Sydney
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Thank you for the invitation to address the Australian Pipeline Industry Association’s annual convention.
I thank Cheryl Cartwright and all those at APIA who continue to provide leading advocacy for the pipeline industry.
The importance of pipelines to our economy and our everyday quality of life should not be overlooked.
Pipelines are essential to our standard of living. They provide us with gas for cooking and heating, along with water for drinking and washing – not to mention the important role pipelines play in maintaining public health by transporting sewerage and waste water.
At the moment people generally associate the pipeline industry with our growing petroleum sector.
However we must remember that our pipeline industry really started with pipelines to transport water and these visionary feats of engineering remain truly remarkable.
Around the time of Federation the most significant water pipeline in Australia was the Goldfields Pipeline in Western Australia.
The pipeline, which was completed in 1903, transports water over 500 kilometres from Mundaring Weir in the Perth Hills to Western Australia's goldfields at Kalgoorlie.
You might be interested to know that the pipeline contract was won by Melbourne based Mephan Ferguson who had developed a rivetless pipe that was a major new innovation in its time.
I would be proud to claim him as part of the broader Ferguson clan, however he is no relation to the best of my knowledge!
Given the harsh Western Australian environment and the scale of the task the Goldfields water supply scheme can be seen the Snowy Hydro scheme of its time.
As a sector I urge you to embrace and remember this important history.
It is a history that demonstrates how innovation can lead to success; how major infrastructure projects can deliver real downstream benefits in terms of jobs; and how as an industry you contribute to the nation in both a broad economic sense but also in improving the quality of life of individual citizens.
These are themes I will come back to as they continue to characterise this often underrated industry today.
The focus on the pipeline industry these days is predominantly related to our growing oil and gas sector.
In this sense, Australia’s energy security; our prosperity; and transition to a cleaner energy future all rely on adequate pipeline infrastructure.
The value of pipelines
We are in a golden age of gas, which also means opportunities for the pipeline sector.
Australia's pipeline network includes more than 33,000 kilometres of high-pressure transmission pipelines – with 25,000 kilometres of these carrying natural gas, and the remainder carrying water, oil, slurry and ethane.
Our network also consists of more than 100,000 kilometres of gas distribution pipelines; and probably this distance again in water distribution pipelines and sewerage pipelines.
Recognising the important and essential nature of this pipeline infrastructure, governments at all levels have an obligation to ensure that appropriate corridors exist to enable future pipeline infrastructure to be constructed efficiently.
Looking back over the past decade, around $4 billion has been invested in – or committed to – new gas transmission pipelines.
Likewise, the current regulatory period for gas distribution assets includes allowed expenditure of approximately $2.5 billion in capital spending over five years.
These numbers exclude investment in recently sanctioned coal seam gas projects, and also exclude billions of dollars being spent on water pipelines and other pipelines.
And there is no doubt that there will be continued investment in water infrastructure in the years ahead.
For instance we see 84 kilometres of pipeline nearly 2 meters in diameter associated with the Victorian desalination project.
I also note that the Productivity Commission released its report on 12 October into Australia's urban water sector.
Clearly urban water is one sector deserving of a close look by governments at all levels from a microeconomic reform perspective.
There are some valuable lessons learned from the reform of our energy sector over the last two decades that could be applied to our urban water sector – particularly around the establishment of clear objectives and an appropriate institutional framework to deliver them.
I am sure the pipeline sector will have a voice in this debate.
But gas remains the most high profile growth area.
From our first discovery of gas in Roma Queensland in 1900, we are now not only finding gas in more places, we are finding new ways of extracting it.
As we all know, our coal seam gas industry is growing significantly. This will support LNG export opportunities and growing domestic gas fired electricity needs.
In fact, gas-fired generation is forecast to account for 37 per cent of Australia’s electricity supply within 20 years – more than double the 15 per cent it accounts for now.
Investment in gas fired power stations will bring on necessary investment in pipeline infrastructure.
For instance the Mortlake power station in Victoria includes associated investment in 83 kilometres of 500 millimetre transmission pipeline.
