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Thursday, 28 August 1980
Page: 895


Mr KEATING (Blaxland) - The purpose of the Excise Tariff Amendment Bill (No. 4) 1980 is to increase the excise duty on liquefied petroleum gas from $14 to $41.65 per kilolitre. The Opposition opposes the legislation. It is not specifically opposed to this particular increase in the excise but more generally to the Government's whole package in relation to liquefied petroleum gas which was announced on 8 April and to which this legislation gives effect. The Opposition is opposed to the measure simply because the Government does not have a credible policy in relation to liquefied petroleum gas. It was hoped that Australia could be supplying about 10 per cent to 1 5 per cent of its liquid fuel requirement from liquefied petroleum gas which, for the benefit of those listening, is propane and butane which in Australia is largely naturally occurring in the Bass Strait oilfields and which is also produced synthetically at refineries.

The great expectation which we had for the conversion to liquefied petroleum gas of taxi and bus fleets and other private vehicles has not materialised. In fact, the conversion of motor vehicles has slowed markedly in the last eight or nine months. When we look at the problem underlying the slow down in conversion we find that it is the malaise of the Government's policy. Not so long ago the Government had a policy of pricing LPG on the basis of production costs. These costs were the costs of producing LPG gas from a refinery and not the production costs of naturally occurring gas from, say, Bass Strait. The only problem with this policy .was that there was no incentive for domestic producers to sell in Australia. Esso-BHP, in particular, was selling most of its LPG off-shore to Japan.

Some time ago when the Prices Justification Tribunal lifted the price of synthetic LPG, the price went beyond that for the naturally occurring gas. The Victorian Gas and Fuel Corporation started to switch its buying from synthetic LPG at the refineries to the naturally occurring gas and the British Petroleum Company at Westernport in Victoria started to flare its LPG; that is, just lit the gas up and burned it in the atmosphere. The Government reacted to that policy by linking all of Australia's LPG pricing to export parity, or to the price which LPG was bringing on the world market or, more particularly, the price for which

Esso-BHP was selling its LPG on the world market.

After the Iranian crisis, with the general shutdown of Iranian production and the disappearance of the glut of oil which was then evident on the world market, and because of the demand for hydrocarbons generally, the Organisation of Petroleum Exporting Countries saw an opportunity to give a high product status to LPG which until then had been the sawdust in the petroleum system. In previous times OPEC had been unable to secure the kind of prices for LPG that it was able to secure for it after the Iranian revolution and after the drying up of hydrocarbon supplies' in most parts of the world. So, the world price of LPG rocketed. Because Australia, under the Fraser Government, had tied the price of domestic LPG to that of exports, the price of domestic LPG skyrocketed as well. The result was that householders living in, say, Orange or Bathurst in New South Wales or in parts of Victoria which were not hooked up to a natural gas pipeline but which were hooked up to a LPG town reticulated gas supply - that is, a small, local town gas system supplied with LPG by road tanker - and who were previously getting their gas at prices somewhat akin to the prices paid by people in Sydney and Melbourne who were hooked up to pipelines, found that the price increased dramatically by 300 per cent or 400 per cent. Therefore, such people were in a very parlous position because of the kinds of costs that they had to bear for their normal cooking and heating needs.

The Government immediately tried to minimise the electoral damage to itself by then blaming the Prices Justification Tribunal for lifting the price. As we all know, it was not the Prices Justification Tribunal's fault. It had been told by the Government to price domestic LPG in accordance with export prices. When the export prices rose as a result of the Iranian situation which I have just described, of course, the Prices Justification Tribunal felt bound by the Government's policy to pass those prices on to Australian consumers. Then, of course, there was really a panic within the Government with all kinds of pressure from the National Country Party because its electorates were affected by the high gas prices. We then saw a change in the policy which the Australian Financial Review described as such a confusing muddle as to be a 'dog's breakfast'. The result is that we now have three prices for LPG, none of which relate to production costs.

The Government then arbitrarily decided to pick a price of $205 a tonne for LPG. Formerly, the price had been around $250 for propane and $290 for butane. The Government arbitrarily decided that the price would be $205 a tonne and that the price differential between the $205 which people would have to pay and the $250 and $290 which they were previously paying would be borne by the oil companies. The Government on the quiet told the oil companies to sheet the extra cost of the loss of income which resulted from the change in policy by adding it to the price of petrol. The Government said to the companies: 'The next time you go to the Prices Justification Tribunal to recover the cost of the reductions in LPG prices, add it to the price of petrol and we will turn a blind eye to it'. That was a very dishonest policy because it meant that the motorists of Australia were then covering the price of liquefied petroleum gas. It was not costing the Government anything. The Government just quietly sheeted it home to the motorist hoping that nobody would discover the fact that the Prices Justification Tribunal had been told by the Government to pass on any increases sought by the oil companies. It was only because some telex was leaked somewhere, as so much is leaked these days from the Government - it is like a sieve - which showed that the Government had given an indication to the oil companies and to the Prices Justification Tribunal that the motorist should pay for its liquefied petroleum gas policy.

