently looking at how we can create more efficient gas markets and I look forward to their report due in March next year.

In the meantime the Federal Minister could get the major players together to begin a conversation about cooperation. Companies need to be reassured that in seeking to work together to solve a gas supply problem they do not face any trade practices issues.

Labor is prepared to help here if necessary.

Gas user groups like the Energy Users Association need to work with their membership on planning for the foreseeable difficulties and opportunities ahead.

[8] ABC Rural, Santos and AGL sign land access deal with farmers, http://www.abc.net.au/news/2014-03-28/santos-agl-agreement/5352090 retrieved 9 October 2014 [9]

Stevens, M., AFR, NSW knocks back Metgasco, p. 32, 27 June 2014 [10] Stevens, M., AFR, p. 28, 8 August 2014 [11]

Coulton, M., The Australia, State extends permit freeze, p. 6, 26 September 2014 [12] NSW Chief Scientist, Final Report of the Independent Review of Coal Seam Gas Activities in NSW, p. 10, September 2014

For instance a number of major gas users shut down during each year for planned maintenance to plant and equipment, and also to install new kit. If this is planned and where appropriate shifted to the lower demand months the

extreme demand peaks that create gas shortages may be flattened out a little.

There is also a role for electricity generators who use gas as part of a portfolio of fuels to adjust their generation to manage their gas usage, switching fuels where possible.

There is a clear price incentive for substitution and indeed some companies such as Stanwell have already made that decision.

The important thing is to encourage as much sensible substitution as we can, this will help in the short term.

Let us also acknowledge that some of these problems might be sorted out by the telephone not the megaphone.

By ministers in federal and state jurisdictions working to find solutions not politicking.

And by community organisations standing up for new natural gas developments; developments that bring jobs, infrastructure and energy to regional communities.

Critically the NSW Chief Scientist has drawn a road map for NSW gas production, that road map should be carefully considered, carefully implemented and monitored. Many of these recommendations have already been implemented in Queensland which has a longer history of petroleum development in the Cooper and Surat Basins.

There are better solutions to our energy future than the knee jerk - ‘say no’ to natural gas from coal seams and ‘say no’ to exports.

Saying yes to the Chief Scientists report is a good start.

Finally we need regulators and politicians to stand up for families, jobs, industry and consumers. This is done by supporting solutions that put more gas into East Coast markets, not by taking weak populist positions because they sound good or rally the troops.

Action can be taken now, more dithering will bring pain then panic, and panic and pain are not good for sound policy making.

The uncertainty over the RET and the potential for gas shortages in the East Coast are of course major concerns for policy makers, for industry and for the general public.

Never has it been more important to take the politics out of our national energy policy and use a scientifically based and economically sound approach to creating long term solutions.

So let us do that. Let us break the binary political mould and create long term solutions.

I thank you for the opportunity to talk to you today and I look forward to taking your questions.