Gary Gray (Brand, Australian Labor Party, Shadow Minister for Resources) Share this | Link to this | Hansard source

Congratulations, Madam Speaker, on your elevation to high office. The Offshore Petroleum and Greenhouse Gas Storage Amendment (Cash Bidding) Bill 2013 continues the great tradition of the bipartisanship of this parliament in helping to develop an outstanding offshore oil and gas regulatory environment. It is an environment that, in every aspect of that word, is delicate and important for our nation, ensuring that in the offshore environment we have the ability to explore for mineral wealth and have the capacity to put in place the best possible industrial arrangements for the extraction of that mineral wealth, and then ensuring also that Australians benefit for generations to come.

In our offshore regulatory environment, not only do we do the best that we can to ensure best possible practice but, I believe, we do the best in the world. That offshore practice of course relates to how we manage property rights. It also relates to how we best ensure the best benefit for our nation from the subsurface wealth of our nation. But it must be done safely. The offshore environment is a dangerous environment. In the course of the last year or so, we have seen deaths occur in the offshore environment that were properly investigated. We have seen the uncontrolled release of hydrocarbons at Montara and the explosions at Varanus Island. The deaths of the two employees on the Stena Clyde through to the explosions at Varanus and the uncontrolled release on Montara serve to demonstrate for us the great risk and danger in the offshore environment.

But what it also shows us is our great technical capability of being able to find and extract hydrocarbons—and do it well. These events underlie the need for a strong, effective and properly resourced offshore petroleum regulatory regime that does safeguard human health, safety and the marine environment. What they also show is the need for an offshore regulatory regime that allows industry to operate with great certainty and understanding.

It is the view of the Labor Party that the offshore regulatory environment is the best first opportunity for us to establish the idea of what the government has come to characterise as the 'one-stop shop'. We believe that the great capability that resides in our offshore regulators to carry out their work in a safe way is also the capability that allows those very same regulators to be accredited to carry out environmental work too, so we expect the first rapid progress in this area following decisions made by the former government in April and May this year.

Petroleum exploration in Australian waters is to be encouraged. It is to be encouraged not simply because of the great wealth that Australia has in the offshore environment; it is to be encouraged because the clean energy that is generated from our offshore hydrocarbons resource powers not just our nation but also the growing economies to our north. Just 20 years ago Australia produced less than 15 million tonnes of liquefied natural gas per year. By 2020 Australia will produce in excess of 100 million tonnes of liquefied natural gas per year. Liquefied natural gas is, in every way, the fuel of the future. Liquefied natural gas is also the fuel that is predominantly reliant upon this offshore regulatory environment—notwithstanding the rapid growth of the natural gas from coal-seam and shale developments onshore.

But that petroleum exploration environment in Australian waters extends from the hostile waters of the southern ocean, where BP and the Norwegian company Statoil will once again begin an exploration program through the Great Australian Bight—sensitively, carefully and scientifically considering the subsurface environment to see whether or not there is a large hydrocarbon field to the south of Australia. As we all understand the value to our nation over the past 40 years of the development of the Bass Strait fields, and of the great future that lies ahead for our nation as a consequence of the development of the gas fields off the northern coast of Western Australia, we now also turn our attention to where two of the world's great hydrocarbon companies, BP and Statoil, are looking for hydrocarbons in the most delicate marine environment off our southern coast.

I am a great optimist that that work can be done well; I am a great optimist that, despite the ferocious and torrid environment in which that exploration will take place, it will be done well; and I am a great believer that the growth of the hydrocarbon industry, in all of its forms in our offshore environment, is supported by the most carefully considered regulatory environment which we can put together and which also has sufficient intelligence and flexibility to allow us to openly consider hydrocarbons exploration in the most delicate marine environment.

The stable and internationally competitive offshore investment regime is important. Each year, the Commonwealth engages with stakeholders and releases offshore petroleum exploration acreage for competitive bidding by prospective explorers. Our offshore lease arrangements are made available for exploration in a number of ways. We first allow for competitive bids for work programs. Company A will bid that it will drill a certain number of wells and carry out a certain amount of seismic work and a certain amount of scientific analysis of data to give the best opportunity to find hydrocarbons.

