Nick Xenophon (SA, Nick Xenophon Team) Share this | Hansard source

I move:

That the Senate notes Australia's energy crisis, its impact on consumers, businesses and the broader economy, and the need for urgent and effective responses.

This relates to the energy crisis facing Australia, its impact on jobs, on businesses and on our economy, and the need for urgent action to intervene to take emergency steps to deal with this crisis.

If I may start with an extract from the book Why Nations Fail by Daron Acemoglu. He talks about Argentina. He says that Argentina was one of the wealthiest countries in the world. Australia and Argentina were two of the wealthiest countries in the world at the beginning of the last century. Up until the World War I, Argentina was thriving. It did not live so much off the sheep's back but off cattle and agriculture—very similar to Australia. Then there was a series of bad policy decisions made—of instability and of policy mishaps and policy missteps—on the part of the Argentinians, and Argentina went from being one of the wealthiest countries in the world to being a country in chaos, a country whose economy faltered and a country where there was enormous poverty and dislocation.

A number of the factors in Argentina will never happen here—we are talking about a level of political instability as something that could never occur in this country—but the bad economic decisions made led a wealthy country to become one of the poorest in the world. My fear is that unless we tackle the energy crisis in this country in the coming months—not in years, but in the coming months—we will have our Argentinian moment. We will take a number of courses of action that will cause deep damage to our economy, that will lead to tens of thousands of jobs being lost—jobs that we will not get back—that will scar our economy and scar our economic and social future.

I will be very careful in the context of this debate not to ascribe political blame, because if there were ever a time for bipartisanship it is now. If there were ever a time for some clear policy thinking to deal with this crisis, we need to deal with it now.

There are two aspects of this crisis that we must deal with. The first relates to our electricity sector and investment certainty in respect of our electricity sector. We have had the Finkel review by the Chief Scientist, Dr Alan Finkel, and I will go to that shortly. That has been useful in prompting a debate and the need for investment certainty. Whether you believe in the science of climate change, as I do, or not, you ought to believe unambiguously in the harsh reality of the investment climate, where investors around the world will not go near Australia to invest in new-generation capacity because of the policy uncertainty. We need that policy uncertainty to end. We need very clear guidance to create that policy certainty. I am concerned that the Finkel review does not address those issues in the sense that a clean energy target is not the preferred option of the Australian Energy Market Commission. It is not the preferred option to deal with issues of certainty and of the lowest cost methods of abatement. We must go down a path where we can meet our Paris agreement targets of a 28 per cent reduction in carbon emissions on 2005 levels by 2030 and, eventually, the trajectory that will get us to zero emissions by 2050. We need to do that and there appears to be, at the very least, a bipartisan acknowledgement that those are the targets we must get to. But how we get to them appears to be fraught with difficulty.

Back in 2009, along with Malcolm Turnbull, as the then Leader of the Opposition, we jointly commissioned Frontier Economics and its managing director, Danny Price, to come up with an alternative carbon trading system and emissions intensity scheme, which back then was derided by one side of politics, the current opposition, as being a mongrel of a scheme. It is now Labor Party policy, and I am glad that they came to that position—it seems that the mongrel has become a top dog in the course of eight years or so—but, curiously, the coalition has walked away from that and is now looking at other alternatives. We need to have the best, lowest cost emissions abatement scheme in place. We need to look at the way we transition to renewables and we must do so carefully and sensibly. I support renewable energy, but I also support it being done in an orderly and transitional way. I previously put a position forward that we need to aim for a 50 per cent renewable energy target by 2030. I believe there are better ways to meet our Paris agreement targets. I believe that we should of course aim to have baseload renewables and renewables that can give grid stability, but we need to be very careful about having a target that is simply black and white and does not take into account the realities of the marketplace.

The inquiry by the Select Committee into the Resilience of Electricity Infrastructure in a Warming World, of which Senator Hanson-Young was the chair, was conducted recently and looked at what happened in South Australia. What is instructive is that, as a result of that inquiry, documents were discovered that had been provided to the South Australian Department of the Premier and Cabinet back in 2009—two reports, essentially saying, 'If you want to go beyond 20 per cent renewables, you need to be very careful that you have grid stability. You need to be very careful that the system is there to ensure stability so that, if you have blackout events, there is reliability in the system.' Those independent reports, by McLennan Magasanik Associates and the National Institute of Economic and Industry Research, were not heeded, in my view, by the South Australian government. So mistakes were made—and that is not being pejorative in any way towards renewable energy. On the contrary, if we are going to do it through transition, we should do it right.

