Richard Marles (Corio, Australian Labor Party) Share this | Hansard source

I rise to speak in support of the Offshore Petroleum Amendment (Datum) Bill 2008, which seeks to amend the Offshore Petroleum Act 2006. I listened to the honourable member for Groom make his arguments in relation to this bill. He raised the principle of certainty as being the guiding mantra for this debate, which is appropriate because this is ultimately about providing greater certainty. I make the observation in terms of certainty that, if our country were to have to rely on the policies of the opposition when it comes to the great challenge of climate change, which he referred to, this country would be in a sorry state indeed. What we see on the part of the opposition is really the Wheel of Fortune method of political management: every day they spin the wheel and a different policy comes up. There is absolutely no consistency on their side in terms of how we deal with the challenges of climate change, which provides absolutely no certainty to either the LNG industry or any other industry.

I am going to attempt to explain what this bill does. It is a very technical bill. It corrects a technical oversight which occurred in the Offshore Petroleum Amendment (Miscellaneous Measures) Act 2008, which came into force on 1 July 2008. That act replaced Australian Geodetic Datum with Geocentric Datum of Australia. Datum is a mathematical surface on which we map and have a coordinates system. It is the basis on which we engage in surveying—and, in this context, surveying offshore petroleum titles. Australian Geodetic Datum, which has been the traditional means by which we have undertaken that mapping and surveying, is based on the surface of the earth within the Australian region. By definition it is an approximation, but it is a very accurate approximation. It has served us well and it does provide precise boundaries for petroleum lease titles within Australian waters.

Geocentric Datum of Australia is a method of surveying, as the name suggests, based upon the centre of the earth. It is able to be done because of the advent of global positioning systems. Consequently, it is a system of surveying which will give a set of coordinates that are consistent globally. There is therefore good reason to start using it in many of the ways in which we survey and operate in Australia. It is a useful means of, for example, determining points, lines and areas which exist within petroleum titles. Describing a precise set of coordinates, for example, within a title is best done in a way which can be consistently viewed around the world through the Geocentric Datum of Australia.

The problem is this: if we apply that method to the graticular sections and blocks which are the basis for the boundaries of petroleum titles then, because it is based on the centre of the earth rather than the earth’s surface, it will have the consequence of shifting the grid upon which the boundaries of these titles are determined by about 200 metres in a north-easterly direction. That obviously will then give rise to a great deal of uncertainty in relation to titles which currently exist. Not only will it create uncertainty there but, in terms of issuing new titles into the future, how they sit adjacent to existing titles will also be confusing. For that reason—and because the original Geodetic Datum does provide an accurate means by which we can provide boundaries within our waters—this bill proposes that we retain the new Geocentric Datum of Australia as a method for surveying—for many of the reasons we do that within the act—but, when it comes to the establishment of boundaries in petroleum leases and, in particular, the points of graticular sections and blocks which are the cornerstones of those boundaries, that we go back to the original Australian Geodetic Datum. That means that the current positioning of the leases will remain unchanged and that future leases granted under that scheme will be compatible with them.

A simple way of putting this is that it makes sense not to change horses as you are crossing a stream. While there is a new method here which can be applied to different circumstances, given that we already have one rider on this horse we ought to stick with them so that we can have consistency between what has been done in the past and what happens in the future. This bill proposes that this be done retrospectively from 1 July, which will give continuity of title. As I said, in doing that we remove uncertainty around the existing boundaries of petroleum titles, but we also ensure that there is alignment and compatibility with future titles that are granted.

It is important that this goes through the parliament relatively quickly because, until we rectify this issue, we are in a position where we have to suspend the release of new exploration areas. There was an auction process by which new exploration areas were available for bidding. That bidding closed on 18 April this year. In order for the successful bidders in that process to take over their new leases, this bill needs to pass. So it is important that it goes through parliament quickly. Indeed, for those areas where there were no bids, it is intended to rerelease them and go through another auction process. Again, in order to do that—and the current schedule is to do that next month—this bill needs to go through parliament so that we can rectify that situation. It is a technical amendment, but it is clearly an important amendment. As the member for Groom said, it is an amendment which is ultimately very much about certainty.

I think that talking about this and the foundations of the way in which we establish petroleum leases in our offshore petroleum and gas fields affords the opportunity to explain to the Main Committee and the House how significant the industry which is founded upon those leases is to the Australian economy. Currently Australia refines about 75 per cent of its petroleum products. We import the remaining 25 per cent—principally from Singapore. Seventy-five per cent of the petroleum products in this country are refined in the seven refineries which exist around Australia—one of which, the Shell refinery, is in my electorate of Corio—and that does provide the bulk of our product.

