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Wednesday, 24 August 1994
Page: 204


Senator MARGETTS (1.00 p.m.) —Today I will be talking about the issue of oil supply. The whole issue of energy conservation has been on government and international agendas for many years now. It has certainly been in an active form since the oil price shock of 1974 and the energy crisis when OPEC raised prices. Suddenly the industrial world had to come to terms with just how dependent we are on energy, and specifically on oil. Today we are more dependent than ever, and with far fewer options for new supply since the minor oilfields discovered after OPEC, including Bass Strait, have nearly all gone into decline. For many reasons, oil is priced at levels similar to those before OPEC was formed.

  Petroleum product use accounts for roughly 30 per cent of world energy use. In Australia it accounts for 37 per cent of total energy use and 49 per cent of energy end use. We are petroleum dependent. Our transport—land, sea and air—is virtually completely dependent on petroleum and uses over 30 per cent of end use energy. Our agriculture is highly mechanised and virtually totally dependent on petroleum products. Mining is almost entirely petroleum dependent. One reason that so much energy is used in transport is that production is heavily centralised and almost all our goods are transported over long distances. Our imports and exports are dependent, in terms of cost and competitiveness, on both energy content and transport costs. Petroleum also forms an important input in the production of fertilisers and plastics.

  Brian Fleay, an engineer and member of the Greens (WA) economic policy working group, and an associate of the Institute for Science and Technology Policy at Murdoch University, has just published a paper, `Liquid Petroleum is Peaking', which is of paramount concern to Australian society. In it he outlines the fact that the major issue of sustainability of oil supply is not whether it will run out, but whether supply factors will make it far more expensive. It is ultimately not the absolute supply of oil but the cost of oil which will determine our use, the cost of many of our products and the shape of global production.

  Oil is cheap at the moment. In fact, it is at one of the cheapest points in real terms since the oil crisis of 1973. This is mainly because of strong demand for currency in the Middle East in connection with the Gulf War, and the continued seller push on oil from the ex-Comecon nations. But many of the oilfields found since the energy crisis, such as the North Sea and Indonesian fields, are now running out. In addition, the low price of oil has meant that many oilfields have not had the investment which would allow the technical extension of their lifespan and production capabilities. This is likely to result in a situation where demand exceeds supply in the near future, and where any attempt to increase supply is likely to have a relatively high cost. As a consequence, the cost of oil itself is virtually certain to rise substantially over the next decade, due to market forces and the need for higher levels of investment in capital intensive technologies to extend the life of existing fields and develop more difficult fields such as those offshore.

  Brian Fleay's paper outlines the situation and notes the technical, economic and political factors that will lead to an inevitable, substantial and sustained rise in average oil prices. Such a situation would be devastating to the Australian economy unless we act with urgency to change the structural use of oil. While there are alternatives to oil, such alternatives for uses are few and are technologically undeveloped. The liquefaction of coal is not near being an economically viable alternative. The frequently promoted use of ethanol runs into major problems in trying to extend it to actual replacement of petroleum. It is great as an additive to substitute for lead, or even as an extender of petroleum, but the more ethanol that is needed, the more plant biomass is required. Attempts at large scale production run into problems with the use of arable land—the use of mechanised farming and the long transport chains—and ultimately leads to soil depletion as nutrients leave the farm with plant resources.

  Basically, if people are going to grow fuel they have all the problems that exist in relation to agriculture. They would be less able to grow other crops. The long transport lines and dispersal of goods, as in agriculture and forestry, mean nutrients are transferred from the area of growing to the area of consumption, and are generally not returned. Australia continues to structure its cities, its transport systems and its economy on the basis of cheap transport, often privately owned. We are already experiencing problems with the high cost of infrastructure per capita due to the consequent urban sprawl. This is a micro-economic issue which consistently drives up rates and taxes, while making many alternatives such as recycling or public transport difficult. The high cost of roads and parking facilities to cope with private transport is another issue. This includes not only the cost of construction but the cost of maintenance year after year, and replacement and upgrading within 20 years.

