It is a great pleasure to be here today to address the South East Asia Australia Offshore Conference (SEAAOC).
I understand this is Northern Australia's largest and longest established petroleum conference involving more than 350 of Australia and South East Asia's leading professionals.
I might say that in my other capacity as Minister for Tourism this is a major annual business tourism event for the Northern Territory, so it is good to see the resources and energy sector also playing an important role in Australian tourism.
Together my portfolio of resources, energy and tourism accounts for 30 per cent of Australia’s total exports.
These sectors are clearly of immense importance to Australia’s future prosperity.
Governments and industry participants have a collective responsibility to ensure their ongoing health, sustainability and growth for the benefit of all Australians.
You know better than I the challenges we face in developing oil and gas projects here in northern Australia – a world class petroleum province but one which is remote from infrastructure and markets.
Much of what happens to us happens beyond our shores – geopolitical uncertainty, unprecedented economic growth on our doorstep in Asia, the global financial crunch, record oil and commodity prices.
The competition for labour, skills, materials and equipment within Australia and globally is also pushing project costs ever higher.
And there is the challenge of climate change policy.
Let me deal with that first.
Yesterday saw the release of the Australian Government’s Green Paper, Acting on Climate Change: Towards an Australian Carbon Pollution Reduction Scheme.
I am pleased to say that the Green Paper recognises the challenges facing emissions-intensive, trade-exposed industries and the coal-fired electricity generation sector.
The Green Paper sets out a proposed framework for dealing with these challenges and there is now an opportunity for each industry sector, including oil and gas, to make a proper assessment about the implications of the policy proposal for them.
Stakeholders are invited to make submissions by 10 September 2008 and consultations will be held over the next two months.
The Government knows it is vital to get the Scheme right for Australian industry, exports, investment and jobs and therefore your input is very important.
As you know, my door is always open and I will be happy to discuss the Green Paper with you when you have had time to properly work through the detail and make a considered assessment.
However, climate change policy is just one of the public policy issues that will be on your mind – and in my in-tray – today.
A lot has been said recently about foreign investment and sovereign risk.
Australia is not only a world class petroleum province, particularly when it comes to gas, but we are also a safe and stable country with a fair and predictable fiscal, regulatory and access regime.
We are resource-rich and an attractive destination for investment compared to many other places in the world.
We are a country built on foreign investment and we are delighted foreign companies want to invest in Australia, particularly when it is in our national interest and facilitates the development of Australia’s resources for the benefit of Australians.
Our policy is long-standing and non-discriminatory and this Government has sought to more clearly define our foreign investment guidelines.
We are committed to open and transparent investment frameworks because they are the key to investment confidence in our nation.
When it comes to investment confidence, I know some companies are concerned about the changes to condensate excise that were made in the May Budget.
We have to be frank – over time, taxation regimes do change – in fact Governments have often responded to requests by industry to adjust taxation arrangements.
Over the course of the last two decades, under both Labor and Coalition Governments, Australian industry has benefited significantly from business tax reform.
The May Budget removed a “sunrise industry” incentive for the North West Shelf Gas Project and the Cooper Basin that has been in place for 24 years.
Everyone would agree that Australia is a better, wealthier place today for the development of what were then new frontiers at a time when gas was a relatively hard commodity to move.
But now that the North West Shelf is mature and profitable with record high oil prices, the concession is no longer justified and we have a responsibility to ensure the Australian community receives a fairer share of the benefits associated with resource exploitation in the North West Shelf Gas Project area.
In addition, we have a new generation of gas projects such as Gorgon, the Browse projects, and Sunrise that are struggling to get off the ground.
To this end, it seems less well-known in the industry that the May Budget also included the announcement of a comprehensive review of Australia’s taxation system – the Henry Review.
This review 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, Gas-to-Liquids, and domestic gas projects.
I encourage you all to participate in this Review.
Just as with climate change policy, it is very important to the Government that we get this right to deliver the necessary investment in oil and gas for Australia’s future prosperity.
Also on the reform and investment front, the Government recently introduced an amendment to the Offshore Petroleum Act to provide a framework for carbon capture and storage.
This is very important legislation for your sector and also for industries like coal-fired power generation in a carbon-constrained world.
We are committed to getting the balance right between protecting the existing rights of petroleum title-holders and providing a workable framework for carbon storage.
As you know there are House and Senate review processes under way presently and I encourage the industry to take the opportunity to participate in them.
Let me also say that the planned Productivity Commission review of petroleum industry regulation, now formally on the COAG reform agenda, has my full support.
It is vital that we make headway in reducing the timeframes, complexity and compliance costs of regulation of upstream petroleum approvals.
We cannot afford to have unnecessary red tape undermine the international competitiveness of our industry or Australia's reputation as an attractive investment destination.
In 2007, Australia's two LNG projects in operation – the North West Shelf and the Darwin LNG plant – exported 15.2 million tonnes of LNG worth A$5.5 billion to Japan, China and South Korea.
Australia is the third largest LNG exporter in the Asia Pacific region and the fifth largest in the world.
And we have huge potential to be much bigger if we can together address the challenges facing us today.
The LNG industry no longer appears confined to the North West.
