Perth
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Introduction
Premier, distinguished guests, ladies and gentlemen.
I first addressed this conference as Minister for Resources and Energy in 2008.
The three years since then have been times of unprecedented challenge and opportunity for the petroleum industry, both here in Australia and internationally.
So more than ever this year's APPEA conference, with over 3000 delegates from industry and government, provides an important opportunity for us to reflect on recent events and plan for the future.
And there is much to reflect upon.
Tomorrow's Energy Today: a time of opportunity
This year's theme – "Tomorrow's Energy Today" – is well-chosen.
Last week I attended the second Clean Energy Ministerial (CEM) in Abu Dhabi, whose members account for 80 per cent of the world's energy consumption.
This meeting confirmed that the development of renewable and clean energy technologies is a priority for governments the world over.
It also reinforced the size of the challenge faced by all nations, in particular developing nations, when it comes to energy security and meeting growing energy demand.
In recent years the amount of renewable energy generated has increased by 30 to 40 per cent as costs come down and policy frameworks are put in place to promote the development of renewables.
But despite this, demand for fossil-based energy has significantly outpaced demand for clean energy.
Clearly this means that we have more work to do on the clean energy front.
It also means that if we are to meet the twin drivers of increasing demand and lower emissions we are entering the LNG age.
Renewable energy is the energy of the future.
LNG is tomorrow's energy today.
LNG demand is predicted to more than double within 25 years, reaching 360 million tonnes a year.
And Australia is on track to be the world's second largest supplier of LNG by 2015.
As a cleaner burning fuel that can be reliably supplied to meet baseload generation requirements LNG can meet rising global energy demand, while at the same time reducing greenhouse gas emissions.
The catastrophic damage caused by the earthquake and tsunami in Japan have thrust the question of energy security into the international spotlight.
The international community, not least Australia, has offered its support to Japan as it comes to terms with the devastating human toll these natural disasters have inflicted.
Japan has been a longstanding partner for Australia and we now have an important role to play in assisting Japan to continue to meet its energy needs.
Increasingly support is also needed to deal with the economic and energy security implications of the gap the Fukushima plant has left in Japan's generation capacity.
While the full implications of Fukushima are still unknown, many analysts and organisations, including the IEA, are predicting these events will lead to an increased demand for LNG over both the short and longer term.
The sizeable LNG projects on the investment horizon, added to the substantial projects already being developed mean that Australia is well-placed to help meet this increase in demand.
I expect the next few years to match if not surpass the last few in terms of opportunities, projects and investments for the LNG industry.
We have seen substantial growth in resources and energy investments - last financial year, new capital expenditure was the second highest on record – double the 30-year average.
We welcome increased investment and trade in LNG from traditional sources such as Japan and the United States, renewed investment from France and of course from major emerging economies such as China, India and South Korea.
Their willingness to enter long-term contracts, and increasingly take up equity stakes, confirms to me that Australia remains an attractive partner.
This is particularly important as the new east coast coal seam gas (CSG) to LNG projects are rapidly increasing Australia's known reserves.
Estimates are now as high as 150 trillion cubic feet of CSG.
If proven, this would double Australia's existing known gas reserves.
I look forward to seeing projects such as Gorgon, Pluto and the East Coast LNG projects commencing production as well as potential final investment decisions on a number of other key projects, including:
- Ichthys, Browse and Wheatstone;
- further coal seam gas to LNG projects; and
- potentially the world's first floating LNG project, Prelude - technology which has the potential to realise previously stranded gas fields worth, perhaps, over $1 trillion.
What we are witnessing in Australia is the emergence of new industries and new technologies – in a nutshell new opportunities for our petroleum industry.
These opportunities are to be welcomed and encouraged but at the same time we also need to be mindful of the new challenges they bring with them.
New opportunities bring new challenges
The Australian Government is mindful of the need to carefully manage the stresses and strains of such a rapidly growing sector and the pressures this places on other parts of the economy.
Jobs, skills and labour shortages
The number and size of projects we see coming online is placing significant pressure on the labour market in terms of jobs, skills and wages.
This is an issue at the forefront of your minds and I can assure you it is also at the forefront of the Government's mind.
Skills shortages have serious flow on affects to other sectors of the economy already struggling from the impacts of a high Australian dollar and natural disasters as workers are pulled away from for example the tourism, hospitality, manufacturing sectors.
The Government's recent acceptance of all 31 recommendations of the Resourcing the Future report undertaken by the National Resources Sector Employment Taskforce is an important first step in a workforce plan for the resources sector.
But with record levels of planned capital expenditure of around $150 billion in the minerals sector, demand for labour will be immense over the next few years, peaking in 2014.
In order to deliver these projects – and the long-term prosperity and jobs they bring - there will need to be short term immigration programs to attract the skilled workers that Australia doesn't presently have but needs for the construction phase of these immense projects.
