Monday, 24 June 2013
Private Members' Business
Gas is a major source of energy in Australia. It provides 20 per cent of our energy consumption. Australia has abundant reserves of gas. Our proven reserves of coal seam gas and conventional gas are enough to meet more than 70 years of know n gas demand. The government's 2012 energy white paper shows that exports of natural gas are booming. Australia has seven of the world's 12 major LNG projects currently under construction. Gas exports are projected to triple from 20 million tonnes to over 63 million tonnes by 2017. This export boom is accompanied by a huge investment in Australia by those countries looking to develop gas for export facilities. This investment is around $50 billion in Queensland and around $116 billion in Western Australia.
However, out of this boom in gas production we are not seeing a competitive advantage for Australian manufacturing or for domestic customers. In fact, international demand for Australian gas will drive up domestic prices and make supply on the east coast scarce. This is because of the structure of the Australian gas market. Largely for geographic reasons, Australia has three gas markets that are separate and distinct from each other—the eastern, northern and western gas markets. For mostly historic reasons, there are no pipelines that link these markets.
In the eastern gas market, the market that supplies the entire east coast of Australia in 2014, gas production will be available for export for the first time. Until now there has been no way for gas producers to sell eastern market gas into the export market. The entire production capacity of the eastern gas market has only been available for sale into the domestic gas market on the east coast of Australia. This has kept domestic gas prices low and supply plentiful.
Australia's gas resources are controlled by the world's largest oil and gas companies. Not surprisingly, these companies favour LNG contracts worth billions of dollars with a handful of overseas customers rather than supplying gas to smaller Australian companies. Presumably they see this as their job in maximising return to their shareholders. The 2012 energy white paper highlights how the supply of gas to domestic and export markets will likely experience tightness from 2015 and possibly through until 2020. The limitation of supply is due to a number of factors, with gas suppliers focused on ensuring that export contracts are filled and that infrastructure, like LNG terminals, are applied primarily to the export market. These limits on the supply side are mostly projections at this stage. The government's energy white paper describes how some LNG producers are already stockpiling gas for supplies for future project development.
The development of gas fields is being managed to provide export contracts. While it makes commercial sense, it is not necessarily driven by the Australian national interest. Some argue that Australia is trading away its competitive energy advantage. I agree. Australian domestic wholesale gas prices have been low by international standards until now. But now demand from export markets is high and the international prices on offer are high compared to Australia's domestic prices. In the international market, Japanese buyers are prepared to pay $15 a gigajoule for our gas. At the same time, Australian gas prices have been around $3 to $4 a gigajoule. Our domestic gas prices are therefore set to steeply rise. In fact, many believe that Australian gas prices are set to at least double by 2020. It is ironic that, in the midst of a booming gas export market and higher levels of production of gas, in Australia it will lead to higher prices for local consumers. For all the huff and puff from those opposite on electricity prices and cost-of-living pressures, we have not yet heard one word about this more serious issue. It has intense implications for the Australian market.
These changes in the eastern gas market are occurring at the same time as many gas contracts are expiring. Many large domestic contracts are set to expire from 2014 onwards. New domestic supply contracts will be negotiated in competition with negotiations for export supply. According to the managing director of one of New South Wales's largest gas suppliers, AGL, Gladstone is going to be like a giant vacuum cleaner for the east coast market, hoovering up all the gas it can get its hands on. AGL, which supplies half the New South Wales market, will see its contracts expire at the end of 2016 and 2017, at the same time as international prices are high and rising and exports are booming.
This also has significant implications for the manufacturing sector. Australian manufacturing already faces tough times due to the high Australian dollar. Even with the recent drop in the value of the dollar to, at any range, about 80c to the US dollar, our high currency makes it difficult for our manufacturing to compete. I have already spoken about this in this place and about the importance of Australian manufacturing to our national interest. The engineering know-how that accompanies a manufacturing industry creates a cultural and knowledge base within a town and within a society which I believe is critical to the future of this country. It is a fact that there are more jobs in the manufacturing and associated industries than there are in the gas export industry. Manufacturing is not only critical to our economy but critical to the sort of country that we want to live in.
