Christopher Back (WA, Liberal Party) Share this | Link to this | Hansard source

I am delighted to continue my comments on this bill and to draw to the chamber's attention that it is always easy in 2017 to say, 'The North West Shelf is there. Gorgon, Wheatstone and Ichthys are there. The Queensland projects are there.' They were not always there.

I draw attention to the chamber that back in the 1970s Sir Charles Court, the absolute dynamo of Western Australia and Australian industry, negotiated with the federal government that there be a fairer sharing of the royalties and the income that would come from the possibility of a North West Shelf. Remember, Woodside had made no investment. There was a prospectivity but there was no wealth. It is easy in this year to look back and say, 'Look how much money we have all made out of it,' and, 'We're rushing towards being the world's biggest exporter of LNG,' but in the 1970s there was nothing there. A huge risk was taken. Quite correctly, Sir Charles Court said to the Prime Minister of the day, 'We in Western Australia are going to take the risks. We're going to be doing the work. You will enjoy the royalty benefit of the LNG that might come'—might come!—'from the success of a North West Shelf.' As a result of that, a decision was taken at the time that should there be any gas and condensate found there would be no tax at all to the company on condensate to give them an incentive. That was done so that in the possibility of there being some success from that exploration they would at least have a motivation and an incentive. As we know, along came Prime Minister Rudd, and he put paid to what had been a long-established principle.

The importance of this bill before us is that it takes into account the sharing of royalty income between the Commonwealth government and the state, or states. As we know, on the seabed hydrocarbons move. They might be in state waters. If they are within or around an island they may be in Commonwealth waters. As extraction takes place the hydrocarbons move. This is part of the reason for the Offshore Petroleum and Greenhouse Gas Storage Amendment (Petroleum Pools and Other Measures) Bill coming before us.

I am delighted that Senator Moore yesterday courteously supported this bill on behalf of her party. She made some very good points about resources and their contribution, and about the efforts in Western Australia of the member for the Pilbara, Mr Grylls, who would be absolutely torpedoing future investment—in that case in the iron ore industry—as a result of ill-founded and poorly thought out claims made for his own cheap, political advantage.

As a result of the efforts of Charles Court and others the decision was taken at that time that there should be some preference for domestic gas supply. Why would that be? Simply because at that time the risk was on the people of Western Australia. Charles Court negotiated what was called a take or pay agreement—in other words, should Woodside proceed and should they find gas, then there would be an automatic market for that gas. At that time, of course—as I know myself—in WA there was no reticulated supply of gas. So the people of Western Australia and indeed Alcoa, the aluminium company themselves, took an undertaking that they would purchase in advance significant proportions of that natural gas. So today we have a scenario in place in WA where at least 15 per cent of all new LNG supply is guaranteed for domestic gas.

Mr President, I would humbly request through you that I have some silence or at least quiet if that is possible.

Stephen Parry (President) Share this | Link to this | Hansard source

Yes. Could I just invite all senators if they are holding conversations and if they do not need to be in the chamber to hold those conversations outside the chamber so that we can hear Senator Back in silence. It is disruptive.

Christopher Back (WA, Liberal Party) Share this | Link to this | Hansard source

Thank you very much. I would have liked to have contributed to how the UN went from my time in 2013. Maybe we can continue that discussion at a later stage.

I was just concluding on the observation that in Western Australia now, as a result of the risk taken by the Western Australian community through the then-Premier Charles Court, that the risk associated with the development of North West Shelf Gas was taken by the people of WA and Alcoa. Of course, today it is wonderful. We have a Pilbara to Bunbury gas pipeline. Gas is reticulated everywhere. If states like Victoria and South Australia and Queensland do not get their act together in terms of gas exploration and extraction, there is already talk of there being huge storage facilities either offshore Victoria or on land to provide gas for Victoria from elsewhere. I had a discussion recently with our new ambassador to Japan, the Hon. Richard Court, son of Sir Charles. He and I discussed the prospect of whether there could indeed be a gas pipeline across the Nullarbor so that we could supply these other states who seem to be most intransigent when it comes to guaranteeing a supply of product that will guarantee to keep the lights on in those states. South Australia is already in a parlous state with its ill-founded decision to move towards a wind turbine dominated supply. My good colleague Senator Hume is kind enough to sit here and support me in this contribution. Already Victoria has discontinued or is discontinuing coal-fired power and Victoria will find itself in the same position that South Australia is in today.

