Martin Ferguson (Batman, Australian Labor Party, Minister for Resources and Energy) Share this | Link to this | Hansard source

by leave—On Tuesday, 3 June, following a pipeline failure on Varanus Island off north-west Western Australia, Apache Energy’s Varanus Island gas plant ceased production, reducing gas supplies to WA business, industry and consumers by about 350 terajoules of gas per day. This represents around 30 per cent of Western Australia’s normal gas supply and around 18 per cent of normal stationary energy—or electricity—supply. In some areas such as the Pilbara, large industry and mining companies are without about 45 per cent of their supply.

The cooperation of business and industry in the Pilbara, Perth, the south-west and the goldfields has meant that supplies to residential customers have not been affected. Affected businesses and industries are doing everything they can to purchase gas from elsewhere, swap to diesel or oil, and bring forward maintenance and upgrades to reduce demand on the system. Gas producers such as the North West Shelf Venture, operated by Woodside, have also been very cooperative, with their systems running at full capacity and every effort being made to supply additional domestic gas at reasonable prices.

This has been one of those occasions where government, business and the community have pulled together in the face of adversity, and they are to be congratulated for the way the situation has been managed. I believe it is what Australians do best and I know we will continue to work together on the long road to full recovery.

The Premier, Alan Carpenter, has been in regular contact with the office of the Prime Minister and the Deputy Prime Minister. The Australian government has agreed to work in partnership with the Western Australian government to provide whatever support is required to minimise the impact of the gas supply disruption on business, industry and households. I received a detailed briefing on the gas supply situation from the Premier, the Deputy Premier and the Minister for Energy in Perth on Saturday last. The Deputy Prime Minister last week welcomed the Western Australian Premier’s announcement of the gas supply disruption recovery committee and committed the full participation of relevant Commonwealth departments and agencies as required. In addition, the Deputy Prime Minister announced that the Australian government would immediately make available Job Search, through Centrelink, to those who may be directly affected as a result of the incident at Varanus Island.

I am further advised that the Minister for Families, Housing, Community Services and Indigenous Affairs is currently developing a contingency plan that will look at options to assist affected communities in Western Australia if the need arises. Experiences from the Longford gas disruption in Victoria in 1998, Cyclone Larry in 2006 and the equine influenza outbreak in 2007 will be drawn upon in the development of the plan.

So far, as the Premier, Alan Carpenter, noted last Saturday, the good cooperation of the business community has meant that the WA government is not in a position where it is asking for financial assistance from the Australian government. We can, however, provide other forms of assistance. I am pleased to report to the House that the defence minister agreed on Friday last to surrender an order of six megalitres of diesel for the Navy, which allowed the BP refinery at Kwinana to concentrate on bolstering diesel supplies for Western Australian industry over the coming week. The defence minister has also advised that, if a need arises for additional diesel supplies to be made available, he will consider releasing volumes from the strategic reserve.

Like the gas producers, the refiner-marketers in Western Australia, primarily BP and Caltex, have been pulling their weight and making every endeavour to keep supplies up in Western Australia as large sections of industry shift from gas to diesel. While I sincerely hope that this will not be required, the Liquid Fuel Emergency Act provides the Australian government with the authority to prepare for and manage a national liquid fuel supply emergency. During such a situation, I can control the production, transfer and stock levels of crude and liquid fuel. I am pleased to say, however, that suppliers and customers have been working cooperatively together, and the market is doing the job of distributing these resources very well.

Also in my portfolio, the National Offshore Petroleum Safety Authority is providing free and independent advice to the Western Australian Department of Industry and Resources with respect to the investigation of the Varanus Island incident and related matters. That is about making sure we learn from this gas outage and try and avoid any similar events in the future. It is very important that the investigation is carried out without prejudice and completely at arm’s length from both the Western Australian and Australian governments. I might also say that this is not a short process. It will take several weeks for independent experts to gather information and conduct their analysis, for an officer to prepare an independent assessment and for the government to consider the results in a proper way. The last thing we need is speculation about what or who is to blame. It will do no-one any good, and I would ask all stakeholders to be patient, refrain from rumour-mongering and allow the investigation to follow due process.

