Houston, USA
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Introduction
It is my pleasure to be here this week to participate in G'Day USA events and to once again address this conference.
I thank our hosts – the Australian-American Chamber of Commerce and BHP Billiton.
We are here today to talk about the important role of energy in our society and economy.
The role of energy
It is appropriate to be here in Houston, given Houston's role as a centre for the energy industry.
Energy is critical to underpinning our modern lifestyles and prosperity – whether it is powering our cars; our heating in winter, air-conditioning in summer or indeed the industrial processes so central to our economies.
For all nations there are three top-of-mind and interdependent issues – jobs, economic prosperity and energy security.
These are as topical here today as they are back home in Australia and indeed around the world.
The important role of energy in our world is reflected in the fact that the International Energy Agency (IEA) predicts that global energy demand will increase by more than 50 per cent between 2009 and 2035 under current policy settings.
Over this period the world's population is predicted to increase from 6.8 billion to 8.6 billion – with the world's urban population predicted to increase from 3.4 billion to 5.2 billion.
On this basis, per capita energy consumption is predicted to increase by approximately 19 per cent over this period on current policy settings.
Changes in our energy sector
In addition to witnessing growth in demand for energy we are also witnessing significant changes in how that demand is being met.
The last decade has seen huge growth in the development of unconventional gas resources – in particular shale gas in the US and coal seam gas in Australia – and I will come back to that in a moment.
Equally, the renewed focus on increasing the deployment of renewable energy is changing government policy and the nature of energy sector investments.
Technological innovation has been important in allowing new sources of energy to be exploited commercially.
Even more fundamental has been the change to the drivers of global energy demand.
The world's urban population is predicted to grow by 70 million per annum between 2009 and 2035, and 92 per cent of the world's population growth will occur outside the OECD.
By 2035 both India and China will each have a larger population than members of the OECD.
This growth in population, urbanisation and economic development outside the OECD will have profound effects on the energy sector.
In less than a decade we have seen China increase its energy consumption from under half that of the United States to now be the world's largest energy consumer.
The impact that urbanisation and industrialisation of developing countries will have on energy demand is illustrated by current oil demand.
Average oil demand in the developed world is 14 barrels per person per annum, whereas it is 3 barrels per person per annum in the developing world.
Energy resources
Demand for energy obviously focuses nations and commercial entities on securing adequate, reliable and competitively-priced supply.
In this respect, both Australia and the US are more fortunate than some others.
In the case of Australia, we are one of only three net energy exporters in the OECD. In time, the US could potentially join these ranks.
Technological advancements in recent years allowing the commercial development of unconventional gas resources has been of benefit to both nations.
Having a resource and technical base are essential, but the continued development of all mineral and petroleum resources also requires appropriate policy and investment frameworks to bring on the investment needed in these capital intensive projects.
Developing our energy resources
Both Australia and the United States are built on the rule of law, and are long standing democracies favouring free markets.
Investment is largely driven by the private sector, within the frameworks established by government.
In this respect investors are seeking sound regulatory frameworks, and stable government.
As many companies have remarked to me over the years, you cannot change the rules part way through the game.
Transparency and certainty of regulatory and policy frameworks are fundamental for securing investment in a competitive global marketplace.
As an open trading economy Australia understands the need to attract foreign investment to develop our resources.
As many of you would be aware, Australia is currently profiting from an unprecedented resource and energy investment boom, with $180 billion in capital expenditure committed to LNG projects alone since 2007.
Australia is home to somewhere in the order of 80 per cent of all world LNG projects currently under construction.
Just last week I attended the announcement of the Final Investment Decision for the Inpex and Total $34 billion Ichthys project - the largest single investment by Japan and France in Australia.
The value of advanced major resources projects today is 16 times what it was a decade ago.
Export earnings from resources and energy reached a new record of $175 billion last year, a 27 per cent increase on the year before, and they are forecast to reach $215 billion this year.
In light of the growth in non-OECD countries in the years ahead, Australia is well placed as part of the Asia-Pacific region.
The importance of this region was again reflected in the announcement by President Obama on 5 January reiterating the United States' intention to strengthen their military presence in the Asia-Pacific region.
Australia and the United States
The trading relationship between Australia and the United States is close and abiding.
Through its Mobil heritage, ExxonMobil has been part of the fabric of Australia’s resources industry since 1895.
As Esso, it’s been involved with BHP Billiton in Australia’s first offshore oil and gas development in Bass Strait.
The company partners with Chevron in the Gorgon project – the largest resources project in Australia.
Chevron recently made its single biggest investment in Australia – the $29 billion Wheatstone LNG project being developed with Apache and others.
BP is currently the only company exploring in the frontier region of the Great Australian Bight.
And companies such as Hess and Murphy Oil continue to seek and develop opportunities in Australia, onshore and offshore.
Bechtel, too, is a key contractor, especially in the coal seam gas projects in Queensland.
Investment now goes both ways, of course, with BHP’s involvement in American shale gas a good example.
Its assets in Arkansas, Texas and Louisiana are worth nearly $17 billion.
And with a coal seam gas industry emerging in Australia, and the IEA projecting the share of unconventional gas production in North America to rise to 64 per cent in 2035, more opportunities are opening up.
As they do so, it’s vital that community support and proper regulation with appropriate attention to the environment is part of the journey.
Investing in Australia
A shared heritage alone does not of itself deliver trade or investment.
That is why as Minister for Resources and Energy, I am focussed on getting the policy settings right to attract necessary foreign investment.
There are sound business reasons for investing in Australia’s resources sector.
As long as the world needs our energy – including the one-in-five of the world’s people who have no access to electricity today - Australia’s commitment to energy exports will not waver.