I want to draw to attention in relation to this whole question of the offshore gas that is the subject of this bill just how important is the scale of the operations that have been going on offshore WA and in Queensland onshore with the supply being exported from Gladstone. The two big projects of which the Chevron company is the major promoter, Gorgon on Barrow Island and Wheatstone at Exmouth, are together a $100 billion project, part of $200 billion of investment in Australia in LNG. Let me put it into perspective, if I may. In today's dollars the entire Snowy Mountains scheme is $8 billion. We quite rightly are very proud of the Snowy Mountains scheme, the time that was undertaken and the use of people displaced out of Europe. Snowy Mountain is of course a phenomenal project and is even today delivering hydroelectricity for which we should all have enormous hope in the future.

But the Snowy Mountains scheme was an $8 billion project in 2016 dollars. Between them, Gorgon and Wheatstone are a $100 billion project. It is important to reflect on this, for those who seem for some reason or other to be dismissive of LNG and its contribution to the Australian economy. Let me share something with the chamber and with those who might be interested. I mentioned there was $200 billion of investment in LNG. That is a third of all investment coming into this country. In terms of revenue for government, oil and gas production and exploration in 2011-12 put $30 billion into the Australian economy, contributing two per cent. But as we move to being the world's largest exporter of LNG in 2018-19, that figure of $30 billion will increase to $65 billion of revenue by 2020. That represents 3½ per cent of Australia's GDP.

As for all the allegations that the resources sector does not seem to make its contribution in company taxes et cetera, in 2011-12 the industry paid to the Australian government $8.8 billion in income tax, corporate taxes and resource royalties. But the news gets even better. By 2020—in only three years time—that $8.8 billion paid directly into the Australian economy increases to $12.8 billion; that is nearly $13 billion of income tax, corporate tax and royalties paid into our economy. What does that build? For example, that contribution would build six new state-of-the-art major teaching hospitals in cities or towns around Australia. I am often told, 'It doesn't contribute much by way of jobs.' There have been 103,000 jobs created. I see the minister for resources nodding his head. He now has, on behalf of the government and the people of Australia, the responsibility and the accountability to take that case for industry into this place. Over 100,000 high-paying jobs have been created, principally for Australians. I know of your support, Acting Deputy President Sterle, for the resources sector in our home state of Western Australia.

But it gets better than that. Yes, it is true that Gorgon, in terms of its establishment and construction, is coming to a close. It has three gas trains. Trains 1 and 2 are up and running now; train 3 will be by the end of this year. I was privileged, along with Mr Gary Gray, Ms Melissa Price from the electorate of Durack and others, to be on Barrow Island for the first shipment of LNG to leave Western Australia from the Gorgon project. At Wheatstone, there are two trains. One of them will be operating in full by the middle of this year; the other one will be by about the middle of next year. What is interesting is that, for the next 40 years, an LNG ship will leave Western Australian waters every 72 hours.

Yes, it is the case that there is a petroleum resource rent tax. It is designed so that the costs of establishment—the exploration and bringing into production these huge projects—can be accounted for up-front and so that there is encouragement to invest and to continue to invest in this country. Yes, it is the case that there is then a delay in some of the returns to the federal government by way of royalties. But let me make two points. The first is that in Western Australia particularly—I cannot speak with any experience about Queensland—a lot of the gas reserves, whilst they are enormous, are marginal in terms of cost. I hope the minister is taking careful notes. Because they are marginal this is the incentive to go ahead and invest on the North West Shelf—Woodside with Pluto and Chevron with Gorgon and with Wheatstone—and the new facilities offshore: Scarborough and Browse. These are terms with which you are very familiar, Mr Deputy President Sterle.

