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APPEA Taxation and Finance: speech.

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APPEA Taxation and Finance

GS14/2009 27 August 2009

The Vines Resort & Country Club Verdelho Drive, The Vines Perth

Good morning ladies and gentlemen and thank you for the opportunity to speak to you today.

I would like to begin by acknowledging the Nyungar people who are the traditional owners of the land on which we meet and pay my respects to their ancestors and elders.

I speak to you as somebody who has an affinity with your industry.

I have worked in it.

I understand enough of it to understand your opportunities and challenges.

I know many of you.

But I speak today in my role as Parliamentary Secretary for Western and Northern Australia representing my colleague, the Minister for Resources and Energy, Martin Ferguson.

I am well aware of your efforts to improve your engagement with communities, to provide economic and employment opportunities, and to improve the health and welfare of people in the regions in which you invest.

This speech was prepared by Martin's office, and I thank Neil Roberts for his work in writing these words.

Today, I will set out the Government's vision for a thriving and dynamic oil and gas industry, doing so with a focus on Martin's work since he became Minister in December 2007.

In short, the Government wants a sustainable expansion of the oil and gas industry.

Australia's prosperity, and our energy security, depends on it.

Diversity, investment and trade are the keys to our energy security.

That's why we are working diligently with our G20 partners to free up trade, not least in energy commodities.

We're also advocating global investment in infrastructure like LNG receiving terminals, thus expanding the market for Australian gas.


The global financial crisis has presented Australia and the oil and gas sector with challenges and opportunities.

On one hand, energy demand has temporarily decreased and access to finance has become harder.

On the other hand, fabrication costs have moderated and currency movements are facilitating investments with significant imported content.

As well the Australian Government's response to the GFC has included heavy investment in infrastructure and training.

When economic growth returns - and it inevitably will - recovery will not be held back by the capacity constraints that have marked previous downturns.

Energy Security

When it comes to energy security, we live in a world that's increasingly thirsty for energy.

For Australia, our energy supply will be affected by:

• Rapid oil field depletion - we have had no new, major Australian oil discovery in the past seven years • Cost inflation - exploration spending is not being matched by an increase in metres drilled • Under-investment - half of our offshore basins with petroleum potential remain under-explored • Global demand - within 20 years, energy demand will rise nearly 50 per cent.

At the same time, more of the world's oil is in fewer hands - meaning the few can increasingly dictate terms to the many.

Many of those fewer hands are governments - state-owned oil companies without the same commercial drivers of the international oil companies.

To compete in this world, we need more sources of energy, more trade routes and more suppliers. And, we need deep and strong international, diplomatic and political relationships.

Like tax and finance, no discussion involving investment and energy can progress without addressing climate change.

Gas is a vital transition fuel in this regard and climate change policies will lead to it having a greater role in the energy mix domestically and globally over the coming decades.

As we have to date, we will continue to engage the industry on climate change policies and we remain committed to a balanced outcome.

LNG development

Developing our gas resources delivers economic stimulus in the short term, and helps Australia transition to a more sustainable energy future.

LNG is a global fuel of choice.

Its technical, economic and environmental advantages are proven.

Global demand for LNG is forecast to grow by 7 per cent a year.

And with 165 trillion cubic feet of gas resource off north-western Australia, we are well-positioned to meet this growing demand.

Further, we come highly recommended in the global market as a safe, competitive and reliable supplier.

That's why India and China recently chose Australia as an LNG source.

Huge export orders beckon.

So do grateful job-seekers and equally grateful regional communities.

I look forward to significant progress on several LNG developments.

I'm thinking in particular of:

• An expansion of the A$12 billion Pluto project • The proposed Gorgon and Wheatstone projects, potentially worth tens of billions more • The A$20 billion Ichthys project in Darwin • The proposed Kimberley Precinct which will open up the Browse Basin province • The coal seam methane-based LNG projects at Gladstone in Queensland

These key projects present challenges for all levels of government in providing economic and social infrastructure.

The Kimberley precinct, for example, has enormous potential to influence the well-being of Indigenous communities throughout the whole Kimberley region.

This will build on the National Indigenous Reform Building Blocks which form part of our initiative for 'Closing the Gap on Indigenous Disadvantage'.

We have committed more than $340 million towards this initiative in the West Kimberley, targeting areas such as health, housing, education and Indigenous employment.