Indeed, a key recommendation of the taskforce's report that the Government is currently considering is how best to implement the recommendation to introduce 'Enterprise Migration Agreements' for 'mega' projects.
More migration is only part of the solution to skills shortages along with training of Australian workers and improvements in workforce planning.
The Government cannot do this alone. A strong commitment is required from all stakeholders - industry bodies, companies, education and training organisations, state and territory governments - over the next few years if Australia is to maximise the benefits of new projects.
Australian content
Another pressing concern is that of Australian content.
I know this is an issue that has been front and centre for Premier Barnett and I can assure you that it is one the Australian Government takes very seriously.
As a Commonwealth Minister, I define "local" as the nation rather than any single state or territory.
When we speak about local content it is important to remember that we are actually referring to more than just the jobs in engineering and steel manufacturing.
It is also the contracts obtained by caterers, truck drivers and maintenance workers; or the white collar workers, such as lawyers and accountants, who provide their services to mining companies.
All of this work is local content.
I have met with stakeholders in the steel industry and workers' representatives to discuss their views on local content.
I have also met with some of the large resource companies which consistently tell me that:
- they do want the benefits of their operations to be felt locally; and in fact
- the viability of many of their essential maintenance providers depends upon them gaining substantial work during the construction phase of their projects.
The economics of large scale resource projects – just like any other – depend on competitively priced inputs to remain feasible.
Competitive in terms of price and competitive in terms of quality.
Governments, at both the state and federal level support local businesses in seeking this work.
At a Federal level we do this through our many skills and training initiatives, through our Supplier Advocates and other programs to connect business with potential commercial opportunities.
We believe that Australian businesses should be given a fair and proper opportunity to compete to manufacture and supply goods or services to Australian resources projects.
But what we are not prepared to do is support mandated levels of local content.
On balance such mandates run the risk of increasing costs to the extent that projects become unviable or alternative destinations for investment more attractive.
We cannot let the lure of one-off contracts obscure the sustained, local work, including in engineering and steel fabrication, that these projects will deliver through their lifetime.
Social licence to operate
And that brings me to the third major challenge facing industry - maintaining a social licence to operate.
New industries and new technologies present new challenges but they are inevitably underpinned by the same common concerns:
- The health and safety of workers;
- Responsible and sustainable management of the environment; and
- Community engagement.
All activities, whether they be onshore or offshore need proper regulation, oversight, effective operating procedures and adherence to a culture of continuous improvement.
For new industries, such as the coal seam gas industry, additional efforts are needed by governments and by companies to ensure regulations are appropriate and procedures are effective.
Effective consultation with local communities and land-owners is paramount.
Experience has shown that taking the time and making the effort to properly engage early in project planning and development phase leads to better outcomes for all parties – for communities and companies alike.
The same is true for the offshore sector.
It is almost 12 months since the Deepwater Horizon incident and 20 months since Montara – events which seriously undermined the community's confidence in the industry.
The intervening period has been one in which regulators, government and industry both here and abroad have investigated, examined and started implementing the lessons from both spills.
There are clear parallels and common lessons which we will examine in greater detail at the International Offshore Petroleum Regulators and Operators Summit Australia is hosting here in Perth on 10 and 11 August this year.
Applying the lessons of Montara and Macondo
So today I will just touch on a couple of the headline issues.
Macondo and Montara have changed community expectations, and you will need to respond through tangible improvements in oilfield practice and spill mitigation.
Both the US Presidential Commission into Deepwater Horizon and the Montara Commission of Inquiry investigations recognise the energy security and economic imperatives behind maintaining an offshore petroleum industry and the importance of balancing this with our responsibilities to ensure the sustainability of our marine environments.
The common objective of the findings and recommendations of both Commissions is:
- making the industry safer in the future;
- preventing such accidents from happening again; and
- restoring the community's confidence in your ability to operate safely.
Both inquiries found that these two events were preventable.
Both inquiries pointed to the unacceptable costs of a culture of complacency.
Both inquiries also recommend, as a central plank of this reform, the establishment of a single, independent regulator in the respective jurisdictions.
Shortly I will be releasing the Government's response to the Productivity Commission's Review of Regulatory Burdens on the Upstream Petroleum (Oil & Gas) Sector – yet another independent report recommending the establishment of a single national regulator.
My support for this reform and commitment to implementing it is widely-known.
Work is progressing on the establishment of NOPSEMA and NOPTA including further discussions with the Western Australian Government.
The Standing Council on Energy and Resources (formerly the MCMPR) has unanimously agreed to the establishment of a working group to plan the transition and I welcome Western Australia's willingness to engage in this process.
A time for reform
Reform of Australia's offshore petroleum regulation is of course not the only reform item on the Australian Government's agenda that is of interest to you here today.