Natural gas makes up between 15 and 40 per cent of the cost base of industries—in particular, manufacturing industries like fertiliser, alumina, cement, float glass, brick and roof tile production and many others. Many of these industries are also trade exposed, facing tough competition from countries with better access to lower priced gas. Perversely, high gas prices and a lack of available or secure long-term supply of gas will drive some industries back to coal fired power, and others will have no alternative but to close their Australian operations and head to cheaper-energy countries.
The development of Australia's gas industry plays a key role in reducing Australia's carbon emissions. A gas fired power station produces half the emissions of a black-coal power plant and a third of the emissions of brown-coal power plants. Currently, one-third of the gas consumed in Australia is used to generate electricity. It is indeed unfortunate that high gas prices are making the economics of switching from coal generated electricity to gas generated electricity potentially unviable. This situation makes it all the more difficult for industry to reach its lower carbon emission targets by 2020.
In August 2011, the Western Australian government became the first to implement a domestic gas reservation policy. Under this policy, that state government retains its 15 per cent domestic gas reservation requirement for all gas projects. In the USA, a gas reservation policy is in place for shale gas production. It is interesting to note that just today it has been announced that Israel will be reserving 60 per cent of its natural gas reserves for domestic consumption. A gas reservation policy of even just five per cent of the eastern gas market would see 95 per cent of gas production available for export, barely affecting the returns to taxpayers or disrupting the gas market. The availability of even five per cent of gas reserved for domestic users and manufacturing could go a long way to save many Australian manufacturing jobs and put downward price pressure for domestic users.
The federal government is responding to these issues primarily by dealing with market transparency. Funding has been provided for a domestic gas market study. I welcome this. We also need to have sensible policy options on the table. There are other policy options, like gas reservation, which should be considered. Other options, including forcing big export companies either to develop gas tenements or to give them over to other, smaller gas developers—the use it or lose it approach—should also be considered.
I believe that these matters deserve the urgent attention of the Australia parliament. In doing so we would not be acting alone. I have already mentioned other states, but other countries are considering exactly the same issues as they juggle the need to exploit their bounties of natural gas but at the same time ensure that there is a plentiful and affordable supply for domestic users, including domestic manufacturing. I have spoken previously about how the US government has seen that it is able to use a domestic gas 'priority to domestic users' policy to reboot the American manufacturing industry, and over 500 million jobs have already been created as a direct result of this policy.
Our abundant natural gas resources should be a competitive advantage for domestic users, particularly for Australian manufacturing. In regard to our policy settings for the gas market, we have to ask ourselves whether the economic benefit of the gas export market is enough for us to overlook the potential crisis that is looming in the Australian manufacturing sector.
I too rise to speak on this very important private member's motion brought forward by the member for Throsby. It certainly reeks of a great degree of hypocrisy that it has been brought in on the last Monday of the last parliamentary sitting week of this 43rd parliament. If it is that important—and he talked about the urgent need for this parliament to discuss it—why has it not been brought to this parliament in any one of the last five years? Why has it not been brought up before now? In the last parliamentary sitting week, in which we are dealing with more than 100 bills—some of which relate to last year's budget—he expects us to want to bring it forward and speak about its urgency. There were some things in his speech that I do concur with, and certainly that industry concurs with, but to bring it up at this juncture—at this five-minutes-to-midnight point in time—is a little bit rich.
The eastern gas market, which covers New South Wales, the Australian Capital Territory, South Australia, Tasmania, Victoria, and Queensland, has previously been stand alone, unlike the Northern Territory and Western Australian markets, which are connected to export markets. This has kept gas prices in the eastern market low by international standards. From 2014 to 2017, three liquefied natural gas export plants will open at Gladstone in Queensland, and I know the member for Flynn is very much looking forward to the opening of one of the plants in the first quarter in 2015. There are 9,300 people working on its construction at the moment, more working on the pipelines and even more on the gas wells at places such as Dalby and Chinchilla in Queensland. These people are looking forward to finishing the construction and the member for Flynn is looking forward to it providing even more economic wealth for his electorate in Gladstone.