Our gas reserves make us well placed to provide secure, reliable, adequate and accessible energy to Australians.
And our export opportunities are even bigger.
Estimates for next year are for Australia’s exports of LNG to be around 20 million tonnes.
And when Woodside’s Pluto project gets into full production that figure will rise to around 24 million.
Australia’s seven new LNG projects in various stages of construction comprise more than $140 billion of new investment.
That means over 50 million tonnes of new export capacity and thousands of jobs.
In short, the pipeline industry is a vital part of one of Australia’s fastest-growing energy export industries.
As Australia becomes the world’s second-biggest exporter of LNG, our pipeline industry will be front and centre in facilitating this development.
Australian content
This growth means real opportunities for the pipeline sector.
The challenge of course, is making the most of these opportunities.
Businesses in the pipeline industry need to position themselves to take advantage of the work that can flow from these projects.
This goes to issues of competitiveness and capacity.
Likewise, businesses awarding contracts must ensure they are providing a fair opportunity for Australian manufacturers and suppliers – of both products and services – to compete for contracts.
The Government is playing its part on both fronts.
We are helping Australian businesses become more competitive and improving their access to opportunities.
This is what the $34 million Buy Australian at Home and Abroad initiative is all about – encouraging better links between the resources sector – among others – and capable Australian firms.
Expanding the Supplier Access to Major Projects program will place a specialist in the procurement teams of major resources projects, ensuring the capabilities of local suppliers are well known.
The work Peter Beattie is currently undertaking as the Government's Resources Sector Supplier Envoy is also part of ensuring the resources sector and Australian suppliers work together to improve access and competitiveness.
Your Association is actively involved in these initiatives.
At the same time the Government is also requiring greater transparency from major project proponents when it comes to the opportunities on offer.
Following consultation, the Government intends to make it a requirement that Australian Industry Participation Plans are made public to boost transparency.
Future project developers will also be required to publish more extensive details on opportunities available to Australian businesses as a condition of receiving the five per cent tariff exemption on imports for major projects under the Enhanced Project By-law Scheme (EPBS).
Australian industry must be internationally competitive if our resources sector is to sustain its growth.
And this means that inputs to this sector must be innovative and competitive also.
So we do not support mandated levels of local content.
Mandates risk making Australian projects more costly, less viable and less attractive compared with other investment destinations.
Mephan Ferguson 110 years ago won pipeline work based on innovation and entrepreneurship, and we must be confident that Australian industry today can face the world and win contracts on the basis of quality and innovation rather than seeking to hide behind a protectionist barrier.
Supporting downstream Australian industry is a challenge, and that's why the Government is taking the measures we are, but at the same time we must also recognise that the benefits of these major projects are already being felt.
We are seeing contracts for major resources projects awarded to Australian businesses.
Over $14 billion worth so far in goods and services from the Gorgon project.
And work is ramping up on the new coal seam gas projects in Queensland.
In September QGC awarded a $120 million contract to Fletcher Building for polyethylene pipe that will bring on the development of a new manufacturing facility in the Toowoomba region.
These are just two examples but they illustrate the real benefits growth in the sector is delivering locally.
Jobs
And of course another major benefit of a growing petroleum sector is growth in employment.
On the east coast, Queensland’s coal seam gas industry may generate as many as 18,000 jobs.
On the west coast, the recently sanctioned Wheatstone project alone calls for 3,000 construction jobs, on top of the many indirect jobs that will flow from this project.
While job creation is good for the nation, it is also creating sectoral pressures in terms of wages and labour given our very low level of unemployment.
Understanding our future workforce needs is among APIA's important roles.
I understand the challenges facing the pipeline sector – while these major projects create opportunities and demand for pipeline infrastructure, I also recognise that these major projects can compete with the pipeline sector for employees – making your life harder.
However, such pressures from growth are preferable to the alternative – which is lack of growth and economic stagnation.
The Australian Government understands the need to invest in training and skills.
