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Speech notes for launch of the 'downstream petroleum industry framework'



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Speech The Hon Ian Macfarlane MP Minister for Industry, Tourism and Resources

19/11/2002 LAUNCH OF THE DOWNSTREAM PETROLEUM INDUSTRY FRAMEWORK

Speech Notes for Launch of the Downstream Petroleum Industry Framework

19th November 02

Thank you.

The downstream petroleum sector is a key contributor to the national economy. After all - petroleum goods make up 52% of Australia's total final consumption of energy. So it’s very disturbing to read that last year the refiners and marketers made a loss of $506 million. Many independent petroleum retailers have also reported losses - in some cases - business closures. It’s not over-stating the situation to say the industry is facing a crisis. And we’ve reached the point where opportunities to restructure the industry must be grasped with both hands. The issues of reform are complex.

There’s import competition, changing of fuel standards, the need to consider alternative fuels and address regional pricing concerns and counter the risk of disruption to supply. Those are the issues at the heart of the Downstream Petroleum Industry Framework. It’s taken a lot of talking - and I thank all those from the industry who have contributed in such a positive and collaborative way. But out of all that talk we have a clear path forward for the refining and retail sectors of the industry. The Framework offers ways of improving public perception and investor confidence in our downstream petroleum industry - at a critical time.

Key Issues

The industry is the first to admit it will be strongly influenced by policies at all levels of government as it answers the challenge of restructuring. The refining industry has argued long and hard that the merger provisions of the Trade Practices Act actually deter rationalisation and investment. There are a number of methods the current Dawson Review could propose - to streamline the merger process. I firmly believe rationalisation of our refineries would increase industry profitability and efficiencies.

It would ensure the long-term viability of the refining sector. But that move has to be a decision “for the industry and by the industry.” The Government supports refinery mergers or joint ventures on a case by case basis - where public benefits can be demonstrated.

Marketing

Since the 1995 merger between Caltex and Ampol restructuring of the industry has been concentrated in petroleum product importation and distribution. Importers have assumed an increasingly important role in the marketplace. And that sector is critical to ensure an alternative source of supply for independent retailers. There is a role for smaller efficient independents in the retail petroleum market. They can gain an

advantage through site locations, opening other businesses such as a workshop, and building on long-standing relationships with customers.

Fuel Standards

Changes to Australian fuel standards and a move away from the standard generally met by the region’s refineries may lead to higher petrol prices. The threat that product can be imported and sold in the local market places a cap on domestic prices. That is why we look to competition from imports. My Department has been co-chairing an APEC study of liquid fuel supplies in the Asia-Pacific region.

This study is looking at the availability of competitively priced product for import to Australia that will meet differing fuel specifications. And the report is expected to by the end of this year. Higher fuel standards in more advanced engines in Australia can help domestic manufacture of internationally competitive vehicles. To make the most of these opportunities - we require a partnership between the automotive and refining industries. I encourage both parties to use the Transport Fuels Roundtable Forum to build this partnership.

Security/Alternative Fuels

Australia's almost total reliance on petroleum products for transport and petrochemicals means security of supply is essential to the economy. This requires a healthy domestic refining industry supplemented with imported product. Alternative fuel sources such as gas-to-liquids and shale oil projects have potential in the medium term. While in the long-term, new technologies such as fuel cells may improve our liquid fuel self-sufficiency.

Market Reform

The Framework I’m launching today recognises that reform is necessary to improve the competitive position of the downstream petroleum sector. Both the Sites Act and the Franchise Act are limited in their ability to influence industry re-structure. So I’m proposing to repeal these Acts and replace them with a code of practice. A National Oil Code which would guarantee greater protection for small business.

We also have to tackle the negative public perception of the downstream petroleum sector. I see the effort is being made in some areas to improve understanding of the industry and improve transparency of petrol pricing. Most of the refiners and marketers are moving towards a terminal gate price system. That degree of transparency and competition has to be encouraged at the wholesale level. We have to stamp out all predatory conduct in the retail petroleum market.

One of the best ways to do that is to ensure strong competition in a wider marketplace. Independent retailers have to be ready to step up to the challenge in a reformed industry. This Framework is a point of reference from which the reforms will be measured and industry performance assessed. It’s a stepping stone in a path that we must tread - together.

Conclusion

In conclusion - the Downstream Petroleum Industry Framework presents a comprehensive approach to transport fuels policy. It has a clear vision for the downstream petroleum industries. Which, I hope, has us all looking in the same direction - towards reform, transparency and better industry efficiencies. It is my pleasure to now present the Industry Framework.