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It is a pleasure to address you today as the Minister for Resources and Energy in the Australian Government.
It is an exciting time to be the Minister because resources and energy are the engine room of the Australian economy today - driving global economic growth unprecedented in world history.
They are also vital to the future economic growth of our neighbours in the Asia-Pacific and their ability to lift hundreds of millions of people out of poverty.
In that context, energy security is one of the big issues confronting Australia and the world today, for whoever controls access to energy resources controls economic growth.
Much that happens to Australia happens beyond its horizons.
As the rise of China and India re-shapes the global economy, Australia is simultaneously reaping huge rewards and paying a heavy toll.
Our mineral exports are generating great wealth, however rocketing global demand for oil and energy are affecting the costs of living faced by every Australian.
It is time for us to recognise that record oil, petrol, and diesel prices are a global problem with causes largely beyond our national horizons.
Global fears about energy security today are fuelled by:
- instability in exporting nations,
- the threat of terrorism and infrastructure sabotage,
- resource nationalism,
- lack of investment,
- unprecedented global growth and a scramble for resources,
- a tight oil market (less supply than demand); and
- the fundamental desire of nations to protect their own economic future.
When it comes to energy, particularly oil - and increasingly gas - the world is retreating from the open markets and free trade we have worked so hard to achieve since World War II.
In our region, 55 per cent of Asian consumption is in markets with some form of subsidy.
Globally, those subsidised markets account for over 16 per cent of consumption.
On top of that, 85 per cent of global oil demand growth is in China, India and OPEC; mainly subsidised markets.
The challenge of dealing with energy subsidies in our region is a serious one. Malaysia yesterday announced a subsidy cut which will result in a 40 per cent rise in petrol price. Indonesia last month raised fuel prices 30 per cent - and yet they are still around 65c per litre. India and Vietnam are considering action. Thailand appears to be considering more subsidies. China has said it has no plans to remove price caps.
However, with increased demand needing to be fuelled almost entirely from imports, Asian economies subsidising energy prices will face increasing budget and balance of payments pressure.
On the other hand, raising prices will further release the inflation genie.
Given that both demand and GDP growth over the past few years has been strongest in those Asian economies with artificially low prices a question also remains about the extent to which cheap fuel is underpinning their growth.
In theory, rising oil prices should reduce demand, but if prices are capped, that will not happen.
On the supply side, more producing countries are nationalising their oil industries sending away vital foreign investment and industry capability.
The world's biggest producers are in unstable parts of the world - the Middle East, Russia, and Africa.
OPEC capacity today is still below what it was in the 1970s.
The Middle East has nearly two-thirds of the world's proved crude oil reserves yet only one-third of current crude oil production.
This means the world will increasingly rely on this region for its oil needs.
After the oil shocks of the 1970s the world enjoyed a limited period when non-OPEC supply increased and provided some competition in the international market.
Today, however, non-OPEC supply is past its peak (which was in 2006).
While there have been some big finds recently in Brazil and the Gulf of Mexico, they are in deep water and will be expensive to develop.
In 2007 effective non-OPEC supply growth was only 100,000 barrels a day for the third year in a row. Growth in 2008 is likely to be zero.
There is limited access to over 85 per cent of the world's proven reserves.
This means on the global stage, the big international oil companies are minor players compared to the national oil companies and OPEC.
You might well ask why this matters to Australia.
Despite the fact we are reliant on oil imports, we are a major energy exporter - of coal, natural gas and uranium.
Australia is one of the world's energy superpowers - a very sobering reality that comes with enormous responsibility, not only for our own energy security but for the energy security of the region.
Almost 20 per cent of our nation's exports are energy resources - and this proportion is growing.
Australia not only has to look to its own future when it comes to energy security and cleaner energy sources and technology, it has to be part of the solution to economic growth in the region.
As I have outlined, the prices of oil, petrol, diesel and jet fuel - on which our nation is so reliant - are the result of factors largely beyond our control.
