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Tuesday, 31 October 1967

Mr SCHOLES (Corio) - What the Opposition objects to and what I think the nation should object to in this Bill is the complete abdication of Commonwealth power. This is very evident from the manner in which this Bill has been handled and from the manner in which the Agreement has been drafted. The only way in which any change can be effected in the Agreement is by agreement between all the States and the Commonwealth. If any one State disagrees with the proposed change, under this Agreement no alterations can be made. I hope that the Minister for National Development (Mr Fairbairn) can prove me wrong on this point, but this appears to be the import of the clauses in the Agreement. lt is quite obvious at the moment that Victoria stands as the most favoured State with regard to offshore oil and gas, because it has within its section of the continental shelf the greatest reserves so far discovered close to the most economic market. Whether or not these reserves are exploited in the best interests of the nation or of Victoria is now left purely in the hands of the Premier of that State. The national interests have clearly been abdicated. The document which was circulated earlier this year dealing with the exchange of letters between the Prime Minister (Mr Harold Holt) and the Premier of Victoria clearly indicates that the Premier has complete control over the disposal of oil and gas from the fields. I refer to the Prime Minister's letter dated 16th February 1967. It states, in part:

We are agreed that Victoria should not he required to approve any transaction for the sale of natural gas interstate which would have the effect of putting Victoria at a disadvantage in relation to that interstate purchaser, having regard to the following:

1.   Adequate reserves are available to meet contractural obligations already entered into;

2.   The conditions of such sale and their relation to sales already effected in Victoria;

3.   The effect of the cost of transmission to any such interstate market.

Victoria has certain problems which 1 should have thought the honourable member for McMillan (Mr Buchanan) would have raised. It has an investment of about $30m in the brown coal industry which quite properly Victoria is entitled to protect. It also has the problem of protecting electri city and other natural fuels. The price which has been negotiated in Victoria has no relationship to the value of the gas or the cost of its production. The price has been negotiated practically upon the basis of the cost of other fuels. It is reasonable to assume from the public statements which have been made on the negotiations as such that the Gas and Fuel Corporation of Victoria was not prepared to accept the price until finally it yielded to the extreme pressure exerted by the Treasurer in Victoria, who is also the Premier. The price that has been accepted is 3c per therm.

In most countries of the world where natural gas is available under what could be said to be reasonably comparable circumstances to those in Victoria, the price paid is much lower than 3c per therm. I would like to quote some of the prices. In Canada the price paid is 1.4c per therm. The interstate price in the United States of America is 1.5c per therm. In Great Britain, where the situation is somewhat comparable with the Bass Strait finds in that almost an equal distance of piping is required, the price is less than 2c per therm. It is reasonable that the price for Victoria should have been approximately 2c per therm, paid to the companies. This price would have given the companies a fairly substantial profit margin. They have very low exploration costs, compared with the exploration costs in other countries. The amount of gas discovered per foot of well drilled in the Bass Strait area has been one-twelfth of that in America. Yet the price that Australia will pay is double. There is a very good reason for this, and it has nothing to do with the oil companies.

The Premier of Victoria rushed into an agreement for one obvious reason. A State election was forthcoming. The negotiations were starting to drag and the Premier felt that it was necessary politically to have an agreement signed quickly. Whilst in the United States the Premier blundered rather badly in making a statement that natural gas would put the briquette industry out of existence in a couple of years. On his return to Australia he was quite obviously told that this could not happen; the State of Victoria just could not stand it. I agree. The brown coal industry in Victoria is too well developed to be thrown down the drain overnight. The price which was negotiated for natural gas was a higher price than that recommended as reasonable by Dr Hetherington, the expert who was brought here by the Victorian Government to advise on prices to be paid. The price which was negotiated is above the price at which Dr Hetherington said the industry could make inroads into the present fuel market.

I point out to the House the problems which wm be faced in introducing natural gas into the Victorian market. The problems are the present per therm costs of fuel at the city gate, Melbourne. Natural gas, after transportation, will cost 3.3c per therm; briquettes 3.4c per therm; and furnace oils 2.8c per therm. For briquettes and furnace oils there is no limit on the costs at which they can be sold. In the case of briquettes the major cost is for capital equipment. If great inroads are made into the market it is just as economic to reduce the actual price and sell more goods than to have the machinery lying idle and incurring interest. With regard to furnace oils there is no manufacturing cost. The heavy furnace oils are residue from refineries here in Australia which are geared to refine Middle East oil. The residue cannot be disposed of in any way other than by sale to the public at whatever price the oil companies can obtain for it. Their actual costs and profits come from the sate of gasoline.

