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Tuesday, 12 November 1985
Page: 1996


Senator DURACK(8.02) —This is the second time this year that we have been asked to consider the Petroleum (Submerged Lands) (Cash Bidding) Amendment Bill 1985. The first time was when it was introduced by the Government in the autumn sittings and rejected by the Senate on the combined vote of the coalition, all of the then Australian Democrats and Senator Harradine. Despite this and widespread opposition by industry and the States-I emphasise `the States'-Senator Evans has reintroduced exactly the same Bill. He will not accept the practical arguments against his proposal. He has demonstrated a lack of commercial awareness and indicated little, if any, concern for the parlous position faced by the oil industry and Australia. Indeed, Senator Evans has maintained an unrealistic and theoretical stance on this issue and has used every devious method available, including threats and bribes, to achieve his revenue raising objectives. Clearly the end justifies the means.

Industry has conducted satisfactory discussions, at least with the Department of Resources and Energy, over a modified work program system but Senator Evans still will not accept that this is workable for his so-called highly prospective areas. He will not even give it a trial run. Senator Evans continues to pursue his revenue raising objectives despite the reduction in Australia's oil self-sufficiency, despite the reduction in off-shore oil exploration and despite the increasingly unfavourable chances of finding major oil reserves in Australia. He continues to increase the cost and lower the return for oil exploration and production in Australia.

Australia can ill afford a diversion of high cost risk capital from exploration and production to fund government revenue. It has become clear in the Budget that the prime object of the whole exercise, as far as the Government is concerned, is revenue raising. Honourable senators will remember that at the end of the previous debate on this issue Senator Evans indicated that the Government had not anticipated recovering something like $50m in revenue from cash bonus bidding. The Budget-surprise, surprise-included an estimated $50m, a very rubbery figure indeed, to be recovered in this financial year from some alternative to cash bonus bidding. It is clear that cash bonus bidding would have a significant adverse impact on the future of oil exploration and production on which government revenue depends so much. This short-sighted approach by the Government highlights its inability to recognise the wider implications of government policy.

It was, to us, inconceivable that the Democrats, who in previous debates this year under the leadership of former Senator Jack Evans had stuck firmly to their position, could make the same mistake as Senator Gareth Evans. Why has this Bill been suddenly reintroduced now-it is a surprise-at a time when the Government's program indicated that it would proceed with an alternative scheme of raising money, such as signature bonuses or retention premiums?


Senator Sanders —Would you support signature bonuses?


Senator DURACK —It sounds as though I do not need to speculate, judging from Senator Sanders's interjection. Because we have not heard from the Democrats at this stage, nor have we been able to obtain any sense from them as to what they want to do on this matter, I can only speculate that if Press articles are correct they are about to welsh on their earlier commitments to a responsible attitude to oil exploration in this country, even though they will be totally divided amongst themselves about how that welshing will take place. No doubt Senator Gareth Evans thinks that he and the Government will be some unworthy beneficiaries of this apostasy on the part of the Democrats.

There is no reason why the coalition or the Democrats should change their positions on this matter, positions which were clearly thought out and fully debated only a few months ago. The only possible new factor is the arrival in the Senate of Senator Sanders and perhaps the return of Senator Siddons. Whether he has any significant contribution to make on this matter has yet to be seen. I will quote what was said by Senator Mason, who is still with us and will no doubt be called upon to vote in this debate. Earlier this year, Senator Mason stated:

In relation to cash bonus bidding, the government showed a remarkable predilection for killing the goose that laid the golden egg.

What a perceptive statement that was! I hope that Senator Mason will stay with it tonight. As I have said, former Senator Jack Evans is no longer a member of this place but I will quote what he said in an earlier debate because he led the debate for the Democrats and as far as I can see he managed to keep them together on this issue earlier this year. He stated:


Senator Sanders —Look at what happened to him.


Senator DURACK —Look at what might happen to the honourable senator. Senator Jack Evans stated:

In fact, if we were to proceed with this legislation, the very thing that I am sure this government fears most of all, as did its predecessor-the reduction of oil exploration in this country-may come about because we are looking at making the high risk area and more expensive area the first of the experimental cash bonus bidding system areas.

The arguments against cash bonus bidding have been fully debated in the Senate and they remain as valid this evening as they were only a few months ago. Without going into any detail I will reiterate some of the major points. Cash bonus bidding is supported by some theorists on the basis that market forces should be allowed to determine the value of rights to explore. This assumes, however, as is the case in some other countries such as the United States of America-perhaps that is where Senator Sanders has got his experience in these matters-that there is a great deal of technical knowledge about exploration areas and that informed and rational judgments can be made about the respective values of specific acreage. Despite what may be the case in the United States, this is not the case in Australia, particularly in off-shore areas where geology is complex and exploration is very difficult and costly. The Jabiru experience highlights the uncertainty, risk and cost of oil exploration in off-shore areas in Australia. I think this is clearly demonstrated by that experience. Where is the perceived economic rent in this situation? The United States experience again has little to offer us in this case. Cash bonus bidding is just an additional tax on oil exploration, whether or not it is successful.

Senator Evans is fond of stating that cash bonus bidding will not reduce funds available for exploration. He assumes in very simple terms that oil companies have unlimited access to funds, presumably at little or no cost. This is very strange coming from a government which has now pushed up interest rates to historically high levels and they are going even higher. Unfortunately, of course, this is certainly not the case, particularly for the smaller Australian companies that do not have adequate financial strength to raise such additional up-front funds. The oil exploration industry will be outraged if the Australian Democrats now turn their backs on the very Australians whom they have professed so strongly to support.

