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Thursday, 26 February 1987
Page: 674

Senator GARETH EVANS (Minister for Resources and Energy)(11.41) —in reply-Both Senator Sanders and Senator Sir John Carrick, neither of whom has any objections to this Bill, have used it as a vehicle for what in Senator Sir John Carrick's case can only be described as a generalised rave on his familiar set of prejudices about the future of Australia's liquid fuel supply.

Senator Sanders —Fair go. It was a reasonable argument.

Senator GARETH EVANS —I will come to how reasoned it was in just a moment. But let me say at the outset that I am pleased that there is no controversy about the substance of the Bill itself-this very lengthy Bill of less than one line! Would that the speeches had been kept as short!

Let me say at the outset that it is perfectly true that Australia has a liquid fuel supply problem and that this is undoubtedly the central problem in energy policy management between now and the end of the century and beyond. It is certainly far and away the biggest single energy policy problem that I have on my plate as a Minister. Bass Strait is drying up. The rate at which that occurs is, as Senator Sir John Carrick acknowledged, still a matter for some conjecture, but there is no doubt that it is occurring. Current projections are that, if no further oil discoveries are made and no further development of existing fields takes place, our self-sufficiency will reduce to something just over 40 per cent by the early 1990s. Further, it is the estimate of the Bureau of Mineral Resources that, even on the assumption of a continuing substantial exploration program between now and the end of the century, by the year 2000 there is still only a 50 per cent chance that we will be as much as 50 per cent self-sufficient so far as liquid fuels are concerned.

The truth of the matter is that, although there are certainly some still highly interesting areas for further exploration to occur, particularly off the North West Shelf and in the Timor Sea areas off-shore of Australia, the reality is that Australia generally speaking is not a highly prospective country so far as potential oil reserves are concerned. We have to look forward to a future in which it seems likely that we will not have the same kind of liquid fuel self-sufficiency that we enjoyed through so much of the late 1960s, 1970s and early 1980s.

The options in dealing with this sort of problem boil down essentially to exploration activity, conservation activity and the development of alternatives, either by way of synthetics or alternative fuel sources of the kind that Senator Sanders concentrated on. In the course of this debate things were said about each of those areas that I believe need correction and certainly a reply from me. To canvass fully all the issues involved is, of course, a very much more major exercise than is appropriate for a speech in reply on this Bill. But such an exercise is fully in train. I remind the Senate of my Department's Energy 2000 exercise which got off to an excellent start last year with the production of discussion papers and the holding of a major conference and which is wending its way to conclusion over the next few months in the form of the production of a final policy document bringing all the threads together.

Let me go quickly through some of the points made in each of these areas. First of all, so far as exploration activity is concerned, the reality is, however much Senator Sir John Carrick might fulminate to the contrary and describe it as nonsense, that exploration is market driven. Exploration activity in Australia, as everywhere else in the world, depends primarily and overwhelmingly on the prevailing price of oil and expectations about what that price will be in the short to medium term. However much one might leap up and down and expostulate and blame it all on Government policy, taxation policy and so on, the reason that exploration activity has fallen away dramatically over the last 12 months, as it has everywhere else in the world, is the price plunge which occurred from early 1986 onwards and which has simply created huge cash flow problems for explorers and just basic problems of the game not being worth the candle in terms of the anticipated returns.

The point is that governments cannot by their own policy actions by way of tax regime manipulation overcome the realities of that kind of market situation. Some people are from time to time heard to suggest that Australia simply has to strike some kind of self-sufficiency target objective and throw money at that by way of tax exemptions and tax incentives to ensure that enough exploration activity takes place so that by hook or by crook-even if it involves hundreds of small puddles being explored and developed at very significant drilling costs and at no return to the revenue or the nation; by one means or another, however much economic sense it might on its face make or not make-that should occur. That is not the position that any sensible observer of this policy area would adopt. The point is that self-sufficiency is not something to be achieved at any cost. The costs involved, and the other values involved in terms of rational resource allocation for the community as a whole, have very much to be taken into account.

The important thing so far as government is concerned when one talks about exploration is ensuring that government policy, in particular government taxation policy, does not constitute in itself a barrier to exploration taking place if market realities were such that it otherwise would. I simply say here that I, like my predecessor, Senator Walsh, have been acutely conscious of this. We have kept a very close eye on our tax regimes, particularly as they have applied to new developments and therefore are impacting directly on exploration, but also as they have applied to old oil production because that can affect the cash flow of the producers and explorers concerned. We made substantial modifications to those exercise regimes in the course of 1986 to encourage additional production when it became apparent that at the margin a lot of production was simply uneconomic for the producers. We have maintained those concessions in existence notwithstanding a significant improvement in oil prices since the latter part of last year. At the moment we are in the middle of yet another major systematic review of Government taxation policy as it affects the oil industry.