The other point I want to make is that Australia is a very high-cost location into which investment can be made. Even the Gulf of Mexico is infinitely cheaper than Australia. The South China Sea and offshore Brazil are very attractive locations. I say to my colleagues who are making decisions at this time in terms of the review of the petroleum resource rent tax, 'For heaven's sake, do not bite the hand that feeds you.' I go back to the comment I made a moment ago. With just one company, Chevron, there will be an LNG ship every 72 hours for 40 years. We are all aware of the excellence of the North West Shelf—the work undertaken by Woodside at Rankin and North Rankin and more recently at Pluto. Woodside have the opportunity with Sunrise in the Timor Sea. They have the opportunity on the Browse Basin.

I come now to the outlook for the future and I refer to the new concept of floating LNG. We know of the enormous vessel—the largest vessel ever built by the Shell company in Korea—Shell Prelude. How is the Prelude project different? Shell have combined in the one floating structure their hundreds of years of expertise in shipping, the construction of LNG facilities and the conduct, maintenance and operation of LNG. This will be on their project offshore WA. Where is the excitement for us? This is a world first and it is in our patch. We have followed the rest of the world—Stavanger in Norway, Houston in Texas and Aberdeen in Scotland. This time around we are the first. Australia, Australians and Western Australians have the opportunity to get in on the ground floor in terms of the operation and conduct of the new Shell Prelude project. In the event that it succeeds we will see more floating structures. Why? Because, unlike a fixed structure, if and when supply runs out, you can move that vessel, that whole LNG platform, to a new location and continue well into the future.

How exciting is this in our world? We have the capacity with our TAFE and higher education institutions in WA and indeed nationally to lead the world in this new floating LNG technology. Coming back to the bill that is before us, you can now understand the importance of this place legislating to ensure that, wherever that floating LNG structure is placed, we know in advance what the sharing will be in terms of revenue through royalties to the state and to the federal government.

In the few minutes left available to me I make a plea on behalf of Western Australia. These projects in the Pilbara are a long distance from Perth. We know that the community of WA has to invest heavily in roads, housing, schools and communities to support the people who run and operate these projects. In a scenario in which the royalty income comes back to the federal government for the benefit of all Australians there must be a provision for the people of the state who spend the money so that the overall community of Australia can benefit. That is the critically important point. We must think nationally but we must act locally so that we continue to attract, continue to see and continue to enjoy the benefits that will come to us over many years.

The final point to be made is that today is the day on which the Woodside company will be launching their first ever LNG-powered PSV—a platform supply vessel—in Fremantle. It is more the pity that we cannot be there to enjoy it. It is the first time in the southern hemisphere. Of course, the big ships that operate backwards and forwards are themselves powered by LNG. It is a good luck story. I support this bill and I commend it to the Senate.

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

I and my colleagues in the chamber will support the second reading of this bill. I will be moving a second reading amendment that I will refer to shortly. We know that the structure of this bill is largely technical in nature. It aims to clarify the apportionment arrangements relating to certain petroleum deposits that straddle state and Commonwealth jurisdictions. That is in schedule 1 of the bill. Also, it aims to ensure the capacity of the National Offshore Petroleum Safety and Environmental Management Authority, NOPSEMA, to refund fees paid to it where necessary. I will not go into the technical aspects of that, but these seem like sensible technical amendments.

It does give an important opportunity both at this stage and at the committee stage of this bill to discuss broader issues in terms of the crisis we face in this country in terms of energy security and also the issue of gas suppliers. We know from Manufacturing Australia that what they are paying for gas is just extraordinary. There is a constant debate in this country about whether there should be a gas reservation policy. We know that the Palaszczuk government in Queensland has recently announced changes so that any new leases or tenements need to have a proportion reserved for domestic use. I know that many economists and, I dare say, the minister responsible will say that is the case. I mean that the minister in this place, Senator Canavan, would say that gas reservation does not work, but something has to be done to give security of supply and security in terms of prices and downward pressure on prices for manufacturers in this country and in my home state, where energy prices are sky-high and actually impeding investment in manufacturing and the jobs that are created in the manufacturing sector.