Harnessing these opportunities to support Indigenous Australians is something that Governments and industry can always do better.

We must continue to work on it.


As you all know, yesterday Environment Minister Peter Garrett gave conditional environmental approval for the expansion of the Gorgon project on Barrow Island.

His approval of the expansion followed assessment and approval by the Western Australian Government and follows the former environment minister's original approval in 2007.

A proposal of this scale clearly needs a comprehensive and robust environmental assessment and protection program.

I am confident that Peter Garrett has given the Gorgon project thorough and rigorous scrutiny.

The Rudd Government is committed to environmentally sustainable economic development and our track record in making these sorts of decisions is robust.

Regulation and safety

I now turn to regulation and safety.

The recent report of the Productivity Commission on regulation of the oil and gas sector concluded that current regulatory requirements are overly complex, collectively imposing significant unnecessary burdens.

A key recommendation was the establishment of a national offshore petroleum regulator. Other proposals aim to streamline existing arrangements through greater use of statutory timelines and improved reporting of performance to improve transparency and accountability.

The Government's nation building commitment invests in roads, rail and ports - positioning Australia to take maximum advantage of the global economic recovery.


An internationally competitive taxation regime is vital for the Government's vision for the sustainable expansion of the oil and gas industry.

Australia is far from the only investment option for companies and we must compete internationally for investment in our resources sector.

We understand the importance of fostering exploration, and the role that taxation plays in this equation.

Let me also make this clear.

The Government remains committed to a flow-through shares scheme in the life of this parliament.

It's currently being considered through the Henry Tax Review.

The Henry Review will also consider alternatives to the existing Designated Frontier Areas exploration incentive, which, incidentally, the Government has extended by a further year.

But we also have to develop our resources when we find them.

Oil and gas production and processing is highly capital intensive and construction costs continue to rise

To address this issue, Ken Henry's review of the taxation system will include an assessment of the barriers to investment in large-scale downstream gas processing projects in Australia.

He will look at the hurdles facing remote gas developers, and he will consider the policy framework for new sunrise industry investments in Australia's gas sector, including new LNG and gas-to-liquids.

The Henry Review will look at broader resource taxation issues, including the different royalty regimes.

Reform will be a challenge, but it's one we cannot shy away from.

The Henry Review will consider a resource-charging regime to improve the risk-reward balance for resource developments, remove inefficiencies across jurisdictions, and provide competitive neutrality between energy commodities.

We are determined to deliver an internationally competitive, streamlined taxation framework for the enduring benefit of this industry and for the prosperity of all Australians.

Climate Change

Given the size of the upstream petroleum sector, with some individual projects requiring investment of tens of billions of dollars, the report found that reducing unnecessary regulation could provide gains to the community of billions of dollars each year.

This unnecessary regulation principally causes delays which increase project costs, reduce flexibility in responding to market conditions, impedes project financing, and defers production and revenues.

The Government is consulting the states and territories and industry about the Productivity Commission's recommendations.

I should say, however, that I know that Minister Ferguson is attracted to the idea of a single offshore petroleum regulator.

The oil leak from the Montara oil field demonstrates the risks associated with the offshore oil and gas industry and why safety and environmental management must be central to all that it does.

Right now, our top priorities are to clean-up the spill, minimise environmental impact, and shut in the well as safely and as quickly as possible.

West Atlas update

My latest information from this incident is that the dispersant is working well.

The use of dispersants is consistent with international best practise, and the Australian Maritime Safety Authority (AMSA) has been in consultation with experts in the United Kingdom who have endorsed this response to the incident.

AMSA is working in close consultation with environmental specialists and will continue to monitor this operation.

The company is cooperating with AMSA.

While the Australian industry is among the safest in the world, this incident will be properly investigated.

We will learn from it.

And, if the regulatory environment needs to be strengthened, we will act decisively to do that.


Ladies and gentlemen, announcements of the past few weeks about LNG contracts and potential projects give an idea of the exciting time ahead for Australia's oil and gas industry.

The Rudd Government is determined to ensure that Australia maximises benefits from its petroleum endowment through applying best practise to environmental and safety management.

We have a great story to tell, one of resilience and stability based on sophisticated markets, a sound regulatory framework and a highly-motivated, highly-skilled, outward-looking workforce.

Thank you.