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Wednesday, 19 March 2008
Page: 2363


Mr GRAY (Parliamentary Secretary for Regional Development and Northern Australia) (10:49 AM) —It is wonderful to hear the member for Kalgoorlie speak in such an insightful way about an industry sector of which he knows so much because of the location of offshore oil and gas resources in Western Australia. It is wonderful also to note the great bipartisan spirit that this place has shown over the course of the last 35 years in creating the legislative underpinnings that have allowed our great natural resource, the petroleum hydrocarbon sector, to grow a great footprint both in Bass Strait and off the North West Shelf of Western Australia. The North West Shelf of Western Australia is an area in which the member for Kalgoorlie and I both have an interest—from his point of view because the people who work there live there and they are the communities that he represents, but from my point of view I have to disclose an interest: I worked for Woodside Energy, the operator of the North West Shelf, from January 2001.

The work done in the North West Shelf by Woodside and its five joint venture partners is of the international class that the member for Kalgoorlie describes and is something that all Australians should be proud of. In being proud of the work done by these companies we should also note the significant work done by the former government and by Ian Macfarlane in particular, a minister for whom I had great personal regard for his diligence, his thoughtfulness and his incredible energy, even at times of great personal cost. He was always prepared to support the industry and to go wherever the industry needed him to be to support both our marketing and technical needs. Now I am a member of parliament and I speak on this bill, the Offshore Petroleum Amendment (Miscellaneous Measures) Bill 2008, which is an attempt to modernise and upgrade the petroleum offshore legislative framework that applies in so many areas of offshore activity.

One area that it is important to upgrade is, as we have had two speakers mention, the geodetic data upgrade. It is significant. It is about properly locating where on the face of the earth a particular incident or event is happening. In the hydrocarbons sector, this is particularly important in determining boundaries for leases. Hydrocarbons do not respect the boundaries that are drawn by mankind or by bureaucrats or by any entity other than Mother Nature. Oil and gas reserves reside below the seabed and in locations that are yet to be discovered by explorers. Explorers explore areas and leases that have been granted to them by governments under a competitive bidding process. An explorer will bid to explore a certain amount of drilling of wells, a certain amount of seismic data and other data to assess whether or not they wish to do work in a particular block. When a discovery takes place it is not uncommon for the hydrocarbon reserve to extend beyond the boundaries of the block, of the lease. Therefore, knowing exactly where that boundary lies is critical to determining the ownership of the hydrocarbons below the surface of the earth. And that is important because of the value of those hydrocarbons, the cost of recovery of those hydrocarbons and, most importantly, the timing of the recovery of those hydrocarbons, which is an issue that I will return to later in this speech.

Knowing where you are is critical to knowing where you drill; where you drill is critical to the discovery of hydrocarbons; the discovery of hydrocarbons is critical to the production of hydrocarbons; and then, ultimately, the sharing of hydrocarbons that span leases is a matter for another commercial discussion between resource owners—all of which is critical for establishing property rights, which is the central ingredient to driving the exploration and exploitation of any resource, not least of which, in this case, is hydrocarbons. In some international jurisdictions, particularly in Africa, and wherever international boundaries occur, this issue of knowing exactly where you are on the surface of the earth is of such importance that it engages governments. It engages massive diplomatic activity to determine exactly whether or not an oil or gas reserve belongs to this country or that country. Updating and modernising how we go about plotting where we are on the surface of the earth is critical to establishing certainty for hydrocarbons explorers. I congratulate the former government for the work that it did in this area, and of course I support the bill.

The member for Kalgoorlie has mentioned at great length the work that is currently being initiated by the federal government to carry out a Kimberley coast study and, indeed, an integrated environmental study of the whole of the Kimberley region. Although it is worth commenting that his observations about the LNG production facility currently in place on the Burrup Peninsula are quite accurate, it is also worth noting the size and scale of the investment required to drain the fields through the Browse Basin by the global companies involved—BP, Shell and INPEX, a Japanese company. Further around the Western Australian coast at Gorgon you have Exxon Mobil at play. They are big global companies with massive global interests, and they prefer to move in jurisdictions where there is great certainty. There is no doubt about that because I have been up to the Kimberley and I have spoken to the local residents. There is no doubt that there is great concern about where an LNG plant might be located. For that reason, a considered approach to its location is thought to be best. It was not done for Green preferences. I certainly did not get Green preferences; they did not direct them to me. I was one of the few Labor candidates who did not get Green preferences directed to me, and I would think that in the previous election I would have been one of the candidates that the Greens most visibly and obviously associated with the hydrocarbon sector.

Why is it important to create certainty on the Kimberley coast? It is important because the size of the investment, as the member for Kalgoorlie says, is measured in the billions—probably $20 billion to $30 billion, maybe even more. What we know is that, over the life of these projects, which may run for 30, 40 or 50 years, the revenue stream to the Commonwealth is significant, often to the tune of $30 billion or $40 billion. But most importantly the land tenure is long term; the footprint is semi-permanent. The presence is significant and therefore the support of a local community is central to permission to be there, to operate and to do the work that drains these oil and gas fields.