We have already seen since the GFC manufacturing in this country shrink from 12 per cent to just over six per cent of GDP and 200,000 jobs have been lost. We now have a situation in this country where as a percentage of our GDP manufacturing hovering just above six per cent is just bumping above Botswana and Rwanda, two countries in Africa that have never had a manufacturing base like we have had. We have seen a massive shrinking of it, and that has profound implications for our economy. It is a shadow of what Germany's GDP base of manufacturing is: 22 per cent, which is a jobs and industrial powerhouse for Europe.

I am concerned about ensuring that we get the balance right and that communities are heard in terms of CSG explorations. In my home state, on the Limestone Coast it is not CSG but it does involve drilling, and there are genuine concerns about fracking and the impact it can have on prime agricultural land. But there are gas suppliers in this country that do not pose the same environmental and community concerns, and we need to be able to unleash those. That is why I will be moving a second reading amendment in respect of retention leases. I do so to flag the issue. I do not propose to divide on that, but I would be grateful if the minister could indicate views on that. I will in good faith sit down, negotiate and discuss this issue further with Minister Canavan and Minister Frydenberg in respect of these issues.

This is an issue that relates to having competitive tension in the retention lease approval process. Currently, a company can retain a lease if recovery of petroleum or gas from the licence area is not yet commercially viable but is likely to become viable within 15 years. Every five years a company has to either commercialise the licence area or show that the licence area is still not commercially viable. On the face of it, the current rules are saying 'Use it or lose it,' but if you drill down into this—pun intended—it does not actually do that. It is a pretty weak set of proposals under the current legislative framework. It does not actually require that competitive tension.

It is my understanding that, under the current regime, there is theoretical competitive tension, in that another company can put forward a development proposal, but in practice there are major impediments to do so. That is because a company cannot get hold of the seismic surveys, the seismic work, that another company may have done, which could have cost many millions of dollars. I think we need to find a way around that. A new company may come in and say: 'We want to develop this gas resource. We will look at the seismic surveys.' They do it commercial-in-confidence. If they end up taking over that lease, they need to contribute fairly to the cost of the seismic surveys done by the previous company. That is a way around the impasse that currently exists. This is something that needs to be dealt with. Currently, a company has to make a binding commercial proposal, but they cannot do so because they cannot access the key information in terms of the seismic surveys and the like. This is the sort of thing that we need to do.

I do not have the figures in front of me, but if I happen to get a text from my office in the next 30 seconds, it might tell me how much gas is in the Bass Strait. In the Bass Strait, there are leases that a number of major oil companies have had for a number of years. My understanding is that the reserves are very significant. If we could tap those resources, it would, at least for the next few years, make a very big difference to gas prices in this country and to energy security in this country. It would also relieve, to a significant extent, the issue of communities having legitimate concerns about CSG and the impact on prime agricultural land. We do not have the same environmental and community concerns in the Bass Strait, given the history of the Bass Strait and given that it is gas—not petroleum—drilling we are talking about.

That is something that ought to be considered. That is why I will move the second reading amendment standing in my name, which will be dealt with at the conclusion of the second reading debate of this bill. Even if my amendment is not supported, this issue will not go away. There are too many manufacturers and too many jobs at stake to ignore the gas that is in the Bass Strait. Some local Australian companies would like to get access to that gas and have a go at developing it, but they cannot because the current rules act as a massive barrier.

I am very grateful to my office. Unusually, they are listening to what I am saying! They tell me that there is seven trillion cubic feet of gas in the Bass Strait. That is a big figure. It is a big figure like the Australia Post CEO's salary! Seven trillion cubic feet is a significant amount of gas that would make a real dent in the issues of energy security, which I know Minister Canavan and Minister Frydenberg are concerned about. This is a discussion I have had in good faith. I am flagging this amendment, not so much to make a political point but to say that this is an issue that cannot be ignored.

