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Monday, 7 November 2016
Page: 2969

Mr HAMMOND (Perth) (17:45): Whilst the opposition supports the Offshore Petroleum and Greenhouse Gas Storage Amendment (Petroleum Pools and Other Measures) Bill 2016, I take this opportunity to address the House in relation to a number of matters that are relevant to this bill and also to the current state of affairs with energy and resources, particularly in the great state of Western Australia. As a proud Western Australian, this bill, and the subject matter of this bill, is certainly something very close to my heart.

By way of background, as those opposite will surely be aware, whilst this bill does address a number of relatively technical amendments the subject matter of these amendments to the Offshore Petroleum and Greenhouse Gas Storage Act is relatively straightforward. Speaking broadly, the legislation arises out of the proposed development of the Browse Basin. Again, those opposite will need no reminder that we have been discussing the potential of the Browse Basin for decades, and this legislation represents a very important piece of the puzzle in relation to the development of the Browse Basin project. Here is a little more context for those who might not be aware of it: the Browse Basin is located in ocean some 400 kilometres north of Broome in Western Australia's north west. It has enormous gas reserves, estimated at some 16 trillion cubic feet of dry gas as well as 466 million barrels of condensate. The potential for developing this resource will have a significant and positive impact on the Western Australian and the Australian economies.

By way of background, oil and gas were discovered in the Browse Basin as far back as the 1970s. However, there has not been a lot of development, due to its relative isolation from our shores and also the depth of water some 425 kilometres off the Western Australian coast. In recent years, we have seen the development of resources in the Browse Basin begin. The Ichthys field is being developed by INPEX as we speak, piping gas and condensate over 800 kilometres from the basin to Darwin for processing. The LNG processing facility in Darwin is currently under construction, and the first train is expected to be operational in or about September 2017. The Woodside-led Browse Joint Venture has also looked at the development of three other fields in the Browse Basin, including the subject matter of this legislation, the Torosa field.

The Browse joint venture, whose participants include Woodside, BP, MIMI, PetroChina and Shell, is eager to progress its planning for developing the Browse Basin—but there is a problem. Browse straddles an area that encompasses both the Western Australian and the Australian Commonwealth royalty jurisdictions. This project has been a source of some tension between the Western Australian government, the Commonwealth government and the joint venture over past years. Maritime borders were redefined in 2014 when Geoscience Australia discovered several rocky outcrops above the field. It was concluded that these lonely outcrops, sitting miles out to sea, should be considered to be islands and therefore belonged to Western Australia as opposed to the Commonwealth. This meant that, due to a very modest little outcrop almost in the middle of nowhere in the ocean far off the north west of Western Australia, Western Australia's share of the Browse project rose from, approximately, a very modest five per cent to 65.4 per cent. The corollary affect was that the Commonwealth government's share dropped down to 34.6 per cent of the royalties.

The purpose of the legislation before this place today is to provide protection and certainty to all parties in the event that the area contains multiple petroleum pools rather than a single pool. The Offshore Petroleum and Greenhouse Gas Storage Act 2006, as amended by successive bills over time, makes provisions to provide certainty to extraction companies, so that they can then make informed investments knowing full well what the taxation and royalty arrangements will be. Unfortunately, as the act currently stands it fails to make provisions for circumstances in which additional pools of hydrocarbon deposits are discovered in the extraction process.

It is relevant at this point in time to segue off to discuss what a pool actually is. If you think it is something that mirrors a very large version of a backyard swimming pool you would be wrong. It is not a pool in the traditional sense of the word that many people might think of—that is, a cavity that is simply filled with liquid. Rather, it is more correct to describe one of these hydrocarbon pools as a reservoir of deposits, usually involving deposits of hydrocarbons stored in the pores of undersea rock, that then, in themselves, form a closed system.