The Attorney-General and I are also pleased to advise the Western Australian government that we will make available the resources of Geoscience Australia to assist with estimating the macroeconomic impact of the gas disruption if this would be helpful. The Attorney-General’s Critical Infrastructure Protection Modelling and Analysis program, delivered through Geoscience Australia, has the capacity to examine the relationships and interdependencies between critical infrastructure systems, such as gas supply, and shows how failure in one sector can affect operations in others.

It is becoming clear that the implications of the recent Varanus Island gas disruption will be felt for some time. Using CIPMA could help provide a better understanding of the economic implications of the disruption and a clearer picture on how best to address the issues arising, including mitigating impacts on the WA community, business and industry. Given that it will take two to three months to restore partial supplies and several months longer for full recovery, it is important that the economic implications and the social effects are properly considered, assessed and planned for.

Many small businesses and major industries, along with their workers and their families, are already feeling the impact. The state’s two major laundry services for hospitals and hotels have reduced capacity and temporarily stood down staff. Timber mills have had to stand down workers and scale back production. Food production facilities, such as the state’s major beef and pig abattoirs, the Fonterra dairy and the Coca-Cola plant, have been disrupted. Brick factories and the new desalination plant are operating at reduced capacity. Major industries such as Alcoa have declared force majeure on export supply contracts and have scaled back production. This disruption to economic activity is likely to flow on to reduced exports in the near future and lower growth than might otherwise have been the case. The impact on small- and medium-sized businesses is of particular concern because, in an environment where Western Australia has been booming, it is a real problem for them to face the prospect of losing workers to other industries if they are forced to stand them down temporarily.

According to the Office of Energy in Western Australia, there is little prospect of alternative energy supplies being found to completely replace Apache’s production in the short term. The Western Australian government is, therefore, fast-tracking work on state owned coal fired power stations, including recommissioning the Muja power station to take pressure off gas supply in the short and medium term. This is a fine example of how Australians work together in a situation of difficulty, and I acknowledge the contribution of the people of Collie in getting these coal fired power stations back on line in the minimum time. In addition, the Premier is calling daily for gas and electricity consumers to conserve energy as much as they possibly can. I believe everybody has got to play a part by limiting energy use and reducing energy use. Every little bit helps, as we can all appreciate.

In the longer term, this incident highlights the urgent need for a national energy security strategy and underlines the importance of the current national energy security assessment that my department is undertaking and which will lead to a national energy white paper. My department, I am pleased to report, is also completing a full and comprehensive review of the existing acreage arrangements to ensure that we can do more with our vast reserves of natural gas. The concept of ‘use it or lose it’ has always been the basis of the legislation and, to my way of thinking, has not been as rigorously applied as it should have been in the past. I will be receiving that report in the near future and I am advised that it is likely to raise questions, in some instances, about some companies having perhaps not faced up to the commercial fact that there is gas supply capacity to be developed in Australia in the foreseeable future.

By the same token, I know that major gas projects are capital intensive and a long way from markets and infrastructure, and it is not always easy to get them off the ground. To address this issue, the root and branch review of the taxation system by the Secretary of the Treasury will include an assessment of the barriers to investment in large-scale downstream gas processing projects in Australia, and 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 domestic gas, LNG and gas-to-liquids projects.

This interruption to gas demonstrates why the Australian government, working in partnership with the Western Australian government, is looking at not just the short term but also the medium- to long-term energy security debate, which is the biggest debate in the world at the moment. Whoever has energy security has a guaranteed economic future, and we are going to make sure that Australia as a nation has as much energy security as it can.

I also advise the House that I had an informal discussion this morning with the shadow minister for resources and energy, Senator Johnston, and I undertook to keep him informed of developments as we go forward. I also appreciate the interest of the member for Groom, as the former minister for industry, tourism and resources, in this matter.