Australia is extremely well placed to meet growing demand.
Global LNG capacity is expected to double between 2004 and 2012 – which will see capacity equivalent to what has been brought on over the last forty years brought on over eight years.
Australia is playing a key role in driving this growth.
LNG is forecast to be Australia’s fastest-growing energy export over the next two decades.
Within five to six years, we expect to be exporting in excess of 80 million tonnes per annum.
That would make Australia the largest exporter of LNG in the Asia-Pacific region, if not the world.
We are finding new ways of processing gas, too.
Shell’s Prelude, for example, is on track to be the world’s first floating-LNG project.
Challenges
In addition to strong historical linkages, Australia and the United States – with others –have also shared challenges.
These relate to delivering investment, reducing emissions, strengthening safety and sustainability, and maintaining competiveness.
At the moment given our different economic circumstances, we also have some different challenges.
Despite the recent reduction in the headline US unemployment rate from 8.7 per cent to 8.5 per cent, I note the ongoing challenges facing the US economy.
Australia on the other hand is currently experiencing shortages of skilled and semi-skilled labour and when I think of challenges I am mindful of maintaining Australia's competitiveness, ensuring we have a skilled and well-trained workforce to deliver our pipeline of projects.
For instance with respect to LNG, it is estimated that Australia will need 1,400 additional plant operators in the years ahead – and these are quite specific skills.
The investment framework
Australia is working hard to provide a long-term framework for investment in energy.
Confidence is vital when we are looking to the private sector – including foreign capital – to invest.
Recently the Government published a draft Energy White Paper – a key piece of public policy to guide energy development in coming years.
Further market reforms and appropriate regulation, for example, improve our investment attractiveness.
In Australia, there is no time to lose.
We need investment of around $240 billion in electricity and gas generation, distribution and transmission infrastructure over the next two decades.
This investment requirement is one of the primary factors putting sustained, upward pressure on electricity prices – an issue of concern given Australia’s long history of comparatively cheap and plentiful electricity.
At the same time, I remain committed to unlocking Australia's resource wealth.
Part of achieving this outcome is about ensuring the resources industry continues to maintain a social licence to operate.
Last year, delegates from America and around the world joined us in Perth for an international summit on offshore petroleum safety.
Our continued work together is helping to ensure we apply the lessons of the Gulf of Mexico in 2010 and of Montara in the waters off the coast of Australia the year before.
The summit reaffirmed our commitment to develop an international consensus on how regulation can evolve.
An independent, well-resourced regulator – like the one we now have in Australia – must be rigorous in challenging industry practices to ensure a safe and environmentally sustainable future for the industry.
The global petroleum industry itself must also continue to provide leadership, and be accountable for its actions.
In the same way, the emerging unconventional gas industry must develop safely and sustainably.
Here in the United States the shale gas industry is taking off. In Australia, shale gas is only at the early exploration stage however coal seam gas has seen rapid expansion over a very short period.
Both industries face similar challenges for example in terms of engaging with local communities and earning their trust, and ensuring hydraulic fracturing processes and the associated issues around chemicals and water are conducted to the highest possible standards.
As in the United States, the industry in Australia is primarily regulated by state governments, with the Federal Government’s jurisdiction limited to a small number of large, threshold projects.
Nonetheless, my department and I are working collaboratively with our state counterparts and with companies to develop nationwide-wide best practice frameworks for this industry.
We are sharing experience and expertise – a process that flows both ways - with the United States, as we have done for some time now in the offshore sector to ensure that natural gas can fulfil its immense potential as a low emission transition fuel.
As part of a global technological response – Australia is also investing in low emissions technologies from renewables through to carbon capture and storage (CCS).
The Australian Government has committed up to $17 billion to support clean-energy technologies and drive down their costs.
We invite American investors to work with us at every stage of the innovation chain.
The US-Australia Solar Energy Collaboration and the MoU we signed with the US Federal Aviation Administration on sustainable aviation fuels are just two examples.
During my visit here this week I have toured Southern Company’s new integrated gasification combined cycle plant using carbon capture technology, currently under construction on a lignite field in Kemper County, Mississippi. It is another example of the technological possibilities emerging.
Coal is critical to Australia’s economic prosperity, in terms of our energy generation mix, as an export commodity and as a major employer.
Reducing emissions from coal-fired power through new carbon capture and storage technologies will help ensure that it continues to have a bright future.
I also met with the Secretary of the Navy to discuss the Administration’s plans for the Great Green Fleet and on Saturday I will be visiting the Sapphire Energy demonstration scale algal bio-refinery in New Mexico – again more exciting possibilities in energy.
The fact is that we need breakthroughs wherever they may come from, whether from biomass, solar, ocean, geothermal or carbon capture and storage.
Direct investment in new technologies and the increased use of gas are only part of our approach to transitioning our energy mix.
The existing 20 per cent by 2020 Renewable Energy Target and the introduction of a carbon price from 1 July this year are also part of our approach.
Carbon pricing encourages investment in the clean energy we want alongside investment we need to continue to meet demand in a competitively-priced way.
The initial fixed price period of $23 a tonne will make way for a flexible cap-and-trade scheme after 2015.
Energy security needs diverse supplies – a gradual shift driven by market-based mechanisms over time.
Carbon pricing will be a powerful feature of this transition in Australia.
Conclusion
Ladies and gentlemen, Australia and America face many of the same challenges over energy production and use.
Whether it’s reducing greenhouse gas emissions, finding new mineral deposits or investing in the infrastructure that carries our energy – there are countless ways we can work together.
As more and more partners are seeing for themselves, Australia offers an attractive framework for investment.
By continuing the enthusiasm of those early pioneers in 1895, we can achieve a great deal.
Thank you.