In relation to Senator Hanson-Young's amendment in respect of drilling in the Great Australian Bight, I and my colleagues will support that amendment. This parliament cannot bind future parliaments, but right now, based on the evidence that I heard at the Senate inquiry that I instigated in the previous parliament, I strongly support what Senator Hanson-Young has proceeded with. The precautionary principle should weigh heavily on our minds. It seems that there are not sufficient safeguards in the current framework. NOPSEMA has made the right call initially, but my concern is that drilling in that area, given the potential risks, is something that we should not countenance. I think an alternative such as accessing that seven trillion cubic feet of gas in the Bass Strait will make a significant impact on this country's energy security.

I have had another text from my office, and the caveat is that the figure of seven trillion is a total of the proven, probable and possible. Even allowing for various risk factors in regard to that, there is a hell of a lot of gas in the Bass Strait that could be unleashed. It seems to me that, because of commercial considerations, new entrants cannot have access to that gas under the current rules that are stacked against them. We should have a 'use it or lose it' approach, as they have in other countries. We need to use it, given the crisis that Australian manufacturing has in respect of jobs and in respect of energy prices. That is something that I will prosecute in good faith with Minister Canavan and Minister Frydenberg because that could be a short- to medium-term solution for the energy problems we are facing in this country.

I move the second reading amendment standing in my name:

At the end of the motion, add: ", but calls on the Government to make further amendments to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 to improve competitive tension in the retention lease approval process in order to facilitate the earliest possible commercialisation of the exploration license area and increase the gas supply to the Australian market.".

Matthew Canavan (Queensland, Liberal National Party, Minister for Resources and Northern Australia) Share this | Link to this | Hansard source

I thank all contributors to this debate on the Offshore Petroleum and Greenhouse Gas Storage Amendment (Petroleum Pools and Other Measures) Bill. It is an important, albeit rather technical, change to our offshore regulatory framework. The bill contains amendments which will ensure the ongoing validity of apportionment agreements that are made under section 54 of the Offshore Petroleum and Greenhouse Gas Storage Act. These amendments will deal with areas where there may be multiple petroleum pools rather than a single pool.

The apportionment agreements allow for the Commonwealth and state governments, or territory governments, to come to an agreement where a petroleum pool might straddle two jurisdictional areas and allow us to provide certainty, particularly to those investors that may be seeking to develop that resource, so they can understand how we will split the benefits of the resource between investors and the Commonwealth or state and territory governments. These amendments will allow for governments to make these agreements where there may be uncertainty about whether a particular resource is simply a single petroleum pool or may in the future, after further geological information becomes available, in fact be a multiple pool. The bill underscores the government's ongoing commitment to investment in our offshore petroleum sector. It is critical that the legislation is appropriate to encourage that investment, and it is critical that we provide certainty to investors to allow those investments to occur.

I should note that while the Senate committees were looking at this bill there were some questions about the potentially retrospective application of the bill. We have made an addendum to the explanatory memorandum, and returned information to the Senate Standing Committee for the Scrutiny of Bills, to indicate that there will be no detriment because these agreements are entered into on a voluntary basis and, indeed, the only agreement under section 54 at the moment is that relating to the Torosa field, which is why we are moving these amendments in this bill. At this stage, I would like to table the addendum to the explanatory memorandum relating to the Offshore Petroleum and Greenhouse Gas Storage Amendment (Petroleum Pools and Other Measures) Bill 2016. The addendum responds to those concerns raised by the Scrutiny of Bills Committee. The bill also, in a different schedule, amends the act to ensure that there is a clear regulation making power to support regulations that provide for the refund and remittal of environmental plan levies and safety case levies in certain circumstances. I commend this bill to the chamber.

Glenn Sterle (WA, Australian Labor Party) Share this | Link to this | Hansard source

The question is that the second reading amendment move by Senator Xenophon be agreed to.

Question negatived.

The question is that the bill be now read a second time.