But what we are also doing in these bills is taking the first steps back to a system of cash bidding for acreage. It is the case that, when companies bid for acreage for exploration on the basis of work programs—the drilling and the seismic work—those programs bring with them costs that are measured in the hundreds of millions of dollars. That will certainly be the case, for instance, in the Southern Ocean in the Great Australian Bight. But in some areas where the subsurface is better understood it makes more sense to more to a cash bidding environment because of ease and transparency and also because it creates a better return for the Australian people. These bills create that environment once again. We did have for a short time in the 1980s and early 1990s a cash bidding environment. That was introduced in 1985 by a Labor government and then removed in 1992 by a Labor government, so we have looked at the cash bidding environment before and we believe that the particular model that is being proposed by the government is a good model and a model that deserves the support of this House.

The amendments in this legislation introduce a range of tools to achieve more efficient allocations of petroleum exploration permits. As I said, currently permits are awarded on the basis of clearly understood work programs and biding that allocates exploration acreage on the basis of the applicant that proposes the most amount of work or the greatest value of work to explore the petroleum potential of a particular release area. Companies making cash bids must have their technical and financial competence carefully assessed. It is the case that we have been blessed in our nation that the companies that have carried out work in our waters have been good companies. We should not deny the reality of the uncontrolled release at Montara. But we should also accept that, in that case, the response of industry and of government at state and territory and Commonwealth levels was rapid, ensuring firstly the protection of human life and secondly the protection of the environment. All of our studies and considerations since that event in 2009 at Montara have shown that the rapid response of all involved ensured that the Montara event was controlled as quickly as it could have been and that the impact on the environment was minimal.

The system of lease management that we have in Australia is close to world's best practice. We have a lease management system that works in three ways: an exploration lease, which is available for the exploration of the ocean bed for hydrocarbons; a retention lease process, which allows a company which, having made a discovery, can consider the best and most viable economic options for the development of a resource; and then of course, having done that, to move to a production licence.

The retention lease process is very important in the stability and certainty that is provided to explorers. Under the retention lease process, a company which has found or acquired hydrocarbons can then hold that lease and properly consider viable options for the development of the resource. This becomes most pertinent and relevant in the Australian context in the case of the Browse Basin and Commonwealth leases which were renewed just a few months ago. The renewal of those leases was purposely done in order to allow the joint-venture partners in the Browse Basin the best and broadest range of options to develop that resource. The Browse oil and gas fields remain extremely important to the economic future of our nation. They remain vital to the economic development of Western Australia and they are, in every sense, critical to the economic development of the Kimberley coast.

The new retention lease arrangements that have been provided for in the context of Browse allow for development options different to the previous retention lease, which had explicitly stated that the development of the Browse oil and gas fields had to be onshore at James Price Point. It is unfortunate, but a commercial reality, that the operator and the joint venturer have concluded that they do not see a viable economic future in the development of the James Price Point site and in the development onshore of the Browse gas resource. So at this stage the joint venture is taking advantage of the property rights that are recognised in retention leases, and the options and the flexibilities that are inherent in retention leases, to develop the idea of floating LNG production technology in the case of the Browse Basin. This is a good thing for our nation. It is a terrific thing for Western Australia and it will underwrite careers and jobs—a whole industry—in offshore hydrocarbon production for our country.

Let me explain how that will work. It will work because it may well be that, on the Browse Basin, we will see one, two or even three floating facilities. These facilities will be 400 or 500 metres long. They will be 100 metres wide. They will be the world's largest man-made floating structures. They will carry on board all of the industrial capability, all of the safety capability, that currently exists in onshore gas liquefaction technology. And it will be done with a smaller carbon footprint. It will be done in a way that means we do not have to pipe gas 400 kilometres to shore and then pipe CO2400 kilometres back out to sea for potential sequestration. It will be done in situ with the smallest possible environmental footprint. It will also be done in a way that creates capital efficiency in the LNG industry of the sort that we have not yet seen in Australia. Why is that important? It is important because we are seeing cost escalation in this most important fuel source as a consequence of the capital cost blowing out at the construction phase of our LNG plants.

The best way to address that productivity challenge is to bring in the next step-change in technology. That step-change in technology is facilitated by our retention lease system. That step-change in technology is supported by the property rights that are protected by our retention leases. That step-change in technology is what will see Australian LNG entering into north Asian markets, and continuing to dominate in north Asian markets, where currently those markets are under stress from potential gas suppliers out of East Africa and maybe even pipeline gas out of Russia. These commercial threats are important and should be understood by all people with an interest in our resources industry. If we do not keep our resources industries, which are our principal export industries, as sharp and as efficient as they can be, future generations will pay the price.

In the offshore environment our taxation structure is modern, our retention-lease management system is modern and the bill we are dealing with today will modernise how exploration takes place. All of this puts the offshore oil and gas industry of Australia in an absolutely terrific position.