The Australian Government is committed to achieving energy security through open and transparent global markets for energy trade and investment however there is clearly a long way to go.
So far, no international forum has been able to deal successfully with issues like oil prices and energy security.
The British Prime Minister, Gordon Brown, only last week described current events as:
"the third great oil shock of recent decades. As every country faces increased costs, it is now understood that a global shock on this scale requires global solutions. This is why the UK is arguing that at the top of the economic agenda for the forthcoming G8 summit in Japan should be a global strategy for addressing the impact of higher oil prices."
Our Prime Minister has extended the Australian Government's support for this initiative and committed to working cooperatively in the international community to address the challenges arising from the rising price of oil.
It is therefore my intention to reinvigorate the energy security agenda - for Australia and the region - through the APEC Energy Working Group and the East Asian Summit's Energy Cooperation Task Force.
Only open markets can send the right signals to industry and consumers.
And so together with my colleagues, the Ministers for Foreign Affairs and Trade, I will pursue regional cooperation to achieve greater deregulation of global energy markets.
But of course - Australia's energy security also depends on action here at home.
This country at present does not have an energy security strategy.
As the Prime Minister recently said, the Howard Government developed no long-term energy security strategy for Australia.
We need one - and one which embraces all the alternative energy options for the future.
As recently as 2003 Australia enjoyed a trade surplus in oil and refined products.
Yet today, Australia's a trade deficit in these products is already beyond $7 billion and this is expected to grow to $25 billion within the next decade.
We need to start a discussion on the merits of the various energy options available to us as a nation.
It is legitimate debate for Australia to have and it is about time we had it.
Climate Change
Ladies and gentlemen, no discussion of energy policy can occur without addressing climate change - the most significant policy challenge facing the energy sector and the wider economy.
The Australian Government is serious about acting responsibly on climate change: we have committed to reducing Australia's greenhouse gas emissions by 60 per cent on 2000 levels by 2050.
To meet this target, a range of measures will be required:
- an emissions trading scheme;
- greater research, development and faster deployment of clean energy technologies; and
- energy efficiency and conservation.
The Australian Government will pursue these measures in an economically responsible manner.
We are committed to reducing emissions with the least economic cost while maintaining reliable and affordable energy supplies and the international competitiveness of Australia's industries.
National Emissions Trading Scheme
Design of the scheme is arguably the most important challenge of the Government's first term and I intend to work closely with my colleague, Senator the Hon Penny Wong, who as Minister for Climate Change is leading this process.
Energy Innovation
My Department has a leading role in helping bring low-emission fossil fuel and renewable energy technologies to life, including overseeing more than a billion dollars' worth of low-emission and renewable energy technology initiatives through three funds:
- National Clean Coal Fund - $500 million
- Renewable Energy Fund - $500 million
- Energy Innovation Fund focussing on solar technologies and hydrogen - $150 million
As good global citizens, it is in our environmental interest to accelerate the development of technologies that will reduce greenhouse gas emissions.
We are doing just that.
Our $15 million commitment to second-generation biofuels is an investment which will help the industry avoid the conflict between food and fuel.
Geothermal energy has the potential to contribute base-load electricity to Australia's energy supply without generating greenhouse gas emissions.
The Renewable Energy Fund includes $50 million dedicated to the development of the geothermal industry through the Geothermal Drilling Program.
With the support of the Australian Government, it is hoped that these projects will become contributors to Australia's long-term energy supply and greenhouse gas reduction strategy.
Exploration
Australia is oil-poor but gas and coal rich.
We need to do more with our abundant coal and gas reserves.
We also have to find more oil. It is a real challenge to find the next Bass Strait - or anything like it.
The Australian Government knows that Australia faces strong competition from other nations offering alternative petroleum exploration and project development opportunities.
In this context, the Government is preparing a National Energy Security Assessment which will lead to an Energy White Paper to put in place the policies necessary for Australia's long-term energy security.