New apprenticeships and other training measures from our $3 billion investment in skills in this year's Budget all aim to help industry make the most of the opportunities to grow.
In September I was pleased to open the Australian Government supported Banana Engineering Skills Training Centre in Biloela, which will enable young people to train locally and support the growing resources and energy sectors in Queensland.
The Government's changes to migration arrangements, including the introduction of Enterprise Migration Agreements are also designed to ease pressures in the short term.
Businesses should take advantage of these measures.
I also commend industry on the initiatives you are pursuing.
I was pleased to address the Gas Speak Colloquium at Old Parliament House in September, as this allowed me to thank APIA and the Australian Gas Industry Trust for your work in helping develop future leaders.
Market reform
Talking about the future brings me to the issue of our broader gas market reform agenda.
Market transparency and consistent regulation is critically important in the gas sector.
Like the gas industry itself, the reform agenda is coming of age and has made significant progress in recent years.
The National Gas Law gives us a framework to ensure the efficient operation of pipeline services, efficient investment and the effective regulation of gas networks.
In terms of information for the sector, the Gas Statement of Opportunities helps gas-market participants identify investment and market opportunities.
For its part, the Gas Bulletin Board has given the market an important level of transparency.
And finally, the Short Term Trading Market (STTM) is starting to bring price transparency to the overall market.
I understand some in the pipeline industry have strong views on the STTM, however governments and the Australian Energy Market Operator have sought to be responsive to industry needs in minimising cost and imposition associated with participating in the STTM.
And I know you will not be shy in telling me if there are areas where industry believes governments can do things better.
The fact is clear market and pricing signals encourage better-informed investment and risk-management decisions.
Wholesale gas prices have been historically low in Australia by some international standards, but in recent years we have seen increases in long term domestic gas prices.
This is especially so in Western Australia where LNG exports are necessary to justify the cost of developing much of the reserves that could be used to replace exhausted domestic gas supplies, or even increase them.
Without this export market, the costs of development together with the comparatively small domestic market would prevent projects from being sanctioned as they would not be economically viable.
This creates a link between gas prices on the west coast and world LNG prices.
In this context I note the recent comments of Shirley In't Veld from Verve and the concerns she raised in terms of ensuring adequate gas supplies for the domestic market from our vast reserves.
As Commonwealth Minister for Resources and Energy I take a keen interest in ensuring that the development of our gas resources benefits the Australian community – including meeting our domestic requirements – and the Energy White Paper currently being prepared by my Department will have more to say on this matter.
Over the last two decades, since exports from the North West Shelf project began, Australia's east coast gas market has been characterised by different market dynamics to the west coast.
I recognise that at the moment there is significant ramp gas in the spot market in the lead up to LNG exports out of Gladstone.
This does mean that spot prices are quite low, however at the same time it is difficult to secure long term contracts.
Until exports out of Gladstone begin in three or four years this uncertainty in east coast gas markets is likely to continue.
And Governments at all levels must keep a watching brief on how this developing export industry is affecting domestic gas markets.
Overall, Australian Governments are working closely with industry to ensure the right frameworks are in place for the market to operate at maximum efficiency for the benefit of the economy as well as the Australian community.
So we should not be concerned about ongoing reform, or about greater public accountability around the way gas markets operate.
Given the significant change currently occurring in our energy markets, and the expectation that over the next 20 years we will see a significant increase in the use of natural gas as a flexible, reliable and lower emission energy source for our electricity generation – driven in no small way by our carbon price reforms – this transparency is important.
Earlier I made mention of the Energy White Paper – which will have a role in articulating Commonwealth Government policy positions.
It is intended that a draft will be released for public comment later this year, with the final Energy White Paper released in 2012.
APIA has been active in the consultation process and I urge you to remain engaged.
Conclusion
In closing I would just repeat that our pipeline sector has an interesting history and legacy that should be embraced.
And I encourage you to see the huge transformation ahead of us as an opportunity.
We know there will be significant investment in future years and the pipeline industry is well placed to expand to maintain the important role it plays in our economy and society.
Thank you