So the basic reality remains the market. Government policy matters very much at the margin. Government policy under this Government has been very sensitive indeed to these considerations and I wholly reject what Senator Sir John Carrick has said on this topic. Similarly, but more quickly, I again reject, as I have on numerous occasions in the past, the suggestion that the introduction of a cash bidding regime was itself some sort of policy error, given what has been the situation in the oil industry. It is a long argument but, put very shortly, I strongly assert that, as it has been applied, this policy has not constituted any kind of disincentive to exploration activity. The policy will be applied to the allocation of leases only in areas of high prospectivity where a great deal of competition can be expected. It is a necessary sorting mechanism, as we have argued on numerous occasions, to pick rationally between competitors in that kind of environment. That mechanism has been applied only once to date-for Timor Sea acreage releases-and in that context it worked very well as a mechanism for allocating the acreage in question to the most appropriate and best equipped explorer.

Senator Sanders —We agree fully with that.

Senator GARETH EVANS —Senator Sanders did agree with that and I appreciated the Australian Democrats support on that. So far as other possible Government policy in this area is concerned, I was fascinated that in the course of a speech as wide ranging as that of Senator Sir John Carrick I noticed no reference to resource rent taxation, which has been a familiar bogyman in Liberal and National Party rhetoric on the oil industry for the last few years. The reason this particular bogyman has stolen away quietly into the night not to make his appearance on this occasion is, of course, that it is now acknowledged by the oil industry, sotto voce certainly, that RRT can be a very useful tax regime in encouraging new exploration and development in the sort of environment of, for example, the Broken Hill Proprietary Co. Ltd Jabiru development in the north-west where, if there had not been a RRT regime in place, if there had been a straight production-based tax regime, that project would not have got off the ground. For all sorts of reasons which I do not stop to debate now, this is another example of a quite sensitive Government tax policy which is highly pertinently directed towards achieving the exploration and development objectives that we as a nation and members of parliament, should all share.

I turn to the subject of conservation. The first gun that was fired on this subject by Senator Sir John Carrick-I rather assume that Senator Sanders gave at least tacit support on this by his general endorsement of what Senator Sir John Carrick said-was on the subject of oil exports. I know that it is somewhat irreverent to contemplate the kind of potty training that Senator Sir John Carrick and Senator Sanders might have had in their early childhood, but I can construe the sort of obsessive rejection of exports from Bass Strait articulated by Senator Sir John Carrick only as a familiar example of that freudian phenomenon of anal retentiveness which is allegedly attributable to early childhood experiences. Many people do feel more comfortable about keeping oil in the ground than about selling it at an apparently opportune time in the international market, just as a lot of people during the resource boom arguments of the 1960s and 1970s before Rex Connor was a Minister felt much more comfortable about keeping iron ore and a lot of other minerals in the ground, waiting for some alleged millenium to turn up when it would become justifiable to stop retaining the mineral or the commodity in question and to get it out on the market.

Senator Sanders —If we were Saudi Arabia it might be different but we are not Saudi Arabia; we are Australia and we do not have all that much oil.

Senator GARETH EVANS —The reality is that the amount of exports that has occurred since the Government policy change represents only six to seven months worth of actual production from Bass Strait. If exports continue at their present rate in the environment we will confront over the next few years the exports will make at best only the most marginal possible difference to our supply security in either the short run or the long run. It is not a matter of engaging in exports as a quick fix to the balance of payment problems, although it is of course the case that oil exports have made a significant contribution to our balance of trade in recent years. Very largely, it is a recognition, which is conspicuously lacking in this allegedly free enterprise loving Opposition, of the commercial realities of the market place; that we have to give the oil companies the incentive that is constituted by an ability to get additional production out of the fields and to get some of that production into exports in order to give them the kind of cash flow and profit return they need in turn to embark upon more development and exploration activity.

There is a commercial market reality engine driving the decision to allow exports as well as a concern about shorter term revenue and balance of trade gains. For Senator Sir John Carrick to describe the Government's policy in this respect as outrageous is just another fairly grotesque example of his choking and being strangled by his own rhetoric in complete ignorance of the policy position of the oil companies concerned, all of which have continued to urge the Government to allow this policy to continue for reasons which are totally rational and compelling on our analysis of the situation.

Moving away from exports to other aspects of the conservation question, I fully acknowledge, as one must, that in Australia as well as elsewhere there has been in the community as a whole and the commercial community in particular a serious falling away of interest in and enthusiasm for conservation effort. I remain as frustrated as I think Senator Sir John Carrick was when he was Minister about the Taj Mahal phenomenon in Canberra, as he described it, of lights in buildings being left on all night because of switch systems which were installed in the heady days of low oil prices, in which there is only one switch for a floor or for a building and no one bothers to turn the power off. These essentially small things are indicative of a larger problem, a problem of perception and of will. Since oil prices have gone down again such enthusiasm for conservation as there was in the latter part of the 1970s has fallen away. It is not the case that my Department, which is responsible for this matter at a national level, is at all apathetic about this situation. We have been putting considerable resources, both directly and through the National Energy Research, Development and Demonstration Council program, to get sensible and coherent conservation strategies adopted and the technology transfer that goes with it accepted. In particular, we have endeavoured to get an attitude of enthusiastic willingness to tackle this problem going on the part of both the public and the private sectors. It is a long haul. I do not in any way understate the necessity of keeping our efforts up in this respect.

