Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

The question we are debating is the report of the Economics Committee, Report on Australia's oil refining industry. I know, Deputy Speaker Owens, that you participated in that—indeed, you presided over that inquiry. I will provide a little bit by way of background. In June 2012 Shell announced that its refining operations at Clyde refinery would be ceasing in September of that year. That added to their announcement that their refinery in Gore Bay was going to be converted into a storage facility for importation of petroleum products. Similarly, in July 2012, Caltex had announced that it would close its refinery at Kurnell sometime in 2013. These announcements, coming together in close succession, caused many in the community to ask: is this the beginning of the end of Australia's domestic oil refining capacity? Indeed, if it is the beginning of the end of Australia's domestic petroleum and oil refining production capacity, what does that mean?

In response to community concerns the minister referred the question to the Economics Committee and asked us to inquire into some specific issues. Firstly, we were asked to inquire into whether the closure of the refineries would affect prices. I should say that the closure of the refineries will lead to a 28 per cent reduction in Australia's domestic petroleum refining capacity, meaning that we are now in a position where we produce about half of our annual demand domestically, the balance of which is imported. Many in the community asked: what is the impact this is going to have on the price that we pay at the browser for our petrol? Will the closing of some of Australia's domestic refining lead to an increase in bowser prices? What does it mean in terms of energy security? What does it mean in terms of our capacity down the track to change our petroleum standards? We have over the last two decades gone through a program of mandating cleaner fuel standards in this country. That has had enormous environmental benefits. What would the reduction in Australia's domestic capacity mean for our capacity to make those sorts of changes down the track? Finally, what does it mean for the employees within the industry? Currently some 5½ thousand workers are employed in Australia's oil refineries? What does it mean for job security within those refineries and across the energy sector more generally?

I would like to make a few observations about each of these concerns. First, in relation to price, the inquiry looked into this and determined that the closure of these refineries would have no net impact on the price that consumers would pay for petrol. The singular reason for this is that over 90 per cent of the terminal gate price for petrol—that is, the price that consumers are paying for petrol—is a consequence of what we now know and commonly refer to as import parity pricing. That is, it is set by the international market. Over 90 per cent of the price is made up of that parity pricing plus transportation costs plus insurances and the rest. The reduction in our domestic refining capacity is going to have no net impact, certainly not on the upside, on browser prices. It was observed by a number of submitters to the inquiry that indeed the risks might be on the downside in terms of pricing, because, with a massive increase in the South-East Asian region of refining capacity, new more modern plant and technology was going to be able to produce the same or increased volumes at a lower price, providing the availability of refined petroleum at a lower price to Australian importers. It was observed that the new Jamnagar Refinery, in India, one of the most modern and largest refineries in the world, has the capacity to produce over 1,200 barrels per day. This one refinery produces in a day in excess of all the combined refineries in Australia at the moment. It is a very modern plant and it is very efficient and productive. So there is no net impact, certainly on the upside, on prices.

Second, in relation to energy security, I would like to make a couple of points about this, because it is something deep within the Australian psyche. Perhaps it is from the experience of going through two world wars and being an island continent some distance from many other countries within the region. People are concerned about the fact that we should have some security over our energy supplies. I always say in relation to these concerns that open trading arrangements and good relationships with your trading partners are the best form of security you can have in relation to any traded good. In any event we should not confuse energy security with self-sufficiency. I will deal with those two issues.

Currently we import over 83 per cent of our crude oil. That is the raw material that is refined into petrol. So, if there was an issue with energy security in relation to petrol, it already exists. We have seen through the turbulent periods in Middle Eastern politics over the last two decades that those concerns have not been met. To the extent that there have been any interruptions, they have been very quickly addressed by bringing alternative supplies into the world market. The other thing I would have to say is that, now, over 50 per cent of our domestic supply is already imported.

The other observation that was made by numerous witnesses to the committee was that Australia is a net exporter of energy, in its many forms, whether that be coal, natural gas, uranium or any of the other energy sources in common supply here in Australia. We are a net exporter and, if anything, countries around the world are looking to Australia for the security of their energy supplies. So if there are concerns, it is the other way around.

The other thing I would like to say on this particular issue is to do with the other concerns that were raised. Those concerns go to employment within the industry. I have a few observations about that. It is entirely understandable that those who have had a lifetime of employment within the refining industry are quite rightly looking at this and asking what the future of the industry is. They are asking, 'Do I have job security here in my place of employment or within the industry down the track?' It is important to note that over the last 10 years the industry itself has invested over $9 billion in equipment and plant within the oil refining industry. It is necessary because we have a lot of heritage equipment in the industry around the country, so businesses were having to reinvest. But this is not small money. An amount of $9 billion over 10 years has been reinvested and each of the witnesses before the committee said that they were committed to ensuring that we retained a domestic refining capacity within this country.

The other thing that is worth noting is that employment in the broader energy sector, whether that be mining or processing, is actually booming. No witness or evidence before the committee said of the regrettable layoffs that were going to occur—although it did cause enormous concerns to those individuals who were impacted by this—that, when one stretched their gaze to the wider labour markets these people were operating in, there was no untoward impact on broader unemployment levels and there were capacities for both government and non-government actors to deal with the dislocation that had occurred as a result of the closure of these plants.

So each of those concerns, in our view and the view of all the members of the committee, were able to be addressed to the satisfaction of the committee. With those few observations made I commend the report to the House. I thank you, Deputy Speaker, for the work you did in chairing the committee. There are some members of the secretariat staff in the chamber today. I thank them for the excellent work they did in preparing this report and assisting the committee in this inquiry, and for their ongoing work in assisting this very busy committee in preparing its reports and conducting its inquiries. I know that each and every member of the committee is very appreciative of that work.

Debate adjourned.

Federation Chamber adjourned at 19:16.