By way of analogy, think of the gas piping in a caravan connected to a gas bottle. If one turns on the stove, it affects the pressure of the gas going to the hot water system and the gas heater. It is the same sort of thing: if you tap a subsea hydrocarbon pool, it will affect the gas pressure and the extraction processes elsewhere in that same pool. Currently, section 54 of the Offshore Petroleum and Greenhouse Gas Storage Act contemplates that an apportionment agreement only relates to a single petroleum pool that straddles a Commonwealth-state jurisdictional boundary. If it subsequently becomes apparent that the area specified in the apportionment agreement contains multiple petroleum pools, as may be the case when fuller technical information is obtained when the source is developed and new information comes to light as the resource is being extracted, then the apportionment agreement would subsequently fall away, created uncertainty on behalf of all parties. If at the point of extraction an oil and gas company finds a separate petroleum pool, we need to make sure that the legislation makes provision for a swift and certain division of royalty rights between the Commonwealth and the state. As we see here, that is precisely the point of the amendments to this bill.

The bill also makes other amendments to the Offshore Petroleum and Greenhouse Gas Storage Act to allow the National Offshore Petroleum Safety and Environmental Management Authority to refund fees paid to it where necessary. Of relevance in relation to current developments, I note that in March of this year the Woodside joint venture decided to defer any further development of Browse. The reason cited at the time included low prices currently on the open markets and the high costs of gas extraction. However, the fact that we see a temporary halt to further development within the Browse Basin does not mean certainty in relation to this legislation is not important right now.

The reality is that for us to have confidence in both the markets and our ability to extract this precious resource, at a time when we know that we have significant supplies of oil and gas, particularly gas, that are without real competition across the globe, as well as future developments in the way we both harness and use energy, we fully expect and are confident that at some stage in the future the Browse Basin will be further developed. That is why this amendment applies equally both to existing agreements but also, most importantly, to future agreements.

This bill is all about providing certainty of investment. Investors in the development of offshore oil and gas facilities need a number of things in order to have the confidence to proceed with their investment. What they need is regulatory certainty about their tax and royalty liabilities before they are able to properly invest and invest with any real confidence in extraction of this precious resource. Any business looking to invest in a capital-intensive project such as these, which involve such significant and enormous logistics dealing with a reserve that is over 400 kilometres offshore and at significant depths, needs certainty over a forward projection of more than 40 years. This bill will provide that certainty. As we know, when we talk about resources and energy, we talk about certainty in relation to investment into the commodities trade in Australia. Certainty will provide government revenue and jobs.

In relation to certainty, resources, government revenue and jobs, we contrast the substance and effect of this bill with what is also currently happening at the moment in my home state of Western Australia in relation to what the Western Australia Nationals leader, Mr Brendon Grylls, is doing at the moment in undermining investment and certainty in resources sector generally and, more specifically, in relation to iron ore. At this stage it is appropriate, when we focus on certainty of investment in the mining and resources sector, that we spend a few minutes in relation to this topic at this juncture. As I am sure you would be aware, what is being proposed by Mr Grylls in Western Australia is a $5-a-tonne iron ore mining tax that would apply at first instance. It is important to footnote the issue of it applying at first instance because it does have significant ramifications throughout the sector insofar as the unilateral variation of state agreements goes. This proposed tax would apply at first instance to BHP and Rio Tinto. The effect of imposing a $5-a-tonne iron ore mining tax at this stage would be that the change in the royalty rate under the state agreement would shift from a mutually negotiated rate of 25c per tonne to $5 per tonne. The immediate impact of that is an anticipation that it would generate revenue of about $3 billion a year. This is where things start to get very, very interesting in relation to how we see the conversation about the iron ore mining tax proposed by Mr Grylls bearing out in relation to political conversations that are happening all over the world that bear a very, very similar theme.

And that theme is: by isolating some low-hanging fruit in an area of discussion where there is a reasonable expectation that the community might think, 'Yes, we should probably be entitled to a bit more of that' and put forward an overly simplistic and very short-term proposal that has an immediate impact upon the ability of those organisations to operate in the current circumstance and then proclaiming that this is really simply to right a wrong and that the populace is demanding that—'There is nothing further to see' and 'This is the solution to all of our current budgetary ills.' We see that happen in the context of Europe and Brexit; we see that happen at the moment in the US presidential elections. We see Donald Trump in the context of his dangerous and erratic rhetoric as he tries to address an immigration problem by building an enormous wall that will keep the Mexicans out. We have a similar proposal to impose a significant mining tax in order to get more money into the state coffers. The question then is: how does this actually work? Just as Mr Trump proposes, 'We will build this magical wall but we will get to Mexicans to pay for it,' we have: 'We'll whack on this enormous mining tax in order to address our hideous failures to manage state revenues and we will get BHP and Rio to pay for it.'