Historically, gas in the eastern market has been supplied on long-term contracts, at prices ranging between $2 and $4 per gigajoule of gas compared with export prices of around $7 to $9 per gigajoule. The consensus among analysts is that the price of gas in the eastern market will rise to around $6 to $8 per gigajoule in the next two to three years.
Last Monday, I heard from Paul O'Malley, the Chief Executive Officer of BlueScope. I recall his interview with the ABC on 20 August last year, where Ticky Fullerton talked about the Prime Minister's Taskforce on Manufacturing, which had been announced just four days previously. In answering the questions put to him, Paul O'Malley said:
I think being a manufacturer in Australia you're faced with some very high cumulative costs. There's a lot we can do to lower energy costs in Australia. Flexible workforce. We've got that here, but it's pretty high at the moment.
So, we compare our activity in the US where there is an increasing investment in manufacturing with our activity in Australia and you can see that there is a lot that can be done. Bottom line: we've got to lower the cumulative cost of doing business in Australia.
That last sentence is very interesting, because what have this government done to lower the cumulative cost of doing business in Australia? The answer is nothing. They have made it go up and up and up by imposing a carbon tax and by imposing so many other restrictions on being able to do business in Australia.
Mr Champion interjecting—
I hear the member for Wakefield cry out. He should know just how much the carbon tax is hurting the manufacturing sector in his particular South Australian electorate. I know that certainly the shadow minister for innovation, industry and science, the member for Indi, on the very day that the manufacturing task force report came out, quite rightly said:
This report is just more talk, with no prospect or guarantee of any immediate or decisive action from Labor … They started out on industry policy in 2007, by trying to improve "dialogue", with "discussions" and a "forum" supported by "councils", a "partnership", a "review" and roundtables.
But it is all talk. It is all fluff and guff from this Labor government, which has done nothing to protect manufacturing. So it is a bit rich for the member for Throsby to come in here on the last Monday on the last parliamentary sitting week and talk about the urgent need to do something for manufacturing. Paul O'Malley said:
… from a manufacturing base you've got to look at your raw materials as a source of competitive advantage. But also, by the same token, economists say, "Export everything you can and get the best price." I think we have to take a bit bigger view of the Australian market and look through cycles.
What I have been focused on is the resources boom will end in Australia, and at that point we need to make sure that we've got a broad-based economy and we can't be economically rabid as we head down that path.
He is right, and we do need to have this discussion about a reservation policy. But in the last parliamentary sitting week? There are other more pressing issues, such as some of the other 100 pieces of legislation, including some of which were in last year's budget, which still have not been ticked off. They still have not even gone through the Senate. So goodness knows when the government thinks that that might be going to happen. Goodness knows when the member for Throsby thinks that is going to happen. As the member for Indi indicated when talking about manufacturing, 'Same old talk, no action.' It could apply to all of the things that Labor has put in place—unless it was something that was actually going to constrict Australia from doing business, such as the carbon tax or Labor's poor water policy. But I digress.
All this talk of a reservation policy has been to shore up the domestic gas supply, and there are some people in the industry who believe that it is necessary. Certainly Manufacturing Australia, of which BlueScope is a part, talk about how it is a myth that major advanced economies do not intervene in their gas markets. I did hear the member for Throsby speaking about that very point. Australia is the only country in the world which allows unrestricted exports of gas. That is true. Regulation and government intervention are a reality of gas markets internationally. All other comparable nations, including the United States of America and Canada, employ some form of intervention to ensure a functioning domestic market spreads the benefit of gas resources throughout the domestic economies. We do need to make sure that we put in place legislation which is going to make it easier for Australian businesses to do business, to make sure that Australian manufacturing is able to be the very best that it can be. That is why, hopefully, after 14 September the coalition will be returned to office so that we can make this nation the very best it can be. At the moment, farmers, manufacturing, business and particularly small to medium enterprises have been absolutely smashed by this Labor government and its policies, and the worst of those policies is the carbon tax. But certainly with manufacturing we have lost so many jobs out of manufacturing that one wonders whether, in fact, we can ever restore it to the heady days we had before this Labor government took hold.
