Martin Ferguson (Batman, Australian Labor Party, Shadow Minister for Primary Industries, Resources, Forestry and Tourism) Share this | Hansard source

I seek to continue my contribution to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006 and the Petroleum Resource Rent Tax (Instalment Transfer Interest Charge Imposition) Bill 2006 and in doing so to pick up the theme from the previous speaker, the Parliamentary Secretary to the Minister for Immigration and Multicultural Affairs, who started to talk about sovereign risk. What the opposition is raising today is the risk to Australia. That is about our sovereignty with respect to energy security. In that context, I think Australians are entitled to a fair return for their oil and gas reserves. That is because resources remain our biggest global competitive strength. We appreciate that Australia needs to develop new industries. There is no better place to focus than on the oil and gas industry that can both enhance our export base and in doing so, importantly, secure Australia’s fuel energy security for the future at a time when consumers are concerned about high petrol prices and increasing reliance on an unstable Middle East.

Australia has—and we are lucky—some 40 offshore basins that display signs of oil and gas potential, but half remain unexplored due to the cost and high risk of exploration in remote frontier areas. Despite the fact that oil prices are at record highs, exploration is not occurring in the areas most likely to deliver the next big oil province. I am informed that there have been only three wells drilled in frontier basins in the last three years and that most of the exploration being done by Australia’s oil and gas companies is occurring overseas. This is because the high oil price incentive operates globally. The reality is that Australia remains a higher risk and a higher cost exploration province than other places around the world. The rate of success in Australia is one in 12 compared to one in three for North Africa and one in four for the Gulf of Mexico. Even our home-grown companies like Woodside and BHP Billiton are finding it more attractive to explore offshore rather than in Australia. Costs in Australia have increased by more than 35 per cent in the last year due to skills shortages, which have increased labour costs, and demand for equipment which has forced up rates.

The opposition suggests that it is time for the government to accept that we as a nation need urgent action to address these huge obstacles to investment and exploration in Australia. No stone should be left unturned; we should be aggressive about creating an investment environment which encourages exploration, an oil and gas industry, onshore in Australia. We therefore need to consider whether an enhanced PRRT deductibility for frontier oil exploration is enough or whether—and this is the challenge to government—more needs to be done. We need to do that without affecting the integrity or stability of the PRRT system. We should be about encouraging junior and mid-sized oil exploration companies which are interested in developing small fields close to markets. In doing so we have to seriously consider the potential for flow-through share schemes, which were referred to by the member for Cook in his contribution just before question time. They have been successful in Canada, and at the recent Minerals Council dinner I noticed that the President of the Minerals Council of Australia chided the Australian government for yet again, in its 10th budget, walking away from the importance of the flow-through share scheme. The government was chided publicly about its weaknesses with respect to the investment regime in Australia which goes to nurturing and growing the oil and gas exploration and development industry in Australia. I think it is important that we do not forget those small and medium sized companies.

Smaller fields that are not economically attractive to the oil majors are becoming increasingly important contributors to our total national oil production, and I think the onus is on us as a nation to encourage the smaller explorers and developers to continue to look for and exploit these fields. They are sitting there waiting to be picked up by the small and medium sized operations in Australia. In that context, I am pleased to see that one of the areas that needs to be addressed—the gathering of pre-commercial data and the evaluation of new frontiers for oil and gas exploration—is now receiving serious attention from Geoscience Australia. That effort is very important and one which the Labor Party wholeheartedly supports. Geoscience Australia should be absolutely supported by government and the private sector to carry out this important, fundamental work for the future of oil and gas exploration and development in Australia.

I also suggest that, while we need to focus on finding more oil, we also have to understand the importance of this. We as a nation have been consuming oil three times faster than we have been finding it for the last decade. Our problem with gas is finding markets and overcoming development costs for the vast reserves we have found over the last 20 years. That is simple. Ninety-five per cent of Australia’s natural gas resources are in the remote north-west of Australia, but 90 per cent of Australia’s population live on the eastern seaboard. We have made this point on a number of occasions in debates in more recent times in this House and in the Australian community. That is why the role of the government should be about thinking of strategic national energy infrastructure today.

I understand that the Prime Minister wants to have a debate about nuclear energy. I simply want to say that, from an economic point of view, it does not stack up. But oil and gas exploration actually stacks up for Australia today. It is not a futuristic debate; it is a debate that we have to have now. It is the opposition that is pursuing this debate in the community and in the House. It is also reflected in the second reading amendment moved by the shadow assistant Treasurer, the member for Hunter, which I wholeheartedly support. This is a current debate, because the debate is about why an LNG export strategy is not accompanied by a national plan for our own future needs. That is about sovereign risk.

