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Thursday, 18 August 2005
Page: 129

Dr EMERSON (10:35 AM) —At the outset of my contribution on the Offshore Petroleum Bill 2005 and cognate bills, I would like to commend the public servants who have been involved in the streamlining and rewriting of the Petroleum (Submerged Lands) Act and related acts. I fondly recall my entry into the parliamentary processes as an adviser to Senator Peter Walsh, who was Minister for Resources and Energy in 1984. I started in January of that year and I got to know public servants from the then Department of Resources and Energy and from Treasury, Finance, Prime Minister and Cabinet and other departments. They are hardworking people and they have done a great job in what has obviously been a very long journey in getting this legislation into better shape.

The amendments, in practical terms, in respect of revenue, for example, are not major, but any streamlining is welcome, and this legislation is a great improvement on the legislation that had built up over time through amendments. It is great that from time to time people take the initiative to streamline the legislation. That is what we are debating here today. We debate it with the full support of the Australian Labor Party, because any efforts to reduce compliance costs for business and to make legislation more readable and transparent are to be welcomed.

The truth is that the government should move—and should have moved over the last nine long years—to a more visionary approach to the development of Australia’s natural resources and our fossil fuel energy sources. Sadly lacking from this government has been any sense of vision or strategic planning about our resources. We are a resource-rich country and we should not simply take that for granted and say, ‘Well, as a result of that we will just let things happen as they might.’ I have always believed in a strategic, visionary approach to the development of our natural resources. The last great nation-building exercise in this country was probably the North West Shelf. Remote as it is from eastern Australia, the North West Shelf has been and continues to be a massive exercise in investment, productive engagement of working people and generation of wealth for our country.

There is probably a perception that the North West Shelf was a fully private initiative and that it just happened with no involvement of government. That is not the truth. The North West Shelf development probably would have occurred anyway at some point, but it was brought forward in time as a result of a decision taken by the Western Australian state government to sign a take-or-pay contract for the supply of gas from the North West Shelf down to the southern part of the state. That take-or-pay contract almost bankrupted the Western Australian government, so I am not necessarily saying it was a great contract or that its terms and conditions were ideal. Any contract that almost busts a state government has a few shortcomings. Nevertheless, the idea of governments being involved in bringing forward and facilitating the development of natural resources can be a sound one. It is just a matter of the actual details of the terms and conditions of government engagement in such projects.

Yet over nine long years there has been no Commonwealth strategic approach to the development of our natural resources. Yes, there were gas sales to China in the last couple of years. There were diplomatic efforts involved in that and questions raised about the price of the gas that has been committed and sold to China. It is very inexpensive gas. Nevertheless, it has happened. There was some government involvement at a diplomatic level and, as I understand it, at a head-of-government level as well.

That is good, but it does not constitute a visionary, strategic approach to the development of Australia’s natural resources. What that constitutes is, basically, getting involved in the sale of gas—an important role for government but not sufficient in its own right. In this the greenhouse era, when the greenhouse effect is an issue that has engaged the entire community—indeed, the global community—one of the great attractions for the development of our gas resources is that natural gas is more greenhouse-friendly than coal as an alternative fossil fuel. So there are some attractions there in terms of us exporting gas and using gas domestically here in Australia.

In developing a strategic approach to the exploitation and commercialisation of our gas resources,  I believe we should be more actively considering options for the domestic processing of gas, not to the exclusion of the export of gas as LNG but, for example, in gas to liquids projects. When I have been speaking to resource companies, I have found that most evaluations of economic projects involving fossil fuels are done at an oil price of $US20 a barrel. The oil price at present is well over $US50 a barrel. We know that that will not continue. There is no reason to believe that $US50 is now going to be the stable price for the next 10 years. It could go higher, but it could go lower, and I accept that. In two previous oil price shocks, extra investment was committed as a result of the high prices that prevailed, and of course as the market works the price of that resource then falls. Nevertheless, $US20 a barrel does seem to be a pretty conservative basis for evaluating alternative investment projects in our natural gas industries. I do wonder whether companies might start thinking of prices in the mid-20s at least. It would still be a fairly conservative estimate. I think we would then find that projects such as the processing of gas into liquids would be more financially attractive.

I would like to see the Commonwealth actively engaged in dialogue with investors in our gas resources to see whether a gas to liquid processing project might be feasible here in Australia. That adds value to the gas resources not only in gross terms but also, we hope, in net terms by producing synthetic fuels and diesel—and also, as I understand it, very high-quality, high-value waxes. It has the further attraction of improving Australia’s self-sufficiency in petroleum products. That itself, in an unstable global environment, is something worth contemplating. Most other countries have that. Why shouldn’t Australia have that?