It is doubtful that any company, apart from the largest international firms, would have sufficient cash flow to generate enough funds from internal sources to pay the sums expected by the Government. Most firms would thus have to compete for high risk funds on the capital market at extravagant rates of interest-rates which are likely to continue under this Government. This would impose an impossible financial burden upon current interest rate levels in Australia, which are, as I said, a consequence of the economic mismanagement of this Government. Perhaps the Government wants companies to borrow off-shore and bring funds into Australia to support the falling dollar. Perhaps Senator Evans wants companies to leave the oil industry as an excuse to introduce the Australian Labor Party policy of a hydrocarbons corporation and his national energy policy.

Senator Evans is also fond of comparing cash bidding payments with farm-in arrangements. This is also a simplistic notion of the nature of such commercial arrangements. While some farm-in deals result in substantial payments, these would not be at government directive and would flow back to oil companies and not government coffers. In fact, many farm-in deals involve exploration commitments or other work-sharing arrangements which assist exploration and development. Such arrangements typically do not involve up-front payments. The coalition, of course, supports deregulation where there are clear public benefits to be gained. The imposition of an additional up-front tax impost, such as cash bonus bidding, will clearly act as another disincentive to oil exploration in Australia. This is not in the public interest and will not result in any significant public benefit. The Government is throwing away its responsibility to manage our resources in the best interests of all Australians. Senator Evans should not turn his back on industry efforts to develop an effective work program regime.

Senator Evans has reluctantly, perhaps too late, begun to realise that oil exploration and production are falling. I seek leave to incorporate in Hansard a prospective oil production and government revenue table. I think this table is well known to Senator Evans.

Leave granted.

The table read as follows-

PRODUCER FORECASTS-OLD OIL PRODUCTION AREAS, AUSTRALIA

Year

Total

Production

Gross Excise

Receipts

(ML/Year)

($m)

1980-81...

24,598

2,978

1981-82...

23,781

3,095

1982-83...

22,906

3,458

1983-84...

23,447

3,547

1984-85...

22,911

3,744

1985-86...

(1)21,487

(1)4,088

1986-87...

(2)18,167

(3),(2)3,216

1987-88...

(2)16,264

(3),(2)2,673

1988-89...

14,712

(3)2,268

1989-90...

(4)12,458

(3)1,689

1990-91...

(4)10,679

(3)1,364

(1) As forecast in the 1985-86 Budget

(2) Department of Resources and Energy (DRE) estimates for the financial years 1986-87 and 1987-88 are as follows:

1986-87

1987-88

Production...

20,628 ML

19,361 ML

Excise...

$3,788m

$3,459m

(3) Barrow Island and Mereenie production areas are assumed to remain exciseable for the period 1986-87 to 1990-91.

(4) No producer data is available for Cooper Basin. Estimates represent DRE time series extrapolation from producer forecasts.


Senator DURACK —All informed sources acknowledge that we have no readily available low cost fuel alternatives and that we must support oil exploration and production. I seek leave to incorporate in Hansard the conclusions of a recent review of ethanol production by the National Energy Research, Development and Demonstration Council which comments on the limited commercial viability of ethanol from renewable energy sources as an alternative to liquid fuel.


Senator Sanders —No, read it.


Senator DURACK —The honourable senator wants me to read it. Fine. Senator Evans has a great ally. If Senator Sanders wants to waste the evening, that is fine. The conclusion of that report reads:

The NERD& Program has committed $5.55 million to production of ethanol R&, under this subprogram. It has demonstrated the technical feasibility of the production of fuel ethanol in Australia. As CSR and Shell concluded after their `petranol' trial, which indicated few technical difficulties with the use of a 10% ethanol/gasoline blend, the problem is that fuel ethanol is currently not economically viable, without subsidies such as provided in Brazil and the United States. Although no significant use of ethanol as a fuel in Australia has eventuated, the Zymomonas bacterial fermentation system offers promise of being a commercial success as a way to produce industrial alcohol.

Feedstock agronomy and conversion processes could be refined, but further R& appears unlikely to be able to make fuel ethanol viable: this appears to require a sustained upward movement in crude oil and product prices.

Ethanol appears to have only a limited role as an emergency fuel in overcoming short-term (6 to 12 months) disruptions to oil supplies, as it would take up to three years to make any significant contribution to gasoline requirements. Other measures such as emergency allocation schemes could be expected to bear the brunt of the adjustment process in such situations. Ethanol could have a more significant role in the event of long-term disruptions to supplies, but how significant will again depend on its titiveness with other options, such as enhanced oil recovery, energy conservation, and fuel substitutions.

NERD& Program funded R& has enabled a sound assessment of ethanol's potential role to be made. On the basis of that assessment it would appear that further NERD& Program funding under this subprogram should be restricted to any particularly promising proposals in the areas of lignocellulose conversion and effluent treatment. In terms of the broad priority rankings, such projects might be regarded as having medium priority.

As I said, all informed sources acknowledge that we have no readily available low cost fuel alternatives in the immediate future. I have just read from the report of the National Energy Research, Development and Demonstration Council, which is an example of what I have been saying. Unfortunately, Senator Evans and apparently Senator Sanders-he has already made his speech on this Bill while he has been interjecting on me, but I suppose we will have the misfortune of listening to him for half an hour repeating it all-appear stuck on a collision course with disaster. Senator Evans has promised to introduce the alternative impost-his own words-in the form of signature bonus payments and retention lease premiums if this present second attempt to obtain cash bidding through this Senate is defeated. The Opposition will maintain its consistent position in relation to this matter and will completely oppose this Bill.