I come finally to the category of alternative fuels and alternative ways of meeting the present liquid fuel supply problem. The first point I want to make concerns liquefied petroleum gas as an alternative to petroleum or as an alternative to ordinary gasoline for vehicles.

Senator Sanders —Petrol. Gasoline is American.

Senator GARETH EVANS —Nobody has ever got the terminology quite right. Oil is a subset of petroleum. Automotive motor spirit, AMS, is the approved term but nobody says that in the real world. Back in 1980-81 when the LPG program was started, as Senator Sir John Carrick said, the aim was to convert up to 3,000 Commonwealth vehicles to LPG and simultaneously to encourage conversion to occur in the private sector. Price factors and the incentive constituted by lower LPG prices which we have maintained in government have meant that in the private sector there has been a steady program of conversion to LPG by fleet operators, and taxis in particular. I think that program has gone as well over that whole period as anyone could reasonably have expected. But it is perfectly true that the program has petered out at a Commonwealth Government level. There are 200 or 300 vehicles converted, mostly in Australia Post, but there has not been much activity since those conversions. This is simply because of the economics of the situation in that Commonwealth departments do not have to pay excise duty to the Commonwealth, unlike private sector users. The combination of no excise and the sorts of milages that are involved in the pay back period for the investments concerned has meant that the economics have simply not been there to justify conversion.

That realisation came upon people-that is, everyone except Senator Sir John Carrick-back in April 1982, a year after the program was introduced, when Senator Sir John Carrick was still the Minister. The program has not petered out under the life of the present Government, but in the last year of operation of the previous Government. It petered out for the reasons I have indicated. The only way we could have revitalised it was through major injection of government funds, which was not something that was seen then as making a hell of a lot of sense.

In the context of the now rapidly deteriorating domestic automotive motor spirit situation, with the deterioration of Bass Strait, we may have to look again at the options and incentives that may be needed to encourage additional LPG conversion. That is the reason, and it is a complete misstatement to approach it in the way that Senator Carrick did.

I acknowledge what Senator Sanders said about the desirability, in principle at least, of alternative fuel sources-wind, solar, biomass, and so on-as power sources. None of that will prove to be much help in the transport fuel area which essentially this debate has been about.

Senator Sanders —Ultimately it is going to be the only fuel.

Senator GARETH EVANS —Ultimately could be some considerable distance away, Senator. I think that the honourable senator would have to acknowledge that a lot of research effort has been devoted to that. A lot of government money has been poured into research in the wind area-I indicated in answer to a question the other day just what the sums were-similarly, in biomass and elsewhere. Insofar as hydro is concerned, despite what I think the honourable senator said in passing, there has been government support through the NERDDC grants for Tamar Designs Pty Ltd to help it develop the mini-hydro system. There has been a willingness to contribute in all those ways to the development of alternative sources. However, every hard-headed analysis that has been done in the past and currently suggests that the economics of those alternative systems in an Australian context in particular are simply not such as to sensibly justify resources being devoted to them at this stage. We retain some optimism about the future, but that is premature at this stage. We have to acknowledge that.

The gas to gasoline research that is going on attracted a lot of lip curling indignation and cynicism from Senator Sir John Carrick about Mr Wran and the Commmonwealth Scientific and Industrial Research Organisation and alleged beating up of a non-event. It is true that conversion of gas to gasoline via methanol has been with us for some time; as witness the Maui exercise in New Zealand. The economics of the gas field there are quite lousy at the moment, and certainly it is not transferable technology, in the present price environment, anywhere else, What is going on at CSIRO-with assistance from NERDDC and co-operation from some of the other Australian oil companies-is very exciting indeed; that is, direct conversion of gas to gasoline without going through the familiar tried and not successful, economically, methanol route. Some very exciting research is happening at CSIRO. I have seen it and I have talked to the people. I share Mr Wran's enthusiasm for it. I note the proper caution that the scientists are exercising at this stage, but the reality is that if Australia can get its nose ahead in direct gas to gasoline technology, and it proves up in the way that early experimental results are suggesting, we have before our eyes, potentially, the most dramatic and significant economic discovery of our time, and one that will change around this whole rather gloomy picture that we have been talking about in terms of our liquid fuel problems for the future.

As we all know, we do have massive gas resources; we do not have massive crude oil and petroleum resources in that sense. The job for the future so far as alternative transport fuels are concerned is to see what we can do with gas. That is happening as a real consciousness of the priority that needs to be given to this research effort. For Senator Sir John Carrick to dismiss that as some sort of political grandstanding by Mr Wran and as something that is terribly old hat indicates graphically, more than everything else he said in his very long, very generalised and very raving speech, just how out of touch he is with the present energy policy needs of this country.

Question resolved in the affirmative.

Bill read a second time.