From almost nothing only five years ago, coal seam methane now supplies around 18.8 per cent of eastern Australian gas supplies and is now of enormous interest for export as well.
There is no shortage of gas resources in Australia - currently estimated at nearly 160 trillion cubic feet.
We can support strong domestic gas supply as well as exports.
Having said that, domestic gas supply investment has been - and remains - a major issue in the Western Australian market.
Following a review of gas supply issues last year, COAG’s Ministerial Council on Minerals and Petroleum Resources has looked at the effectiveness of policy relating to offshore petroleum retention leases.
It has always been the intention of the retention lease title to provide an investment protection mechanism for discoveries but also to encourage their commercial production as soon as reasonably practical.
It is important that we get this balance right and I have asked my Department to more rigorously apply the commerciality test to retention lease applications and renewals.
As is provided for in the existing legislation, the Department will also conduct a series of mid-term commerciality reviews of existing retention leases to assess their commercial viability in the current market environment.
In addition, my Department, in consultation with their State and Territory counterparts, has prepared a policy options paper on this issue which will be released for public comment shortly.
I encourage you to consider the options paper and the policy objective and provide input to the process.
Despite the current issues around domestic gas supply, particularly in the West, the domgas and export LNG markets are symbiotic – one needs the other.
Many of our remote resources in the North West would not be developed without large-scale export LNG contracts to underwrite the massive capital costs of production and pipeline infrastructure.
Gas-to-Liquids has the same large-scale potential to underwrite new infrastructure.
While I know that many fear the international gas market will drive up domestic prices, it may just as well be that more LNG projects will bring more competition to the domestic market as well.
It is encouraging to note that INPEX is considering two options for commercialising its Ichthys gas field – one in Western Australia and one here in Darwin.
There is nothing wrong with a bit of competitive tension between investment locations to keep governments on their toes!
And I might add that it is good to see companies leaving their options open and being creative with the commercial and physical possibilities to bring these difficult gas projects to fruition in a profitable and sustainable way.
Public policy can drive the industry to some extent, but innovation by the industry itself is vital to its success and will provide the best outcomes for Australia.
That is why I also welcome the proper consideration of new technologies such as floating LNG, subject to all the appropriate safety, environmental, economic and safety considerations.
The proposed hub concept in the Kimberley is also a new innovation that will need the cooperation of all the stakeholders to make it a success.
The success of Northern Australia’s petroleum industry is also tied to the success of our neighbour, East Timor.
I would like to congratulate the Timor-Leste secretary of State for Natural Resources, His Excellency Alfredo Pires, on the commencement of the Timor-Leste National Petroleum Authority on 1 July 2008.
It is a great achievement with the National Petroleum Authority now taking over as the regulatory agency of the Joint Petroleum Development Area.
The JPDA will continue to be regulated in accordance with the arrangements established under the Timor Sea Treaty.
Staff from my Department have spent some months working with the former Timor Sea Designated Authority to help get to this point and I know that it has been a very rewarding exercise for them and a great opportunity for the two nations to work cooperatively together.
Not only do we need to grow our gas industry, we have the challenge of finding the next Bass Strait.
Australia's declining liquid fuel security is a major concern – we have only about a decade of known oil resources remaining at today's production rates.
Australia is lightly explored for petroleum; in particular, our frontier areas – the vast majority of Australia’s more than 50 sedimentary basins are unexplored.
My Department is currently preparing a package of proposals, in consultation with the petroleum industry, aimed at significantly enhancing our oil and gas exploration effort.
The package will consider options such as establishing new tax incentives for exploration in frontier areas and expanding Geoscience Australia's information acquisition program.
In closing, I would like to acknowledge another great challenge for your sector and the wider economy – the skills crisis.
The Australian Government is acting to maximise workforce participation through:
- The establishment of Skills Australia to oversee the delivery of 630,000 training places over five years; and
- Increasing the intake for permanent skilled places in 2008-09 to 135,500.
But there is an untapped workforce that is not receiving the attention it deserves.
It is appropriate here in the Northern Territory for us to remember that by 2020 one in two Australians living in Northern Australia will be of Indigenous descent.
These people are the future workforce of Northern Australia, yet Indigenous employment lags far behind that of mainstream Australia.
The resources sector is already a leader in the field of Indigenous employment, but there is much more that remains to be done.
Aboriginal representation in mining workforces in Northern Australia averages about 9 per cent, but some companies are doing much better, for example, Rio Tinto has roughly 25 per cent at Argyle Diamonds and 18 per cent at Comalco Weipa.
BHP has set Indigenous employment targets of 14 per cent in the contract workforce by 2012, along with apprenticeship and Indigenous business targets, and improvement targets in key Indigenous health, education and employment indicators in their towns.
These are the kinds of goals and innovations that we need to see from the wider resources sector.
Alleviating the social disadvantage of Indigenous Australia through jobs, education and social participation is one of my own - and the Government’s - highest priorities.
But we will only make progress with the direct participation and commitment of Australia’s business community.
Ladies and Gentlemen, this has been a wide-ranging speech reflecting the broad reform agenda of the Australian Government.
I note that on the way through I have made many requests of you for participation in the reform processes.
This reflects the partnership that is required to grow this very important sector of Australia’s economy and I look forward to working with you over the coming years.
Thank you.