The oil and gas sector in Australia has a tremendous record of delivery, of safety and of being a clean industry, but it is an industry that is also massively challenged by cost. We currently see oil priced at over $100 a barrel. One of the great fears that the sector has is that it might take oil to be priced at $80 or $90 a barrel in order to fund some of the capital works that are required for these major projects to be brought on stream. That is what makes a single footprint in the Kimberley even more important. The costs of construction in Australia are high by international standards. In the north of Australia they are high by Australian standards, and through the Kimberley they are higher even than those. So managing those costs in an environment where the community is welcoming industry is critically important. A single footprint is also something which industry likes since it allows not just co-location of supporting industries but an open access regime on a particular production footprint. That means—and there are several examples of it around the world in Trinidad and Egypt—a large piece of infrastructure can be created and then, on an understood and transparent tolling process, a market is created whereby other gas or resource owners can bring their gas into that production facility at an understood price and in an understood way, thus reducing the capital cost of draining oil and gas fields, improving the return of the expensive capital equipment required and reducing the size of the footprint and its physical impact on the environment.

This bill goes to creating certainty for the offshore exploration and production sector. Petroleum production in Australia is a significant contributor to GDP. In the last year it contributed in the order of $25 billion: direct taxes raised as a consequence of the operations of the hydrocarbon sector were in the order of $8 billion, exports from the hydrocarbon sector were in the order of $16 billion—but imports of hydrocarbons were in the order of $22 billion. So we are now facing, for the first time, a widening gap in our ability as a nation to provide our own hydrocarbons for our own domestic consumption. This trade imbalance has significant impacts for our industry, for our balance of payments and also for the cost of living in Australia. We need to be able to trade to make our way, and we need all sectors of the Australian economy working at full pace to ensure that we can trade as efficiently and effectively as we can.

By creating certainty in offshore exploration and by encouraging offshore exploration, we are hoping for more major discoveries—like a Gorgon, like an Ichthys, like the Carnarvon Basin—that will help drive not just a closing of that gap in liquids production but hopefully creating once again an export position so that our exports can continue to help pay our way. Declining oil production and declining hydrocarbons production in general in Australia have a very significant impact on our balance of payments and a very significant impact on our economy. That is why the member for Kalgoorlie’s introduction of the issue of draining the Browse fields or the Ichthys field and of the INPEX project and the Woodside operator projects out through that way is so critically important. It is possible for Australia to balance the gap in our hydrocarbons export-import imbalance through a massive increase in our production of liquefied natural gas.

Under the former government we saw the first steps to open the Timor Sea to LNG production. This was done through the conclusion of a treaty with the newly created nation of East Timor, and it was done through creating a framework for ConocoPhillips to have both certainty and encouragement to bring its gas onshore for the creation of the first gas LNG hub outside of the Burrup, which was done in Darwin.

At this stage in our history, we produce in the order of 20 million tonnes of LNG per annum. That is a significant performance, given that in 1996 our production was closer to 12 million or 13 million tonnes. But it is a long way short of where we need to be to close our import-export gap. In order to close that gap, we need to be moving to LNG export production in the order of 50 million to 60 million tonnes per year over the course of the next 10 to 15 years. To do that, we do need to drain the Gorgon field. To do that, we do need to drain the Browse Basin. To do that, we do need to give the industry the certainty that it requires to make the investments that we need as an exporting nation.

APPEA, the industry association, has a 10-year aspiration, along with its industry affiliates, to lift LNG capacity to that 50 million tonnes to 60 million tonnes a year. That is a magnificent aspiration to have. It accords with our national interest, and it accords with the needs of our nation. Critical to success in this area will be whether or not the operators of significant gas fields offshore are able to become sufficiently energised, organised, and inclined to ensure that their production does take place.

The member for Kalgoorlie has spoken of the possibility of INPEX taking their gas to Darwin. What he means by that is that, instead of building a production facility on the Kimberly Coast, INPEX may be inclined to build an extremely long pipeline to Darwin and take that gas into Darwin, where there is an existing facility operated by ConocoPhillips. This is not a bad idea. This is not lost production to Australia. The worst thing that can happen to Australian hydrocarbons, to our gas resources that lay beneath the surface of the sea—which at current rates of production have the capacity to sustain our nation for over 100 years—is for those resources not to be tapped. The worst thing that can happen is for those resources to stay in the ground and for us to fail to even try to meet the APIA aspiration of 50 million tonnes per annum by 2017.

It is important for us in this place to continue the bipartisan support that we have always enjoyed giving to the hydrocarbon sector for certainty in its exploration and certainty in its production. The bill that is before us today creates another step towards certainty for explorers. It creates that certainty through modernising our legislative framework and by accepting important modern trends both in technology and in how workers are organised. I commend the bill to the House.