At last year's conference I spoke about a number of elephants in the room. I don't believe there are any lurking in the corners here today.
Many of you are at the table or actively engaged in the processes around our resources and carbon price reforms.
So let's briefly review where each is up to.
Resource taxation reform
Firstly on the resource taxation reforms. Let me start by thanking all those who participated in the Policy Transition Group process I chaired alongside Don Argus and included both Keith Spence and Erica Smyth who will be well known to many of you here today given their background in the petroleum sector.
This was a detailed and comprehensive consultation which produced two reports to Government.
Last month the Government announced that it had accepted all 98 recommendations.
The PTG delivered a balanced package.
It delivers on the Government's objectives while maintaining the industry's competitiveness internationally.
It means that the Government will be able to deliver a suite of measures to benefit and strengthen the Australian economy, not least here in Western Australia with:
- increased spending on infrastructure;
- superannuation savings;
- a cut in the company tax rate; and
- tax breaks for the small businesses that account for over 90 per cent of businesses in the state.
The Resource Tax Implementation Group is up and running to ensure a high level of engagement with industry continues as we move through the stages of legislating the MRRT and PRRT reforms.
The next major step in this process will be consultation on the exposure draft legislation around the middle of this year.
A Carbon Price
But perhaps most topical at the moment is the Government's work to establish a mechanism for pricing carbon.
A price on carbon, alongside the policies we have already implemented – the $5 billion Clean Energy Initiative and 20 per cent by 2020 Expanded Renewable Energy Target – will drive necessary investment in clean and renewable energy technologies and a reduction in greenhouse gas emissions.
Establishing the right policy settings for this mechanism will take time and requires real consultation with a variety of stakeholders, not least of all the resources and energy sectors.
This consultation is taking place, through the Business Roundtable and through the two working groups attached to it.
The petroleum industry's primary concerns are clear – to ensure that you are not placed at an uncompetitive disadvantage in the international market and that appropriate transitional arrangements are put in place.
We will continue to work through the detail of a carbon price mechanism and I encourage you to continue your engagement with this process.
2011 Acreage Release
And now to the final, and very important matter, for today - the 2011 release of exploration acreage.
This year's release comprises 29 areas across nine basins in Commonwealth waters off the Northern Territory, Western Australia, Victoria and Tasmania and in the Territory of Ashmore and Cartier Islands.
Stakeholder nominations underpin every area in the 2011 Release, with the majority receiving multiple nominations.
They follow an extensive consultation process that identifies and considers environmental, fishing, security and other third party considerations.
Acreage release is critical to the offshore petroleum industry's future – but I would remind you that it is only the first step in a comprehensive process of checks, balances and approvals.
It is a process you are intimately familiar with but one that is often misunderstood and misrepresented in the wider community.
So let's be very clear – the release of acreage gives companies the right to bid for exploration permits.
The awarding of exploration permits gives companies the exclusive right to apply to search for oil and gas in the permit area.
It does not automatically give companies the right to conduct seismic surveys or drill exploration wells.
There is a rigorous and longstanding approvals process that companies must go through before any such activities can be undertaken.
This year's Acreage Release is the largest by square kilometre in over a decade.
It covers approximately 200,000 square kilometres, an area roughly three times the size of Tasmania.
The large areas are mostly located in frontier regions.
The "super-sizing" of frontier opportunities acknowledges the challenges of exploring in these areas.
Large areas, after all, lend themselves to more efficient exploration.
And as with previous releases, this year's is supported by data and analysis from Geoscience Australia.
As you well appreciate, Geoscience Australia's pre-competitive data is an incredibly important tool for industry in terms of prospectivity.
What you may not appreciate is just how valuable this is.
For the period June 2006 to June 2011 the return on the Government's investment of $75 million for work under Geoscience Australia's Offshore Energy Security Program is $625 million in committed frontier exploration expenditure in acreage released in the frontier areas of the offshore Bremer, Bight, Arafura and Canning Basins, with a proposed secondary program of an additional $1 billion.
That is a return on investment of 833 per cent for committed exploration expenditure, which rises to a staggering cumulative investment return of 2166 per cent if you take into consideration secondary programs.
Given our increasing trade deficit in crude oil, refined products and LPG your work in exploration, supported by Geoscience Australia's world class data, is in many ways invaluable.
Conclusion
Ladies and gentlemen, in conclusion I simply say much hard work has been done in the past twelve months.
More opportunities and challenges lie ahead, and Australia's reputation for reliability hinges on how we address them.
Industry and government both have to step up to our responsibilities. We can't pretend that the bar hasn't shifted – both on expectations of good oilfield practice and what constitutes best practice regulation.
As long as we manage growth properly, and maintain a social licence to operate, this industry will go on underpinning our economic growth and energy security.
I wish you the best for the remainder of the conference.