It all sounds pretty good, I hear others say, but, as usual, if it is that simple, it can't be true. And guess what? It isn't true. Let me tell you why—I am glad you asked, as they say in the classics. Firstly, the problem in relation to this tax is that it bears absolutely no relation back point to this notion of profitability. Royalty taxes, and particularly significant increases such as the one Mr Grylls is proposing, are effectively a tax on production; they are not a tax on profits, they are a tax on production. What that means is that it is effectively a tax on jobs. And the reason for that is that it depends upon the buoyancy of the price per tonne of iron ore, which may well be something, as we have previously seen, that is entirely outside the control of a state like or a country like Western Australia at times. The new royalty being proposed by Mr Grylls could mean the difference between new projects not going ahead when they could actually be developed quite profitably in another circumstance where we have a taxation trigger that relates to profits and not to production. That is not what is being proposed here and, as a result, there is a real risk that what is being proposed in Western Australia will destroy job creation and also economic activity. For a state like ours, where unemployment is running at well above the national average, it is the very last thing that Western Australia needs.

Secondly, the arbitrary nature of the tax really should provide absolutely no comfort at all to other miners or other industries, who feel that, if they just keep quiet right now, they might e dodge a bullet. Why is that? Should this proposal gain any meaningful traction—and I will come back to that—what is there reasonably to stop a protagonist of a similar tax aiming their sights at other state agreements or other commodities, for that matter? Given that state agreements cover other commodities like alumina or salt and even forestry products, what is there to stop an arbitrary tax being aimed at those vital industries? If we extend that by analogy and if we follow through the logic of Mr Grylls, what is there to stop an irresponsible government placing an arbitrary tax upon every tonnage of grain? Why would you stop at commodities? If you followed through the flawed logic of this proposal to its natural conclusion, there is no real telling of where it might stop. One can only imagine the catastrophic potential that might have in relation to the two fundamentals that underpin both the resources sector and the sector more generally—job creation and certainty in Western Australia.

Thirdly, if Mr Grylls is searching for ways in which to increase revenue streams into Western Australia, sadly he is looking in the wrong direction. Given what we have, which is the inevitable effect of the GST distribution as dictated by a Commonwealth Grants Commission, the proceeds of any proposed tax on iron ore royalties would be spread all over the country and not into the coffers of the West Australian Treasury. Quite simply, it would not do what Mr Grylls proposes this tax would actually achieve—that is, going some way to rectifying a diabolical set of accounts that have been created by the Liberal-National government in the state of Western Australia over the course of the last eight years.

Fourthly, if that was not enough and if it was not just the case that this was a proposal that has been opposed by industry and all sectors of the industry, what we are seeing more than ever before is that the community is crying out for politicians on all sides of the political divide to try and put party politics or partisanship to one side, if at all possible, and take a step back to look at policy proposals on their merits. It is certainly something that resonates very strongly with me as I go about the community, every day that I am on the ground and not in this place. The community expects us to get together whenever possible and agree on policy proponents that are for the benefit of the state and of the country. If we actually undertake that analysis in this case, Mr Deputy Speaker Kelly, what do we have? Let us analyse that on every facet and at every level of government, both state and federal.

In Western Australia, Colin Barnett, the current state Premier—at least, up until 7 March, although some proponents say perhaps not that long—is vigorously opposed to the proposal by Mr Grylls. And he is not a lone wolf in that on the conservative side of the political divide, neither at the state nor at the federal level. His federal colleague Senator Mathias Cormann, in the other place, has been equally strident in his opposition to Mr Grylls' proposal. The Prime Minister, addressing the Minerals Council of Australia dinner only weeks ago was critical of Mr Grylls' proposal in relation to the effect it would have on the certainty of the mining industry. Again at the WA state level, both the state Labor leader, Mark McGowan; and the shadow Treasurer, Ben Wyatt, and a host of others, have been strident in their criticism of Mr Grylls' proposal.

Mr McCormack: What's your alternative?