Geoscience Australia is doing important pre-competitive work to encourage commercial exploration in our extensive new frontiers, both offshore and onshore.
We have already committed to a flow through share scheme which will help small and medium sized explorers, and we are looking at a broader range of incentives to promote exploration.
But we also have to develop our resources when we find them.
Oil and gas production and processing is a highly capital intensive business and construction costs are growing rapidly.
To address this issue, Ken Henry's review of the taxation system will include an assessment of the barriers to investment in large-scale downstream gas processing projects in Australia, the particular hurdles faced by remote gas developers, and consideration of the future policy framework for new sunrise industry investment in Australia's gas sector, including new LNG and Gas-to-Liquids.
New gas projects such as Gorgon, Browse, and Sunrise are struggling to get off the ground and it is therefore time to even up the playing field for investment.
It is a sobering thought that despite enormous global demand for gas over the last year - and with dozens of gas projects on the drawing board - only two projects received final investment go ahead anywhere in the world - one is the Pluto project here in Australia. The other was in Angola.
Let me remind you that it is now seven years since Senator Minchin, then Minister for Resources, appointed a Gas-To-Liquids Task Force to investigate the feasibility and benefits of establishing a GTL industry in Australia.
No action was ever taken during the previous Government, yet Australia's reliance on imported oil and fuel continued to grow with no plan for the future.
It is also five years since CSIRO report, The Energy and Transport Sector Outlook to 2020, laid out its proposed strategy for Australia's transport future.
It was a strategy that identified gas to liquids and coal to liquids as the keys to our future transport fuel security.
Alternative fuel industries are emerging.
The potential to convert some of our vast gas and coal resources to synthetic fuels like clean diesel is significant and I am pleased to see a number of major international companies now expressing interest in this industry here in Australia.
While we are oil-challenged, Australia is a world-class gas province.
We have been finding gas faster than we produce it for a quarter of a century and we have well over 110 years worth of remaining resources at today's production rates; and significantly more if we include the vast potential of coal seam methane.
Energy security is absolutely critical to Australia's economic prosperity and I believe coal-to-liquids and gas-to-liquids will play a major role in Australia's energy future.
And I am not the first Labor Resources Minister to hold that view.
Paul Keating, as a former Resources Minister, was a great advocate of CTL and GTL technologies a quarter of a century ago.
Back then - and even as recently as a few years ago - there was a lot of scepticism about CTL and GTL.
Today things are different.
The industry is real - and taking off - and ultra clean GTL diesel is in the global marketplace, attracting significant premiums.
The product is becoming highly sought after with high cetane for better performance, zero sulphur and low aromatics for cleaner burning.
GTL plants in Qatar and Malaysia are supplying significant markets in Europe and Thailand with Shell selling GTL diesel blends to over 3000 retail sites.
South Africa has had CTL for more than 50 years and China is currently constructing its first plant which will produce 20,000 barrels a day.
CTL and GTL marketers are working with major automotive manufacturers in California and Europe on engine and product development which delivers better performance and efficiency, and lower emissions.
Leading companies like Cummins, Bosch, Daimler, Renault, and VW are involved in these projects and seriously interested in the future of this high quality diesel product.
More importantly - CTL will soon be real, right here in Australia with Linc Energy's pilot project at Chinchilla in Queensland.
My Department and my office are in contact with several proponents of this technology and working with them on a CTL/GTL Action Agenda.
Conclusion
In conclusion, there are tough challenges ahead, but there is much that Australia can do - at home and internationally - to meet the energy and climate changes of the future.
The Australian Government is committed to policies that help us find more oil and do more with our vast natural gas, coal seam methane and coal resources.
And we are committed to working cooperatively with our neighbours in the Asia-Pacific to achieve open and transparent global energy markets.
Thank you.
References:
- Macquarie Research Equities - Flyer, Asian Oil and Gas, 2 June 2008, Australia.
- PIRA Energy Group, Scenario Planning:Annual Guidebook 2008, February 2008, New York.