We have two issues here. The first is the price of electricity, which is rising on the eastern seaboard by some 20 to 30 per cent by 1 July for consumers and retail customers. It is rising by 18 per cent in South Australia, already one of the highest priced electricity markets anywhere in the world. That is something that the Finkel review looked at, but one thing that the Finkel review did not look at—and this is not a criticism of Dr Finkel because he was not asked to look at this specifically—is the gas crisis that is facing Australia. We have a situation in this country where, absurdly, Australian gas being exported overseas and landing in Japan, even with the cost of shipping it there and the costs involved of liquefaction and de-liquefaction to get it into the Japanese market, is half the price of gas here in Australia—the same gas; effectively the same molecules. How can it be that we have Australian gas going overseas and they are paying half the price of what we are paying for it here?

The market is dysfunctional. Of course, I support market solutions, but when the market is broken, you need to look beyond that. You need to look at emergency interventions.

For a number of years now, Manufacturing Australia and leading manufacturers have said that the gas crisis is real and we need to deal with it. The AWU in conjunction with Manufacturing Australia—one of those alliances between industry and the union movement—took the same view, and they have been warning about this for years. They are saying that this is a looming crisis and if we do not do something about it, it is going to hurt manufacturing. In recent weeks, I have spoken to a number of manufacturers who tell me that their gas bill, which is already in the millions of dollars each year, will more than double by the end of the year. They are the contracts that are being offered. Unless we bring the price of gas down, we can expect to see hundreds, if not thousands, of businesses pushed to the brink and some over the edge, and tens of thousands of jobs lost in this country. The impact it will have on manufacturing will be severe. The impact that it will have on jobs will be severe. The flow-on effects will be severe. It will leave lasting scars in our economy. I fear that, unless we deal with the gas crisis sooner rather than later, it will push the country into a recession. It is not alarmist to say that—the businesses I am speaking to are talking about laying off hundreds, if not thousands, of workers—given the sizes of the enterprises and the flow-on effects of those businesses closing down.

We need to deal with this. I do not ascribe blame. We have stuffed it up as a nation. We need to fix this as a nation and take away the rancour of politics from it, because poisonous politics have stood in the way of this. Manufacturing still matters in this country. We have a situation where something like 200,000 jobs have been lost in manufacturing in this country since the GFC. But we still have over 850,000 Australians employed in manufacturing in this country, and that is a major sector of our economy. It has slipped as a percentage of GDP. Some six per cent of our economy is now based on manufacturing compared to 12 per cent a decade ago. We are bumping above Botswana and Rwanda in Africa—two countries that have never had the manufacturing and industrial base that we have had. If you lose those businesses, the flow-on effects to the economy and in reducing innovation will be quite profound.

What do we do about it? In my negotiations with the government, in particular with Senator Cormann, a number of measures were agreed to, which I welcome. Those measures relate to having more transparent gas markets. Those measures relate to dealing with the use it or lose it principle. My concern is that there are companies out there that are masters of creating scarcity, because we have enormous supplies of gas, particularly in the North West Shelf, that seem to be just sitting there. I have asked many questions in the Senate estimates process about the use it or lose it policy. These retention leases ought to be unlocked. We need to take every measure possible because we need to unlock that gas and bring it into the marketplace.

We have been warned about this on many occasions. The ACCC—the Australian Competition and Consumer Commission—in a report dated 13 April 2016 to the Assistant Treasurer, the Honourable Kelly O'Dwyer MP, set out issues in the competitiveness of the wholesale gas industry. It was very disturbing reading. That was over a year ago. We were warned then that there were factors feeding into the uncertainty about future gas supply on the east coast: that the magnitude of gas flows into LNG projects were removing gas from the domestic market and the lower ore price had led to declining investment in gas exploration. A whole range of regulatory restrictions were also raised, but those LNG projects were a very serious issue in reducing gas supply. The ACCC, in one of the headline parts of its report, said:

The LNG projects have disrupted the gas supply-demand balance in the east coast gas market

That is something that we have ignored. Right now, there are businesses that I am talking to that have a gas bill of $15 million, or $30 million in some cases, who tell me that their gas bill will at least double and they cannot sustain a successful business on that basis. They are going to have to shrink that business or shift offshore. They will not be able to compete with our international trading partners with gas prices going up that high. This is a looming tsunami of job losses that we face unless we tackle this with a great degree of urgency. This is something that Manufacturing Australia and the AWU have been talking about for years. We have shied away from a domestic gas reservation policy, having a national interest test. They have had it in the US and in other parts of the world. I know it is a market intervention, and I know it is anathema to many on both sides of this chamber to have that level of market intervention, but what do we do? We cannot afford to let manufacturing businesses in this country die because of these distortions in the gas market and in the transparency of the market. Do not take my word for it; there are many others who are saying this.