Mr HAMMOND: The alternative plan—as my friend opposite has asked—is to ensure the books of a state are run properly the first time around, without seeking to ameliorate them with a short-sighted, populist proposal which will not seek to achieve on any single level what Mr Grylls proposes it will achieve, and that is revenue into the Treasury in order to address what we have right now by way of a significant level of debt and deficit in the state of Western Australia.

But, even if all of that is not an accurate analysis, let us just look at the timing. Timing, as they say, is everything, and this is the worst possible time to impose anything that looks like a new tax on mining production. The Western Australian economy, led by the Liberal-National party, is basically on life support. You need look no further than the level of total private sector investment in Western Australia, which has collapsed by more than 30 per cent over the last two years; and state final demand, which is down by nine per cent over the same period.

When one looks at the vibrancy and the dynamism of the mining sector and the resources sector as a whole, one has to take a step back and look at what is it that as a great state and a great country we have going for us, particularly in relation to iron ore but also in relation to other resources and certainly oil and gas, the subject of this bill. What is it that sets us apart from all of our competitors all over the world?

We know that projects in other countries often attract a cheaper level of labour. We know that. If we think we are ever going to be able to compete on the level of labour costs, we are kidding ourselves. And we should be happy about that because is it due to a very proud Australian tradition that I and all of my colleagues on this side of the House will fight for with our very last breath, and that is a standard of occupational health and safety that is the envy of the developed world. That comes at a cost, as it should. So we are never going to be able to compete in that area. How about quality of product? Whilst I am very proud to say that our quality of product, particularly iron ore, is world class, the reality is that higher concentrations of product are available elsewhere. So again, whilst we are up there, it is true that other countries around the world can match us when it comes to the quality of what we produce. So where are we currently without peer? We are without peer around the globe when it comes to offering an investment environment in our resources and energy sector that is consistent, reliable and a safe choice.

If we kick this can a little bit further down the street, what do we have? We have a proposal that, if implemented, would actually extract the ace that we have always held up our sleeve, rip it up and replace it with nothing—that is, remove the certainty and stability of investment that this country and my home state of Western Australia offer and replace it with nothing at a time when we have a direct threat to jobs, when employment, particularly employment in the oil gas and mining sector, is already under siege.

It is time for us as elected representatives to take a step back and buck the modern-day trend that we see with Trumpism, with Brexit and with Mr Grylls' mining tax proposal, and simply stop peddling populist policies. Our community, very rightly, expects a lot more than that from us.

It will be very, very interesting to see what happens from here. It was only a few weeks ago, remember, that the Deputy Prime Minister was telling the New South Wales National Party to dump their plan to ban greyhound racing, and he got his way there. We cannot help but notice that, despite his initial tentative approval of Mr Grylls' proposal, the Deputy Prime Minister is now on the record as opposing the plan. It will be very interesting to see whether he goes two for two, and rolls the Western Australian Nationals as well. I, for one, at least in relation to this issue, hope he succeeds sooner rather than later, because what is important here is certainty. That is what this legislation currently before the House is about—providing certainty for the oil and gas industry, and it also needed for iron ore.

The extraction of Browse hydrocarbons is estimated to potentially provide a boost of over $2 million to Western Australia's royalties income. That is right—not 'million' but 'billion', with a 'b'. And that is just in royalties, before other economic benefits to Western Australia are taken into account. They include, of course, job creation and the local provision of construction goods and associated services.

This investment, if we land it, comes at a critical point for the Western Australian government's fiscal difficulties. I say difficulties, but the reality is that the state of the Western Australian budget is almost certainly a product of poor planning and stewardship of the economy by the current Western Australian Premier, Mr Colin Barnett. Mr Barnett refuses to take responsibility for this plight; he blames everybody else but himself. Last month we saw the Western Australian Treasurer Mr Nahan, crying poor again, arguing that his $480 million annual income from LNG royalties on the North West Shelf is not enough.

The geological skills and profound understanding of our planet required to discover hydrocarbons is significant in its own right. The feats of engineering required to build an offshore facility hundreds of nautical miles from home are immense. The jobs that these projects create are some of the best jobs in the world, but all of this expertise is only deployed because of certainty for the investors underpinning it. I commend the bill to the House.