About 70 per cent of the crude oil which goes into those refineries is imported from a range of countries. There is a good reason for diversifying the supply that comes into this country so that we are not beholden in a sense to one source. Interestingly, the largest amount that we import actually comes from Vietnam. Of the 30 per cent of the crude oil that we refine in Australia, 90 per cent comes from offshore petroleum reserves, which are based on the very leases that we are talking about in this legislation. Ninety per cent of the oil and gas reserves that we have in this country, which we use, comes from offshore deposits, so it is a very important part of our petroleum industry.

There is now a real need to engage in the further exploration of gas reserves and, ultimately, oil reserves in this country. Having a secure system by which we do that is similarly important. Recent commercial decisions have really underestimated or not anticipated the extent of the commodities boom in Australia which means the demand for gas has given rise to a very tight gas market, particularly in Western Australia where, of course, the Varanus Island incident has further complicated issues. But that has to be seen in the context that Australia actually has very abundant offshore gas reserves.

It is anticipated that, at the current rate of consumption of our gas reserves, we have something like 110 years worth of supply. So we have an interesting situation where we have significant gas supplies but a very tight domestic market. In addition to that, there is real potential for a significant increase in the LNG export industry in Australia.

What that necessarily implies is that we have to open up areas for gas exploitation to occur in Australia. We have to open up these new reserves. Following recommendations of the Joint Working Group on Natural Gas Supply, the minister’s department is reviewing the government’s retention lease policy and going through a process of consultation with stakeholders which may well ultimately review the way in which we manage our retention leases.

Retention leases are a low-cost form of tenure that is held by exploration companies over gas deposits which are not commercially viable at the moment but which are anticipated to be commercially viable at some point. Retention leases, which are very much based on the surveying methods that I have described, become very important in terms of mapping the future potential of gas exploration in this country. If we need to open up gas reserves—and we absolutely do—it is important that we look at the way in which these retention leases are managed.

Again, the Department of Resources, Energy and Tourism is reviewing the commerciality of a number of existing retention leases to assess their viability in the current climate. One would think that the current climate will actually mean that, in the tight market that I have described in WA and the rest of Australia, it is more commercially viable to start opening up these enormous reserves. So that is a very important step that we need to take in dealing with our gas reserves.

In saying that, I think the other point that needs to be noted is the very significant cost of developing a new LNG project. Typically, it is in the order of $20 billion, and often these projects do not start to return a profit for something in the order of seven to 10 years. That said, it has been estimated by the Australian Petroleum Production and Exploration Association that:

Australia’s vast gas reserves mean that we have the capacity not only to assist our own nation move to a much less greenhouse polluting future but to triple LNG exports to 60 million tonnes over the next 10 years.

The association goes on to say that if we could do that it would result in a reduction of 120 million tonnes of greenhouse gas pollution in the Asia-Pacific region—that is, of course, on the basis that LNG is a far more greenhouse friendly fossil fuel than other fossil fuels; it would generate an additional $10 billion per year of tax revenue; it would improve Australia’s balance of trade to the tune of $20 billion per year; and it would create many thousands of jobs. So it is a very important industry indeed and needs to be developed.

Offshore oil is an area that also needs developing. Currently it is anticipated that on the basis of existing consumption rates we have about eight years of known oil reserves remaining. If we do not open up new oil reserves, Australia is looking down the barrel of a $27 billion trade deficit in oil condensate by 2015, which, of course, is why it is so important that we move down that path. What all of this describes is a very significant industry but also a market which has become tight domestically and one where there is an increasing need to explore and develop new offshore oil and gas reserves. To do that, we need the kind of certainty in our surveying methods and in the granting of our leases which this bill will provide.

In assessing the significance of the offshore oil and gas industry to the Australian economy, I want to make the following points. Currently the offshore oil industry accounts for 33 per cent and gas accounts for 21 per cent of Australia’s primary energy consumption. The oil and gas industry amounts to something like 2.5 per cent of Australia’s gross domestic product. The value of oil and gas produced in Australia in the financial year 2007-08 was estimated to be in excess of $27 billion, of which $21 billion was export. The industry employs around 15,000 people and pays $2.6 billion in taxation revenue to the Australian government. The industry consists of over 200 small, medium and large companies. Exploration spending for oil and gas in the financial year 2006-07 exceeded $2.2 billion and, as we stand here in 2008, there are 220 active exploration permits, 49 retention leases, which I explained earlier, 70 production licences and 52 pipeline licences in Australian waters.

So there is a very significant investment in this area. Offshore oil and gas production is absolutely vital to the efficient running of Australia’s economy. It is clear that in order to allow this industry to grow and to open up more oil and gas reserves, which we so desperately need it to do, there needs to be a solid foundation upon which that is done, and there is nothing more fundamental to that than ensuring that the boundaries of the leases that are given to these companies to explore and ultimately exploit their reserves are completely certain and completely secure. Ultimately, that is what this bill seeks to do, so I very much commend it to the Committee and to the House.

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