So we have three crazy prices - one for consumers, one for motorists, one for industrialists and, in certain industrial classifications, the world price. The price increased and the Government said that this would make people continue to convert their vehicles to use LPG. What was happening was that the differential between the petrol price and the liquefied petroleum gas price - the differential which was encouraging people to convert their cars to LPG - was narrowing. Naturally, people were not prepared to spend the money to convert their vehicles from petrol to liquefied petroleum gas if there was not much difference between the price of the two products. The reason there is not so much difference is that the Government charged the world price for LPG but it did not have the guts to charge the world price for oil under its import parity pricing policy. If the Government had done the decent thing and adopted the terms of its own oil policy and charged the world price for both fuels, the gap in the price would have widened. There was nothing wrong with the Prices Justification Tribunal. It had done its part in terms of the Government's instructions. It had lifted the LPG price to equal the world price. The Government was falling down on its job by not sticking to its policy on oil.

Before the suspension of the sitting for lunch I said that we think the Government's policy on oil is wrong and that we should not be charging Australians the world price. In terms of the Government's policy, it said it wanted to lift the price of Australian oil to equal the world price. If the Government had been charging the world price, that gap in the price between petrol and LPG would have started to widen automatically. The attractiveness of conversion would have become apparent to most people and the conversions would have continued. Instead, the price gap narrowed and people stopped converting.

Then a couple of cars exploded. Apparently were not converted properly or safely to use LPG. Between the closing gap in the price and the explosion of a couple of motor vehicles, I think in Sydney or Melbourne, people decided that it was a bit risky to covert their vehicles to LPG. The Government has not recovered that impetus. People are not converting to LPG in the way the Government thought they would. In addition, we have this sort of crazy policy now under which we have three different prices. In less than three months of the Government changing the price, the price was set at $205 a tonne and it was then increased to $228 a tonne- only $20 less than it was before the policy changed. One wonders what the whole point of the increase was. The Government then introduced a subsidy of $80 a tonne for household consumption. Before that subsidy was even paid to any household consumer, the price had risen to $228 a tonne. Therefore, there is real confusion in the market place about the price of LPG under the Government's policy.

There is a distinction between the Government's policy and the Opposition's policy. Under the Government's policy, prices for LPG in Australia are determined by the costs which are applied to the base price of $205. That is reflected by increases in the feedstock going into refineries. Under the Fraser Government's policy, Australian oil which is sold to Australians, which is produced for $1 a barrel in Bass Strait, and for which the Government now makes us pay $27.50 a barrel, will continue to rise in price as the world price rises. Therefore, as the oil price rises - the feedstock for the refineries rises - the products coming out at the other end of the refineries reflect the higher cost. Under the Fraser Government's policy, the price of LPG will continue to rise as the costs of the oil feedstock rise.

By contrast, the Australian Labor Party's policy is to break with this policy of import parity, and not pass on increases in the world price to Australian prices. Because the price of feedstock for a refinery would be much more stable under a

Labor government than it would be under the Fraser Government all of the products coming out the back end of the refinery - kerosene, distillate, petrol, naptha and LPG - would reflect that stability. Under Labor's policy we would have an LPG policy tied to production costs reflecting that stability. Under the Government's policy prices will continue to rise.

The real hoax upon the electorate has been in respect of household LPG. In January the Government announced that consumers would receive a subsidy of $80 a tonne for household LPG. As I indicated earlier, the reason for that is that the high price which has formerly been charged under the Government's policy was starting to hurt people particularly in country towns. Because of the electoral impact, the Government put in an $80 a tonne subsidy. It is now seven months since that announcement was made. Very few consumers have received any subsidy. The scheme is proving impossible to administer. I hark back to the description of the policy in the Australian Financial Review. It was described as a 'dog's breakfast'. Payment is to be made retrospective to 28 March. But how is the Government to determine who consumed what LPG and for what purpose? How is it to determine what was used for domestic consumption and what was used for industrial purposes?