I remember well that in the early 1950s, when this problem of residual oil was becoming extremely serious, the oil companies talked the Victorian Railways into converting a number of engines to oil. The Victorian Railways bought the oil at a price of about £2 10s a tori. When they were pretty heavily committed to this type of fuel the price went up to £28 a ton. Then, when the engines were put into storage and the Railways started to convert them back to coal, the price came down to £8 a ton. The oil companies are in a pretty strong position in respect of furnace oil. They oan adjust the price in any way they like.

In this field there are other operators who are not protected in any way by this agreement or these Bills. The Premier of Victoria has already toW the Woodside company that it will not be allowed to produce oil in Victoria within the next 7 years because the Victorian Government has negotiated an exclusive agreement with the

BHP-Esso group for the supply of natural gas to the Melbourne area. I hope that that statement by the Premier is not correct. It is very difficult to sort out the various statements that he makes, because he contradicts himself from one day to the next. If there are in Victoria resources of natural gas that do not belong to the BHPEsso group, surely they are entitled to be exploited and the shareholders of the relevant companies are just as entitled to their share of the market as is anyone else. I believe that this Parliament has been treated rather badly in this matter. It was not consulted seriously on the agreement. It has handed over control of Commonwealth territories to the States to be exploited and totally controlled by them. No attempt has been made to maintain in the Commonwealth Parliament overriding power for national considerations.

I like what is good for Victoria because I live there, but what is good for Victoria may not necessarily be good for Australia. If a price of 3c a therm is reasonable in Victoria because it protects the investment in the brown coal industry whilst allowing natural gas reasonable access to the market, that does not necessarily mean that that price is economic in New South Wales after the natural gas has been piped 500 or 600 miles or that it is economic after the natural gas has been piped to Adelaide, if that is considered a feasible proposition. I understand that, as part of the deal in respect of this agreement, the South Australian Government has borrowed $43m from the Commonwealth in order to pipe gas from Gidgealpa to Adelaide. We dealt with the relevant legislation recently. The cost of piping that gas from Gidgealpa to Adelaide will be approximately three times the cost of piping gas from the Gippsland off-shore field to Melbourne. But, according to a statement made by Dr Alex Hunter in the Economic Record' earlier this year, the price that will be paid at the city gate in South Australia will be 2.76c a therm. The South Australian transport cost will be three times the Victorian transport cost, but the South Australian price will be lower than the Victorian price at the well head. That is something that is worthy of investigation.

I believe that the amendment that has been moved by the honourable member for Melbourne Ports (Mr Crean) is reasonable.

Once this legislation is passed the Commonwealth Parliament and the Commonwealth Government will be completely at the mercy of any State which feels that it has an advantage under the present agreement and which is not prepared to surrender that advantage. The Commonwealth Parliament should know exactly what policy the Government has for the exploitation of the fuel resources of this nation. It does not know that at this stage from any statement that has been made by the Government. There have been a lot of crocodile tears shed about the investment of money by oil companies. Oil companies never spend lc unless they think they will make Sc. This is good business. These companies have taken risks in every country of the world and the risks have paid off. There is no reason to expect that the risks will not pay off in Australia.

Dr Mackay - What about the thousands that went to the wall?

Mr SCHOLES - Companies have gone to the wall in the search for oil. Dry wells are part of the risk of oil investment. But the profit levels are comparable to the amount of money lost. There are very few major oil companies in the world which have not a greater capital standing than the Commonwealth of Australia. They could buy the place. I believe that this Parliament should set up a committee at the Commonwealth level to inquire into all aspects of the utilisation of our natural fuels. I believe that this Parliament should know exactly what it is doing when it passes this legislation. It may be that the legislation is as good as the Minister claims. We are not in a position to judge because very few facts have been presented to this Parliament.

I support the amendment. I hope the House will carry it because I believe that this is the last chance the Parliament will have to deal with this matter. Once this legislation is passed and receives the Royal assent it will then be left to the States to decide what happens to the vast reserves of oil which we all hope and believe exist in Australia. Many of our natural assets have passed beyond our control over recent years. The same excuse was used tonight as has been used on many previous occasions - that we do not have the money to do the work ourselves. The honourable member for Henty (Mr Fox) said that a

Labor government had invited General Motors-Holden's to risk its capital in the production of an Australian car. I stand to be corrected on this matter but I seem to remember that the Chifley Government guaranteed that company's borrowings.

We are debating these Bills without having had a reasonable opportunity to study them. They were introduced only a little over a week ago. I believe that we need far more information before these Bills can be carried by this Parliament and the only real way of getting the information and of assessing exactly the import of these Bills is for the Parliament to investigate the whole field of fuel policies to ensure that Australia gets the maximum value out of its resources, even if someone else makes the profits.

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