On behalf of the Australian government and the Australian people, I extend to the Western Australian community, and to business and industry, an assurance that the Australian government stands ready to assist, wherever possible, to minimise the impact of the gas supply disruption over the coming months.

I ask leave of the House to move a motion to enable the member for Groom to speak for 13 minutes.

Leave granted.

I move:

That so much of the standing orders be suspended as would prevent Mr Macfarlane speaking for a period not exceeding 13 minutes.

Question agreed to.

Ian Macfarlane (Groom, Liberal Party, Shadow Minister for Trade) Share this | Link to this | Hansard source

It was encouraging to see that the federal Minister for Resources and Energy travelled to Western Australia on the weekend to see firsthand the scope of the crisis which is currently gripping Western Australia. The minister’s announcement that he would immediately make Job Search support available through Centrelink to those workers who have been stood down because of the crisis is also welcome. Similarly, the Minister for Defence’s release of six megalitres of diesel from Navy supplies to the BP refinery for local market consumption is welcome.

However, fundamentally important is the undertaking of an immediate audit by the National Offshore Petroleum Safety Authority, or NOPSA, of all similar pipelines across Australia where it is believed multiple pipelines have been located in proximity to each other because of conditions imposed in the original approval process. There is a major concern that there may be similar situations in a number of other locations across Australia, and these need to be identified rapidly and rectified as a matter of urgency. Although the state government has announced that an investigation is underway by NOPSA and DoIR into the cause of the incident on Varanus Island, it is vital that this inquiry have the nature of an inquest and that the investigations into the circumstances leading to the explosion and subsequent fire be forensic and detailed in their scope.

The focus by the federal government on retention leases will do nothing to make a real difference in the short term because, regardless of who owns these leases, they still need to be commercial and they still need to be developed over a period of time, which will see none of this gas come on stream for four to five years at the earliest. There will be a number of fields outside those areas under consideration that will come on stream only on the basis that they are commercial, which relies, of course, on clear market signals. It would also be better to focus on stimulating the increase in exploration for, and the production of, smaller fields—focusing on infrastructure, including pipelines and gas gathering infrastructure—and on changing the gas specification in Western Australia. This is well overdue and needs to be addressed as part of a process of ensuring that this sort of gas shortage does not occur again, regardless of any incidents that occur in the gas supply infrastructure.

A worrying signal in this year’s budget was that there were no new budget measures for 2008-09 for offshore petroleum and gas safety. It would be hoped that, with this wake-up call not only for Western Australia but for the whole of Australia, whatever budget allocations are required for safety are not compromised away and are in fact made available. Page 72 of the portfolio budget statements says:

… NOPSA recognises that in an industry where a major accident has the potential to cause a significant loss of life, damage to plant and equipment and affect security of supply—there is no room for complacency.

In fact, this government seems determined to create maximum uncertainty for its own gas consumers with its excise tariff amendment legislation, which is a tax grab, pure and simple, that risks the future stability of the Western Australian gas industry at two levels. Not only does it undermine investment confidence in Australia and in the resource industry but also it creates more questions for WA gas consumers at a time when they are looking for answers and certainty. That is something sadly lacking from this government because it cannot say whether or not the measures will increase the price of gas for domestic consumers in the Western Australian market. It is now more important than ever that this Rudd government not only work to restore confidence in the gas market in Western Australia but not do anything to undermine the WA market.

You would have thought that energy security would have figured very highly in the Western Australian state government’s agenda after nearly eight years in government. The state government did of course intervene in the marketplace with a reservation policy which has not only caused great alarm but also placed in question a number of projects that could, in the fullness of time, have provided further domestic gas supplies to the consumers in Western Australia. In fact, the WA government has been caught out and has been asleep at the wheel in not being proactive in encouraging alternative gas supplies. This is especially so given that on at least two occasions there has been either a serious, widespread outage or an emergency situation due to a shortage of gas supply. To have the Premier, a former Minister for State Development and Energy, who did nothing about ensuring Western Australia’s energy security, now trying to portray himself as Mr Fix-it is just plain disingenuous.