A reservation policy will not deter investment in LNG exports or otherwise cripple the industry. I will accept that, and certainly that is the industry's viewpoint. The impact of intervention on LNG exports may well be, according to the industry, negligible. But, first and foremost, we have to get our economy right.
First of all, we have got to get the levers going so that we are actually enhancing business, enhancing manufacturing. To do that, we need to remove the ever-constricting carbon tax and we need to put in place the sorts of economy-boosting policies which are going to help price-sensitive industries for which gas is a material cost, such as steelmaking, brickmaking and chemical manufacture, all of which have struggled under good policy from this place and all of which will do better, I might argue, under a coalition government.
Mr Champion interjecting—
I hear the member for Wakefield saying something about imagining. It is not imaginary. We are going to have an election on 14 September. His side of politics has done a bad job since 2007, despite all the promises that it made prior to the 2007 election. Prior to that, everybody thought: 'We need a change. We'll give the member for Griffith a go.' Then of course the member for Lalor saw to that. This government has unfortunately let the people of Australia down. It has certainly let the manufacturing industry down and it has certainly let down those people who want to get on and do the right thing by this nation to improve economic development, to improve our international competitiveness, to improve our domestic markets and to improve the family businesses and small businesses which have made this country great. Labor has let them down. The coalition will not do that. We will restore hope, reward and opportunity, and we will certainly remove the carbon tax.
I would like to thank the member for Throsby for bringing this motion on natural gas before the parliament. I think it is a good thing that has been brought before the parliament. In general, we do not discuss these matters enough. The member for Riverina bored us all, partly by reciting slogans, partly by getting onto that whipping boy, the carbon tax. Then every so often he actually wanted to discuss the motion. He tied himself up in knots there for a while.
We all know manufacturing is suffering under a high dollar. It is the currency that is the primary cause of difficulty for manufacturing in this country. I know from the car industry that six months ago a Japanese car that might have rolled off the boat for $20,000 now rolls off for $5,000. It gives you an idea of just how difficult many of those currency movements have been for the car industry. It is not just that we have got a high dollar but that our competitors are lowering their currencies through printing money, in the case of the Japanese and the Americans, and implementing austerity in the case of the Europeans, the Germans. It was not successful in the 1930s and it is not being successful now, resulting in very high unemployment and worsening deficits in the outlying countries.
Energy costs are a factor in manufacturing. No-one can deny that. The carbon price has put on about $40 a car. If we use Holden's figures, they say it is about $3,000 per car more expensive to manufacture a car in Australia than import it. That is primarily because of the currency, not because of energy costs. But we know from the member for Throsby's speech—and a very able speech it was—that higher energy prices are coming down the pipe potentially if we do not look at the regulation of energy markets. I have got a sitting on the bookshelf, ready to be read, called TheRace for What's Left.Around the world, nations are in a mad rush to secure energy supplies. You only have to look at the investment picture around the world to know that that is true. What has been missing in this country is a debate not just about energy costs, carbon prices and the like—how we deal with climate change—but a debate about energy security and the appropriate way to use the bounty that Australia has been bequeathed by providence. We have to make sure that that works for the nation.
At the end of the day, the best protection is to decarbonise the economy, to diversify the energy sources we have. That is probably a critical aim, but in the meantime we have got to make sure that the gas reserves that we have got are not just utilised to create huge profits for multinational companies or even Australian companies, and are not just used as for windfall royalties to state governments to keep budgets going, but they are also used to trigger and stimulate economic growth in this country. It would be a sad state of affairs indeed if, in creating this wonderful export market through Gladstone and exporting and getting very high prices for our gas, we caused market failure in our own domestic markets. Market failure is not just when you cannot get it; it is also when you pay very high prices or when those prices act against the national interest.