The Government has a policy that it cannot administer. I notice my friend from Tasmania, the honourable member for Denison (Mr Hodgman), squirming in his seat. He might like to go and tell the Launceston Gas Co., for instance, about the realities of the Government's liquefied petroleum gas pricing policy. He might like to go and tell the people of Tasmania that they are paying through the nose for town reticulated liquefied petroleum gas thanks to the policy of the Liberals from Tasmania .who believe that Tasmanians, like most Australians, should pay through the nose for everything - petroleum, kerosene, diesel and particularly, liquefied petroleum gas. People in Tasmania just do not have the opportunity to be connected to a natural gas pipeline. They must use LPG. Under the Government's policy they are paying through the nose. So are people in Orange, Bathurst and Lithgow in New South Wales. Under the Government's policy, people in all those country towns in Victoria and New South Wales are now no better off with a subsidy than they were when it was first mooted because the subsidy is just not being paid. It is a real promise which has been broken. If the Government wants to abide by its promise, it will have to come up with another arrangement to satisfy the policy it introduced in January.

The prospect that LPG can satisfy up to 15 per cent of our liquid fuel needs will not be realised. Most people believed that this target would be met by 1985. It is now more likely that it will be met by about 1995. The Government intends to substitute fuels and says: 'We want the right fuels used in the right applications. We want liquefied petroleum gas taken out of industrial consumption and used in transport applications'. The Government has the curious policy of seeking to encourage the conversion out of industrial applications by making the price cheaper. What a stupid and contrary policy that is! What a contradiction to encourage industrial consumers from using liquefied petroleum gas by making the price cheaper. Of course, if it is cheaper industrial consumers will not stop using it. The Government introduced some tax measures for conversion from liquefied petroleum gas. But why would a company using LPG change from using LPG when the price now is $50 a tonne cheaper than it was when the policy change was introduced? Of course it would not shift out of LPG; it would stay in it. The use of LPG in transport applications only just will not happen in the future.

The big market for LPG will be in petrochemicals. From where I stand, I am quite happy to see the Australian petrochemical industry using LPG. If it isa matter of selling our exportable surplus to Japan or using it domestically in petrochemicals, I say use it domestically. If it were not for the Labor Party's vigilance, the Government would have allowed the North West Shelf producers to sell LPG unsegregated. They were going to sell LPG, liquefied natural gas and methane to the customers who would be buying North West Shelf gas. We made it clear to the consortium - in the end we virtually had to threaten it - that if a Labor government came to power it would force the consortium to strip the LPG. We are the ones - not the Government - who got the consortium to change its policy. Seven hundred thousand tonnes of LPG will come out of the North West Shelf project when it goes into full production and that will be available in Australia, thanks to the Labor Party and not to anybody else. It is all right for the consortium to say that it was considering such action. It was considering it all right, but it was not going to do it. Instead of the Government standing on its dig and insisting that the consortium strip it, it sat back and we had to do the dirty work and convince the consortium that it should strip it.

There is a great future in Australia for LPG. About 300,000 tonnes will be available from the Cooper Basin and from 600,000 to 700,000 tonnes will be available from the North West Shelf, which is about a million tonnes over and above the two million tonnes we produce currently. One would hope that LPG would give Australia a very high level of energy independence in liquid fuels. Certainly in Japan and other places LPG is used extensively, particularly in taxi fleets or vehicles which go back to a single depot where LPG is sold. The difficulty faced by oil companies in Australia is the establishment of LPG outlets in the same way as they have established outlets for petrol. Eventually we will have to get down to solving the problem. But LPG does give us a lot of options in liquid fuels for the time being- until we get to building pipelines- in reticulated gas for townspeople and for the petrochemical industry. LPG is a great fuel for us and it should not just be sold wholesale to whoever wants to buy it. Sure, we can allow companies to sell what we do not wish to consume- our exportable surplus- but we ought to have the option of determining what we want to consume ourselves and what we think ought to be made available for export.

I have mentioned the Labor Party's policy. It is basically to price LPG on a production cost basis. We would take the price of LPG at refineries before the Government switched to export parity and then add the cost increases which have occurred in the meantime. That would be the price at which it would sell in Australia. Because the price of feedstock going to refineries would be far more stable under the Labor Party's frozen old oil policy or broken nexus policy, LPG under a Labor government would be considerably cheaper than it is under the present coalition. After months of deliberation the Government finally came up with an LPG policy which some people in the relevant departments really thought was a coup. I think it is a great shame that sometimes in the administration of this Government and in the administration of departments of the Commonwealth there is a 'fix it' approach to things rather than a basic approach to the real problem. It is always the 'quick fix' sort of approach- keep the Government off your back and come up with a tricky scheme. This tricky scheme has tricked everybody, including the consumers, who will not benefit from it. It is, as the Australian Financial Review described it, a dog's breakfast of a policy, lt does not deserve our support and it will not get it.







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