Australia is in a region where there are tectonic shifts under way in centres of global economic activity. In the last three centuries, we have spoken of Australia’s tyranny of distance—our distance from markets in North America and in Europe. I think that is about to change. In fact, the change is already under way. Up until the last three centuries Asia was the centre of economic activity in the world, and two countries in particular were responsible for a very large part of that: China and India. There are realistic projections which suggest that, by as early as 2015, China will be the largest economy in the world, surpassing the United States, with India being the third largest. Other countries in our region, such as Indonesia, are likely to be in the top 10. This is not a projection for GDP per capita but for the gross amount of economic activity—that is, GDP expressed in purchasing power parity terms.

The point of all this is that, rather than Australia being a long way from the global centres of economic activity, we will be on the doorstep of those centres of economic activity. The emergence of China and India raises the question of whether, as resource hungry countries, especially China, do not have the quality of resources that we do, there will be a step-up increase in energy demand in the world driven essentially by China and India, such that there will be a permanent increase in resource prices: gas prices, petrol prices and coal prices.

We should be thinking about those possibilities, and we should be thinking about them in the context of an ageing population. We know the challenge of an ageing population in Australia, where in the next four decades we will have not much more than 40 per cent of Australians earning the incomes and paying the taxes to look after those who are too old and too young to work. So if we have to, as the projections in the Intergenerational report suggest, generate a lot of tax revenue out of that fairly small working population, the problem is that the tax rates that that implies could be almost punitive. They could be so high that people will ask the question: ‘Why am I working? It is just not worth working.’ We need to look for alternative revenue sources so that we are not just relying on income tax.

We opposed the GST, and I do not believe that the answer is in a consumption tax. Nevertheless, if we can develop these resources and take the view that there will be—and it is already under way—a quantum shift in the world’s demand, driven by our region, for fossil fuels in particular, then that potentially is a large new source of revenue for Australia. But where is the strategic thinking going into that? Where is the strategic thinking going into arguing that, relatively, gas as a greenhouse energy source could be really attractive for us and that government could be involved with industry in developing our gas resources, with a larger proportion of it coming onshore?

One of the sources of revenue will be the petroleum resource rent tax, which I was very pleased to be able to support and help write the legislation for when I started working for Peter Walsh back in 1984. I had done my PhD on the resource rent tax, and I was able to come into this place and work with the then Minister for Resources and Energy, Peter Walsh, Paul Keating and Bob Hawke in introducing that. The PRRT does not apply to the North West Shelf, but it does apply offshore, outside of the North West Shelf. It has been a very stable tax system. We have not had to change it from year to year, as used to happen with the crude oil levy, and no-one knew whether they were Arthur or Martha. They would go out to lunch with a few people in the department and negotiate the new crude oil levy arrangements, so there was not a lot of investment certainty there. One of the great attractions of the petroleum resource rent tax is that it is stable over time. We have a formula: if prices are high the PRRT collects for the community a decent share of that extra revenue; if prices are low the PRRT is low. So it automatically adjusts to the profitability of particular projects.

But if we think about the ageing of the population, the challenges before us in getting those extra sources of revenue and the existence of massive resources in Western Australia and off Western Australia, we can suddenly see the pieces coming together in the development of a national energy plan, a national strategic plan, for our country. We know that the eastern side of Australia is going to be short of gas in the coming decades, and the PNG gas project will help to remedy those shortages and that is a good thing. As a result of the PNG gas project, there will be more economic activity just inside regional eastern Australia. That is a good thing. But realistic projections indicate that the PNG gas project itself will not be able to supply all the prospective demand on the eastern side of Australia. So could we be so bold to again think of the possibility, after the PNG project is well under way and demand again starts outstripping supply, of a transcontinental pipeline?

I know people will say that Rex Connor thought of all that and involved some dubious characters in the possible financing of it. I am talking about a project that would be privately financed. There will be a time when it may well be economically viable to connect those massive gas resources of Western Australia to the eastern seaboard of this country to supplement the gas that comes from Papua New Guinea. Let us dare to be bold and think about the possibility of eastern Australia being connected with those massive gas reserves.

And while we are thinking about really wild possibilities, although people say, correctly, that Australia is the driest continent on earth, there is actually a lot of rainfall in Australia—it just does not necessarily occur in the places where people are. The Western Australian government is contemplating the idea of piping water down from the Fitzroy River, as I understand it, in the north of Western Australia, to satisfy the water shortages—the demand for water—in Perth. Who knows? Maybe one day, as the transcontinental gas pipeline comes across, there will be a water pipeline as well. Let it be said that I was the first to mention that, although some will say that I am completely mad for doing so.

Even if I am wrong about that—and there is a very good chance that I am—we must dare to be bold. We must dare to think about these things. In the United States, when they have a problem they get together and solve it. In our country we say, ‘It’s too big for us.’ We think we should not talk about these matters because someone from another political party will say, ‘He’s mad; he’s gone crazy,’ and use it as a political weapon against us. It is time to break out of this stultifying oppositionist approach to politics in this country and develop a nation-building plan for Australia. It needs to be a nation-building plan that will take us well into the 21st century as we sit here in the strongest growing region in the world and potentially enjoy the benefits of the Asian century. We can do it. I call upon the government to start thinking strategically and develop a vision for our country.