We have representatives of Manufacturing Australia listening to our speeches, and they have made us aware of the very large risks to their sector that may be caused if some allowance is not made and some protection is not made in terms of our domestic markets. We need to consider gas reserves, and we need to consider differential royalties, and we need to consider, I think, 'use it or lose it' approaches to gas reserves. We have to make sure the supply of gas is bountiful in the domestic market, and we have to make sure the price is right as well—not just for manufacturers but also for domestic users. It is just not good enough to say, 'Well, we'll leave it to the market and the market will provide.' We know that all energy markets around the world have some form of intervention and regulation inherent in them, and Australia should not be naive but should be practical in our analysis and our policy solutions in this area.
I would like to also thank the honourable member for this motion, which talks in paragraph (6) about how Australian manufacturers are being heavily exposed to rising energy prices. It is good to hear the honourable member confirm that point, and I am also very pleased that the honourable member made the comment about how critical manufacturing is to our economy. The honourable member is absolutely right on those two facts.
However, one must wonder, given the other policies that the honourable member has supported, if he, in fact, is living in a parallel universe. Perhaps it has escaped the honourable member's attention that, if my recollection is right, both the honourable member that moved this motion and the honourable member for Wakefield, who I will not forget, actually voted to impose upon Australian manufacturers the world's largest carbon tax—a tax which pushes energy prices up, including gas. So, with the greatest respect to the honourable member for Throsby, to describe this motion as even slightly hypocritical, I think, is an understatement. While the honourable member's motion expresses his concern about Australian manufacturers being heavily exposed to rising energy prices, the honourable member should not forget not only that he is part of a government that has imposed the burden of the world's highest carbon tax upon those very same manufacturers but also that in six days this toxic carbon tax actually increases a further five per cent. And let us not forget what we are going to see if this government is re-elected. The honourable member will be going around his electorate and boasting about the government's policies of increasing the carbon tax and extending it to diesel fuel. So, for all our manufacturers in the nation and everything that comes in and out of their factories, this government wants to put a tax on diesel fuel to increase the price of moving those goods in and out of these factories. That is every truck. Every truck in the nation is going to be exposed to this tax if this government is re-elected, and those are the policies that the party that the honourable member for Throsby is a member of is supporting.
Paragraph (8) of this motion correctly notes how the manufacturing sector of the USA has been revitalised—500,000 new manufacturing jobs simply because the USA has been able to lower its energy costs, which has given it an international competitive advantage. With our abundant supplies of coal and natural gas in this country, it was our energy costs that used to be our national competitive advantage. That is what gave us an advantage over other countries. That is what gave us wages. It is what has enabled us to afford to pay high wages by international standards, and it is that international competitive advantage which has underwritten our national standard of living. That is what has financed our social welfare programs. I say to anyone who wants to surrender that national competitive advantage, anyone who wants to come in here and say that they want to give it away, that that should be defined as a crime—a crime against the people of Australia. This is exactly what the government have done with their carbon tax and other feel-good, entirely useless and counterproductive green policies. They have surrendered our national competitive advantage and forced up the cost of manufacturing in Australia.
Deputy Speaker, just look at the effect this is having. Just last week we saw the ABS labour force data confirmed that our manufacturing sector has plunged to new record lows. We lost 3,900 manufacturing jobs in the last quarter alone—and that was when the dollar was falling. This is a rate of one manufacturing job disappearing every 19 minutes. In fact, under this government, total manufacturing job losses amount to 143,300. This is the decline that we have seen. These are the worst-ever figures in the manufacturing sector's history. They are at the lowest point since records have been kept.
There is a clear contrast: the coalition will get rid of the carbon tax and reduce the cost of energy in this country; the government will do exactly the opposite—their carbon tax will increase it. They want it to go up year after year. They want increases to the cost of diesel fuel—attacking the manufacturing heart of our nation. For those in the manufacturing industry, the choice cannot be clearer.