In 2012, the former government announced that it would reintroduce cash bidding for selected offshore petroleum permits. Cash bidding had previously been used in Australia between 1985 and 1992. On being introduced in 1985, cash bidding was one of a range of measures introduced by the then Hawke government in order to better configure the hydrocarbons industry for the great future that all of us in this place at that time agreed that it had. Cash bidding is currently used successfully in the Gulf of Mexico, one of the world's premier hydrocarbon provinces, and it has recently been introduced in the onshore coal tenement titles management systems in Queensland.

Last year, the former government decided that cash bidding would be used from 2014 onwards to allocate offshore petroleum acreage in mature areas and in areas containing known petroleum accumulations. This is important, because we are not saying to exploration companies that you must cash bid in an environment where there is no understanding of subsurface structures. What we are saying is that there will be cash bidding in environments where companies can understand the probabilities of different kinds of discoveries. Those probabilities, and whether the target is oil or gas, whether the gas is wet gas or dry gas and whether the gas contains a higher or lower CO2 component, all become factors that companies can take into account when they make their cash bids. It is a great way of optimising for the Australian community a property right that hereto has been dealt with on the basis of the cost of carrying out further exploration drilling and further seismic work.

It should be said in this context that the great value to our nation of Geoscience Australia and its ability to capture, store, make available and interpret geological data to the great advantage of our nation cannot be underestimated. There are currently very large oil and gas fields that were discovered on the basis of the data which had been held at Geoscience Australia. Off the coast of northern Australia at Ichthys a very large oil and gas field is currently being developed and export gas will be converted through Darwin, but the discovery was made largely on the basis of the geological data which was freely available to the explorers through Geoscience Australia.

So you see in this context that the recognition of property rights through cash bidding and the retention lease management system, the intelligent interoperation of data management, world's best practice in oil and gas field management, a safe environment for workers to operate in, and a safe environment for work to be carried out in hydrocarbons in environmentally sensitive waters allow our nation to tap mineral wealth that has the capacity to supply energy to our world for thousands of years.

I read a paper last night that speculated on the potential size of Australia's current gas resources. Those potential supplies of Australia's current gas resources run to well over 1,000 trillion cubic feet of gas. Currently we export or consume around one trillion cubic feet of gas per year. We have the capacity through our in situ oil and gas resources to supply the world with hydrocarbons for in excess of 15,000 years at current rates of extraction. That allows us as a nation the great comfort of putting in place the best possible management regime to ensure environmental standards, human safety standards and a return to the Australian people for generations to come. It is one of the great realities of our nation that our export markets, which are increasingly driven by our ability to be a world-leading resources economy, are underpinned by the world-leading position that we can take in hydrocarbons technologies. That is why the completely virtuous cycle exists in how we manage exploration, how we allow companies to retain the commercial opportunity that they have discovered until they can turn it into a realisable and profitable business and then how, when that business is operating, the taxpayers of Australia now and for generations to come receive a benefit from the extraction of those hydrocarbons resources.

And we do it in a way that is both safe and efficient. We do it in a way that, frankly, should make us all proud. We do it in a way that will generate in future years hundreds of thousands of jobs. I have mentioned floating LNG. Those jobs will be of the highest possible technical calibre. The men and women who will work in the control rooms of those LNG vessels are probably still in high school. We will develop a generation of operators who will be able to dominate the global marketplace for capability and technical excellence operating in the marine hydrocarbons production environment, in an industry where only Australia currently has a foothold.

But what we must do with that industry and that technology is turn that current foothold, represented by the prelude development of Royal Dutch Shell off the northern coast of Western Australia, into a footprint that will: place Australia for generations to come in the leadership role in these technologies; give us the capacity to manage large volumes of hydrocarbons; allow us to manufacture at sea for markets that need the hydrocarbons at the most competitive price; and enable us to compete for capital in very tight capital markets with technical propositions that are right sized, secure, good business models for future investment.

Bringing all of those elements together—as these bills do—and so providing for a good, market-driven exploration system, a market-driven retention lease management system and then a pure market-driven minerals exploration system, is the way for our nation to best optimise the chances available to us in the global marketplace. It is that global marketplace, if we can win in it—and we will win in it through our technical excellence—that will underpin our living standards, the capacity of our governments to build schools, roads and hospitals and the ability of our nation to continue to be great. I commend these bills to the House. They are terrific steps in helping to modernise our retention lease, exploration lease and lease management systems in the best possible way.

Debate adjourned.