The parliamentary secretary for multicultural affairs wanted to talk about sovereign risk and our sovereignty today. This is about the future needs and aspirations of Australia. One of the reasons we are globally competitive, historically, is that we have cheap and reliable access to energy sources in Australia. We have to make the necessary investment today and create the investment regime which guarantees that competitive position for many years to come. That, therefore, includes us as a nation getting serious about transport fuels. We are heavily dependent on them because of the nature of Australia—an island nation, a vast geographic area. This is a serious issue that we have to start considering at a national level.

I believe that transport fuel security has never been more important. Just ask Australian consumers what they think about this issue every time they fill their car at the local petrol station. In their minds, petrol prices are at record highs. Australia—and the government’s statistics show it—is facing growing reliance on foreign oil imports. That sends a reminder to me that, if that is our reliance, we have to start thinking about the risk to Australia’s future. Can we rely, for example, on an unstable Middle East? The Australian consumers do not think so, yet the Prime Minister believes that ought to be our agenda.

It is interesting that, back in 1979, energy security was actually on John Howard’s agenda. But now that he is Prime Minister in 2006, energy security is simply not on his agenda. I remind the House that the Prime Minister removed the excise on LPG back then, but today he is missing in action when it comes to the security of transport fuel supplies for Australians. He might not have done much in the management of the economy prior to 1983—record double-digit unemployment, record double-digit inflation, no economic growth and an industrial war in Australia—but at least he was then concerned about energy security, and he actually tried to do something about it.

That is why the opposition is raising today, as it has many times in this place, the need for the government to diversify gas markets and get in place national gas infrastructure for Australia’s future energy security—and that includes gas to liquids. This issue finally passed from the lips of the Prime Minister last week when he was under pressure on AM about the debate on energy in Australia. Under pressure in terms of a narrow debate about nuclear energy, he was forced to admit, ‘Yes, yes, yes, we know we have to do something about this, but it is not an immediate priority to us as a government.’ I simply want to say it is an immediate priority. That is why I firmly believe that these bills are weak: they fail to take up the challenge that the federal opposition—the Labor Party—has already laid down. We are calling for consideration of a higher PRRT threshold rate and a review of the gas transfer pricing formula for gas developments, involving fuel projects.

The bills before the House fail to take up the Labor Party’s challenge to provide other measures—and this is about thinking beyond the square—such as an allowance that would provide for up-front capital write-off for a proportion of investment in gas to liquids fuel projects without affecting the integrity of the existing depreciation regime. That is a little memo to the Treasurer. We all appreciate that you let down the minerals industry and the oil and exploration industry in the recent budget in terms of the flow-through share scheme. We say you should revisit that and also look at the issues we are raising today with respect to the capital write-off question.

The government has also done nothing to take up Labor’s challenge to establish regional resource infrastructure funds and re-examine the depreciation regime for greenfield gas production projects. These are important. Regional resource infrastructure funds could be used to provide funding for the development of special economic zones to service our remote resource projects. The reality is that the nation cannot afford to develop every country town in regional Australia, but what it can and must do is establish high-quality hubs with good hospitals, child-care facilities, schools, sporting facilities, airports, transport services and the other social and economic infrastructure that ordinary Australians expect, because they underpin vibrant, healthy remote localities.

We believe success on this front requires a genuine partnership between the three tiers of government and the private sector. Those centres should support the development of our remote resources and provide sustainable hubs for regional Australia. In terms of re-examining the depreciation regime for gas production infrastructure, it may also be desirable to reconsider the treatment of capital components such as pipelines that significantly enhance the domestic gas grid infrastructure. Alternatively, we could consider special treatment for capital components that achieve significant greenhouse gains and contribute to national emission reductions.

It is also imperative that we find an equitable way to promote the development of gas projects. Currently there are special incentives in place for existing LNG projects and, under the Howard government, it is likely that each gas developer will make its own bid for strategic investment incentives in one form or another. In my view this is an approach fraught with danger, lacking rigour and accountability, picking winners and potentially distorting investment decisions and the viability of one project compared with another. Significantly, this approach has demonstrably led to huge revenue leakage and financial benefits to proponents that would never have expected such benefits.

The crude oil excise changes in 2001 are a case in point. The estimated total cost to revenue at that time was $75 million; the cost today is now up to $360 million—and that figure is still growing. It is an indictment on the financial management of the government. I believe that the new LNG, GTL and other projects, which will secure for Australia’s next generation a new wave of wealth creation, have to be considered in terms of whether or not we cap such incentives or look to the possibilities of redirecting overruns to new nation-building industries and projects. I join my colleagues in supporting the member for Hunter’s second reading amendment.

In conclusion, I simply say that the Treasurer’s mismanagement and poor calculations in the past provide Labor with very good reason to refer these bills to a Senate committee. We have to ensure that there is in fact no potential for revenue leakage or unforeseen financial impacts. This is an important debate, and it is also time for the government to think about new measures. We as a nation need to encourage new industries such as the gas to liquid industry. (Time expired)

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