John Williams (NSW, National Party) Share this | Hansard source

Following on from Senator McAllister and her comment about, 'Labor saw this in 2015 and we are going to do this and we are going to do that': I wonder if Senator McAllister has spoken to the Victorian Premier, Mr Andrews, who has put a total ban on all sorts of conventional and more modern ways of gas extraction?

Senator McAllister interjecting—

They have. They have put a total ban on it. That is a fact. That is the way Victoria is treated under a Labor government: cut off the tap, cut off the exploration, do not do anything and all will be right, mate. Well, no, it will not, Mr Andrews—no, it will not.

Why is Japan buying gas cheaper than Australia? That is a very good question. It all comes down to two things: demand and supply. In 2009 the then Labor government approved the construction of three LNG gas plants in Gladstone for export. I repeat: for export. Australia is now the world's second largest exporter of LNG behind Qatar, providing approximately 12 per cent of the world's gas. It is expected to become the world's largest exporter by 2020. The development of the gas export market has meant Australian producers have had to compete with overseas buyers. Australian gas prices have also risen because gas production is becoming more expensive and because of the reduction in supply due to moratoriums—by, as I said, Victoria, the we-will-not-produce-gas state. You would think at this time of the year you would want a bit of heating and cooking gas down there!

Respected independent industry expert EnergyQuest continues to report:

International comparisons are not simple. Much of the public commentary about local and international gas prices does not provide an apples-for-apples comparison. Misleading commentary has been happening for a long time and is usually produced by anti-fossil fuel activists or parts of the manufacturing lobby. Critics usually compare landed spot LNG prices with Japan with delivered contract gas prices in eastern Australia. I will repeat that: critics usually compare landed spot LNG prices in Japan with delivered contract gas prices in eastern Australia. However, there is really no comparison between the short-term spot price of an LNG cargo and a long-term contract with guaranteed supply and prices.

The LNG spot market in Japan is a global market with possible supply from up to 18 LNG exporting countries. In other words, when Japan sets its gas price, they have up to 18 countries exporting gas to Japan. Unlike eastern Australia, the global LNG market was oversupplied, so prices have been depressed—although they are now rising again. By comparison, the east coast spot market is a purely local market that lacks the liquidity and scale of Japan. It is essentially a day-to-day balancing market. Its prices reflect whatever relatively small quantities of gas are available on a given day. That is important. As such the spot price is not a good guide for long-term contract prices.

Commercial and industrial users do not rely on the spot market to meet their ongoing gas requirements. The average price of landed—not delivered—spot LNG imported into Japan, contracted in May 2017, is AU$7.50 per gigajoule. Looking at the east coast spot price for gas delivered to the relevant capital city today, the prices are: $9.33 per gigajoule in Sydney, $8.69 per gigajoule in Adelaide, $7.24 per gigajoule in Brisbane and $10 per gigajoule in Victoria—the declared market. These prices include pipeline transportation costs, which are a focus of the Commonwealth led reform to lower pipeline costs. That is very important. To get the gas to the consumer, we need efficient pipelines and a reduction in costs there.

The best way to ensure affordable and reliable gas for the domestic market is to increase gas supply, including from unconventional gas sources and improved gas market competition, transparency and operation. I want to focus on the unconventional gas sources—that is fine, but make sure we look after the environment. We have had a big argument in many regional areas of New South Wales and Queensland about coal seam gas. We in the National Party, along with our Liberal colleagues, have said, 'Make sure there is no interference with underground water, look after the environment and abide by the science and the EPAs of each state to see that it is all done correctly.'

In March 2017 the Australian Energy Market Operator released its 2017 Gas Statement of Opportunities, which drew attention to the domestic gas market's tightness and forecast shortfalls of between 10 petajoules per annum and 54 petajoules per annum in the residential, commercial and/or industrial sectors from 2019 to 2020 for New South Wales, Victoria and South Australia. In response to potential shortfalls of domestic gas supplies, Prime Minister Turnbull held urgent meetings with gas producers. Following these meetings the Prime Minister acted decisively and, on 27 April, announced the introduction of the Australian Domestic Gas Security Mechanism, the ADGSM.

Given the abundance of gas resources, Australians expect to have their gas needs met. It is unacceptable for Australia to become the world's largest exporter of LNG but not have enough to meet the gas needs of Australian households and business. The ADGSM takes effect from 1 July. I commend the Prime Minister for saying simply this: we are a huge producer of gas, but why export it all and leave a shortfall here for our domestic consumption? That is crazy. The ADGSM takes effect on 1 July. It will apply across all LNG producers and operates alongside other key gas market reforms underway, including the Australian Competition and Consumer Commission's gas market transparency work and the peak supply guarantee given by gas producers.

The ADGSM is a targeted and temporary measure of last resort designed to restrict LNG exports in the event that supplies are unable to satisfy domestic market needs here. In other words, this is a government intervention saying that if the market is failing here because of multiple reasons, such as the Labor government in Victoria, then it is time for the government to intervene. Any restrictions or offset requirements would only be placed on export operations that are, in effect, drawing down supply in net terms from the domestic gas market. LNG companies required to operate under restrictions will have flexibility to find commercial solutions that meet their domestic market responsibilities, such as swapping cargoes out of portfolios or on the spot market. All LNG companies will be treated the same.

The exposure draft of the mechanism was released on 5 June 2017. The government is in the process of considering feedback from states and territories, gas producers, exporters and consumers, including large industrial gas users, before finalising regulations and guidelines. The government continues to strongly support the ongoing operation of Australia's world-class LNG industry and acknowledges the industry's commitment to work collaboratively on this issue of national significance.

As I said, it is about supply and demand. The MPI under discussion refers to Japan. There are some 18 countries competing for the market in Japan—lots of competition—hence their price is cheaper than ours. Several years ago I went to Narrabri to inspect the Santos project. They were under exploration. They had the gas coming out of the ground. It was flared out of a pipe. It was just being burnt into the air 24 hours a day, seven days a week, 365 days a year, because under state law they cannot flick a switch, turn on the gas-fired generator in Narrabri and power 300 houses. Instead, the gas is just flared out of the pipe and burns into the atmosphere and is wasted. That to me is a terrible waste, and that needs to change.

Here we are, swimming in gas in Australia—we have heaps of resources. Down the east coast we have enough gas resources to power a city with a population of a million people for over 5,000 years. So, no matter what type of gas extraction we use, we need to do it properly, look after the environment and see to Australia's needs—because this gas actually belongs to the people. Under the state collection royalties, it is owned by the Crown. The people own the gas. To see a shortfall here in Australia is crazy.

I commend Mr Turnbull and his leadership for intervening in the market and saying: 'We're not just going to export it all overseas and leave a shortfall here. We need to take action to see that we have a big enough supply here so that all Australians have ample gas to get us through our wintertime, for cooking, for our motor vehicle needs or whatever.' I think it is a case of good government that we have intervened to ensure that we keep enough gas supply here until more supply is brought on the market here. It will no doubt reduce the price as well.