  Brian Fleay's grim report outlines the problem in physical and engineering terms. It notes the economic consequences, but it does not attempt to present any solutions or link the situation strongly to patterns of use. Patterns of use are the other side of the equation. Australia is an extremely high user of oil per capita and per dollar produced. It has done almost nothing to improve efficiency at a time when most developed nations have made major efforts in this regard. We are constantly among the highest per capita producers of greenhouse emissions in the world; but it was economics, not greenhouse, that motivated other nations to take energy efficiency on board.

  The first oil shock, and subsequent ones, stimulated a move to increase energy efficiency and reduce oil dependency that has carried through until today. Concerns on price and balance of trade have been extended to concerns on pollution from various energy sources, especially cars. Cars have become far more efficient, but urban sprawl and industry have meant that they now go further than ever on a daily basis and need more roads. Massive centralisation of industry and agriculture has meant that agriculture is more dependent than ever on fuel. We have had the ridiculous situation where vegies grown on the Ord Basin are shipped by road to Perth and individually wrapped in plastic on styrofoam trays—all of which are petroleum products—and then sent back on trucks to the stores in Broome and Derby. We have a situation where bricks are carted from Perth and Geraldton to Darwin, because the Northern Territory brickworks was closed down.

  With lead in petrol, we have now seen how long it takes to make even simple changes to the structures in place. Nearly 10 years after leaded petrol engines were banned in new cars, over half of the car fleet still uses leaded petrol. This is a simple technological change. To change to an entirely different fuel, especially if this requires the development of an entirely different technology, will take much longer. There is lag time in any response. On the other hand, we have seen how quickly oil prices can change. They can double overnight.

  We have had 20 years grace to understand the problems and take some action. Other nations have used this time, but we have not. We have not substantially improved our consumption pattern. We have not changed our attitude to transport. We have not done anything to change the structure of our cities, even though that would improve many micro-economic parameters relating to cost and delivery of infrastructure services. We have not done anything to reduce the need for roads. We have not done anything to improve the efficiency of energy production or use. I will not address these at length, since much of that is related to non-petroleum fuels.

  We have done nothing. Other nations have worked on developing alternatives and changing the structures of energy use, although some of the impetus from this has slackened due to the artificially low current cost of oil. We have failed to do this. We are now talking about going to the climate change convention and calling for a special dispensation because we are such heavy users. In essence, we are going to say, `We didn't do anything, so we use a lot; so we should be allowed to keep using it or be compensated for our irresponsibility'.

  We have not done anything. We keep insisting that not enough is known and that it will cost too much. We might play these games in respect of climate change measures, but economics will get us in the end. The original push for energy efficiency was economic, and it will become economic again. If we are not ready to respond to the challenge, no-one is going to have any sympathy. The impact of a drastic rise in oil price will be crushing. We will be able to kiss any hope of economic recovery goodbye for a long time.

  To become ready requires advance work. There is a lag time of at least 10 to 15 years. It is probably already too late to position ourselves well for a drastic rise, but we can at least reduce the impact and the effect of this lag. To do this means taking energy efficiency seriously now. It means doing something to reduce the structural demand for oil, and doing it now. It means specifically finding ways of equitably reducing the use of private vehicles—ways that will enhance our quality of life.

  This is possible, but not if we ignore it. The longer we wait, the faster we will be forced to change later. The further we go the wrong way, the harder and more expensive the change will be. We can make a strong commitment now and use our current economic recovery and the time available to develop alternatives, to make an easier transition, and to find equitable and life enhancing ways to make the change. If we wait until we are forced to act by economic disaster, many of these options will simply not be open to us.

  The implications of the situation presented in Brian Fleay's report are serious considerations for Australia. The changes he outlines are liable to have major effects: a balance of trade outflow of several billion dollars per year, a real loss in competitive position on a number of areas in trade, perhaps even problems with food self-sufficiency. We are probably late already, but there is still some time to act if we are quick and resolute. I feel this report is of vital importance today, so I seek leave to table it at this time.

  Leave granted.