Bruce Robertson, from the Institute for Energy Economics and Financial Analysis, has been banging this drum year after year. He has been warning of the risks of our export LNG plants in the context of ensuring we have adequate supplies of gas for the domestic market. Bruce Robertson and the Institute for Energy Economics and Financial Analysis put out a report titled Australia's export LNG plants at Gladstone: the risks mount, and I commend the report. Bruce Robertson is one of the pre-eminent analysts on gas and LNG in this country. What Mr Robertson is saying is that, incredibly, there is going to be a glut in the global supply of gas, but for some reason we have a lack of gas here in Australia. He says that the doubling and tripling of prices is untenable for Australian industry and that there is a lack of transparency in the tenements that are there. We need to have integrity in oil and gas company accounts and better disclosures. So for those who do not want market intervention, we have information asymmetry here that we need to deal with. At the very least, we need to have the level of disclosure that they have the in United States, where gas reserves are determined on a much better benchmark basis, where there is less opacity in terms of those gas reserve figures. Mr Robertson concludes:

Poor disclosure in the oil and gas industry is leading to poor policy decisions in Australia. It is not possible to produce good policy outcomes in the current information void.

That is something that concerns me very deeply. He refers to the Australian gas cartel and says:

The Australian gas cartel has been very successful at restricting supply to the domestic market and forcing up the price. There is plenty of supply and plenty of reserves on the East Coast of Australia. Australia will be the world’s largest exporter of LNG by 2021.

This does not pass the pub test. It does not pass any reasonable test.

How can we be one of the biggest producers of gas in the world yet face a domestic gas crisis in this country, which is going to literally force the closure of hundreds of businesses, including manufacturing businesses and energy intensive businesses? Never mind the flow-on effects on every consumer in this country, because gas is an increasingly important part of our baseload energy mix.

We need to tackle this, and it must involve levels of intervention. If we cannot get the price of gas down, and if those businesses cannot secure contracts in the coming months at a much lower price than the $12, $15, $18, $19 per gigajoule that is being offered at the moment, it is unsustainable. We should have a gas price in the order of $5 to $6 a gigajoule. The days of $3 or $4 a gigajoule are gone. I know that, but we need to at least have a competitive price for Australian industry. We have had inquiry after inquiry into this. The government is taking a number of steps, and I acknowledge we worked constructively with them on those for transparency. But my fear is that the businesses I have spoken to in recent weeks say that we need an urgent intervention.

There will be an intervention on 1 July in export markets with export controls, but from the little information I have seen in respect of that, my fear is that it will not be enough to deal with this issue. It will not provide the level of intervention powers required in order to get a result, to bring those prices down. The proof will be in the pudding, and the reason we have not had more companies speak out about this is very simple. Multinational companies talk to me privately, and they say to me: 'If we tell the world how bad things are in Australia, what will our head office do? Our head office in Europe or in the US or wherever it may be will say, 'We do not want to do business in Australia; we will make plans to shift to other plants.' Private businesses, not publicly listed, are saying, 'We have covenants in our loan agreements that if our profit forecast declines dramatically that can lead to the loan being called in,' and they do not, understandably, want to speak publicly about this.

I urge my colleagues to consider this as an issue of great national significance. We are at a tipping point in this country, we are at a crossroads, because, if we go down a path where gas prices are not reduced, we will see the decimation of our remaining manufacturing sector in this country and many tens of thousands of jobs will be lost. We need to make some tough decisions that may involve intervention and that may involve using every constitutional power we can in order to free up gas for the domestic market at an affordable price. It may involve cooperating with the states in order to take this action. It will involve a whole sweep of measures, and, whilst I welcome the measures the government has put in place to date that we work constructively, the information I have been getting in recent weeks is that, unless they see a significant decline in the price of gas, those businesses will not be sustainable. That is why this is so important.

I will conclude by saying this: a hundred years ago Australia and Argentina were two of the richest countries in the world. Argentina went down the path of bad and disastrous decisions and a path of penury and dislocation from which it has never recovered. We cannot, we must not, go down the Argentinian path. This is our chance and our opportunity to tackle this in a bipartisan sense, because the consequences of gas prices not going down will be catastrophic for the Australian economy. This is the immediate crisis we face in addition to the bigger, longer-term issues in respect of electricity supply and security of fair and reasonable prices in this country. Thank you.