With just one explosion the industry in Western Australia has been crippled. At the very least this event comes as a wake-up call for the construction of a second pipeline from the North West Shelf to supply gas to industry, particularly in the south-western part of Western Australia. It should be pointed out that WA sources its gas from two suppliers located up on the North West Shelf, in the north-west of the state, but transports it only through one pipeline. While ever there is only one pipeline, the state is vulnerable for two reasons. Firstly, if there is an incident on the pipeline, the entire gas supply of the state is affected—not just, as we have in this case, a loss of 30 per cent. Secondly, it really does not matter how much gas is found, the pipeline that exists there already is at full capacity and, if industry is to be able to be sure not only of energy security but also of energy security in a growing sense, a second pipeline is needed. This may not sit comfortably with the monopoly interests of the Dampier to Bunbury natural gas pipeline owners, but it is absolutely central to the long-term energy security of users in Western Australia. Discussions and scoping should commence immediately as to the design and construction of the second Dampier to Bunbury pipeline. The WA gas specification must also be altered to be consistent with the national standard. This is an issue which would allow more gas to come into the system. The current standard seems to be nothing more than an artificial commercial barrier to protect again monopoly interests.

The WA government must also increase its precompetitive geological budget to attract more onshore and near-shore gas exploration to encourage greater production and competition. We note that in this year’s budget there was no mention at all of any increase. The reservation policy of the WA government serves only to lock in WA’s vulnerability by increasing dependence on a small number of players at the very northern end of the pipeline. More effort needs to be put into encouraging exploration for and production of smaller gas fields that lend themselves to domestic supply.

Gas supply volumes post 2010 are unlikely to be a problem, as a number of developing projects are currently underway in response to the increased domestic gas price in Western Australia. Much of the problem of shortage of gas supply has been a consequence of the WA gas market not being fully commercial and the prices being the lowest in the OECD for a long time. We have even heard consumers boast that they are paying less than a dollar for their gas through long-term contracts. Those sorts of arrangements may have been necessary to start the gas market in Western Australia, but they are certainly a thing of the past. The gas market in Western Australia, as it should be everywhere, should be fully reactive to the true commercial price of gas and to its value if we are to see new projects come on stream and new reserves opened up.

Immediate and urgent action is also required to fully investigate the viability of storage. Storage has the ability to smooth out some of the short-term supply problems that occur in all gas supply systems. There are two onshore reserves, near exhausted, that would be an excellent prospect for gas storage. Those prospects, in the Woodada and Dongara areas north of Perth, should be set aside for that purpose and fully investigated. A strategy of gas storage is used here in Australia in the Moomba area. I am sure that the Minister for Resources and Energy will remember that, when the Moomba outage occurred, some of the pressure on consumers could be taken off by supplies being drawn out of that reserve, which is built up during the summer months and fed back into the system, particularly during the high-consumption winter months.

This strategy is also very common in the US and Europe and the appropriate fiscal system could be set up to encourage that to occur. There is enough volume in these particular reservoirs, I am advised, to supply the market for over six months were that to be necessary. At a bare minimum the Western Australian state government, after eight long years, should take an active role in developing these strategic reserve concepts.

A significant part of Australia’s exports rely on these gas supplies and any government should have risk analysis and mitigation procedures in place. Again, I suspect the Western Australia government will be found wanting in this area.

I again put my support behind the Minister for Resources and Energy and congratulate him on the steps he has taken so far. But the real issues lie ahead on this matter. I assure the minister that those of us in opposition will do whatever he requests of us to assist in a very serious situation which will take some time to resolve—most importantly, it is a situation which we need to learn some lessons from to ensure that it does not happen again in the future.