APPEA 2013

Transforming our Energy Future

The Hon. Gary Gray AO MP
Minister for Energy and Resources
Brisbane, Queensland, 27 May 2013

I would like to acknowledge the Turrbal and Jagera people, the traditional custodians of the land on which we meet. I would also like to pay my respects to the Elders both past and present, and to Elders that may be present here today.

This land is rich in the hydrocarbons that are essential to our continued economic well being and that will help to deliver better lives to all Australians, our communities, our nation and our region.

Thank you to Deputy Premier Seeney, for that introduction.

It’s a pleasure to be in Queensland, a vibrant, growing state a major tourist destination, and a key hydrocarbons and energy producer.
The resources and energy sector is both critical to the economy and a complex business where the safety of our workers is paramount.

Let’s not forget that 6 July this year is the 25th anniversary of Piper Alpha, the North Sea tragedy that claimed 167 lives.

We’ve come a long way since then.

In 2011, the number of lost time injuries in Australia’s oil and gas industry fell to a 16-year low.

Let’s keep all of our workers safe.

Today I want to talk about:
1. Global and domestic gas demand
2. The domestic gas study
3. The transformative impact of new gas
4. Technology and innovation in the sector
5. The 2013 Offshore Acreage Release, and
6. Regulatory reform.

APPEA’s conference themes, including investment, productivity, technology, regulation and consultation are all matters of crucial importance for our industry, and to our continued economic wellbeing.
It is these areas we need to get right if we are to forge our energy future, and capture the benefits of this, the Asian Century.

The demand for gas
Natural gas is increasingly seen as a “destination” fuel – a message hammered home at the LNG17 conference in April.
We have an opportunity to cater to robust growth in regional energy demand by building on our traditional strengths in offshore gas, and developing newer natural gas resources from coal seam and shale.

Australia has seven of the world’s 12 major LNG projects currently under construction, with capacity to approach 90 million tonnes by the end of the decade.

This must surely be the finest achievement of my predecessors Ian Macfarlane and Martin Ferguson who have laid strong and enduring foundations for our future prosperity.

A second wave of LNG investment – including the Browse Basin – will begin as we approach 2020.

Floating LNG has the potential to deliver significant technology, productivity, environment and cost savings, lifting the competitiveness of the Australian LNG industry.

The benefits of floating LNG are clear, with industry and government alike excited by the potential of the new technology.

Onshore, the development of new natural gas resources, from coal seam and shale has also been extraordinary.

Investment in these new natural gas resources is important because of the benefits they provide – generating wealth, a cleaner environment and creating jobs.

The development of coal seam gas will also play an important role in providing gas supplies and the transition to a low carbon economy.

The development of shale gas in the US has been a major contributor to the recent fall in carbon emissions in that country.

The Australian Government is also working with the states and territories to address community concern about natural gas from coal seam and shale, ensuring these activities are undertaken responsibly and sustainably.

Without new gas supply sources, there will continue to be upward pressure on gas prices.

The Australian Government does not agree that domestic gas reservation would keep gas prices down or put more gas into the market.

In our view it would create uncertainty and deter investment in new gas supply.

However, it is vital to make policy decisions on the basis of a strong understanding of what is actually occurring, and the potential

implications of government interventions in the market.

As such, I am pleased to announce today that the Australian Government has committed to undertaking a new, comprehensive analysis of the domestic gas market outlook.

This Domestic Gas Market Study will provide better information on the gas demand-supply situation and help to identify potential supply constraints. Today I released the Terms of Reference for the Study.

To support the study, I will also be boosting the gas market modelling capacity in the Bureau of Resources and Energy Economics.
It is important that we get the policy settings right, as our abundant natural gas resources are a reliable and lower-carbon source of energy for manufacturing and electricity generation.

I would also urge gas producers and users to work cooperatively to negotiate domestic contracts; and be prepared to accept that prices are no longer at historic lows.

Working together, the State and Australian governments have initiatives that will promote market development and help to ensure that gas supply responds flexibly to demand.

Large-scale industrial gas developments face significant challenges right around the world.

Major LNG projects have seen deferrals, cost overruns, and cancellations as a result of infrastructure inadequacies, project management failures and regulatory delays.

Australia’s strong dollar, the ongoing weakness of other currencies, labour and a complex web of issues, negatively affects our relative costs of production.

Thankfully, there are also some challenges our competitors face with which we don’t have to contend.

With our relatively small population and massive resource base, we depend on strong foreign direct investment to maintain growth.

As you are aware, in the recent Federal budget the Government announced a package of measures to ensure our tax system remains fair, competitive and sustainable.

Two of these measures directly affect the resources and energy sectors; namely, changes to the exploration deduction and the treatment of thin capitalisation.

Under the exploration deduction measure, the proposed changes will not apply to deals that are committed, but where the transfers haven’t occurred as of the announcement date.

It will only apply to assets transferred after the time of announcement.

The measure will recognise the importance of farm-in/ farm-out and realignment of interests in joint venture arrangements and tenement swaps.

Importantly, detailed consultation with the sector will continue to ensure that these measures only protect revenue, and that they do not work as a disincentive for genuine exploration.

The Government is aware that many projects require very large up-front capital investments, which can result in high gearing levels.

That is why changes to capitalisation rules will provide flexibility and opportunity for companies to apply either the:

• statutory debt limit of 60 per cent; or
• the world wide gearing rate for the global group; or
• a genuine arm’s length test.

No legislative changes will be made before Spring 2013 or without further consultation with industry.

The first of these industry consultations is being held this week and I encourage you all to participate.

Technology and innovation
A major priority for the sector is keeping production costs down, and productivity up.

We need to recognise that productivity during the construction phase is generally not high.

We also need to recognise that many of the major projects that have been constructed over the past five years have been first-of-a-kind for the companies involved.

The lessons learned from these experiences will be used to improve productivity as we progress.

A key to achieving this is to maintain high levels of research and technological innovation to find new sources of gas, and ways of exploiting them.

The development of a global centre of excellence and innovation hub for technology is starting to occur, as the Western Australian and Curtin universities partner with industry to deliver new technologies and innovation.

The Perth-based Global Centre for Floating LNG Learning & Research is one such example.

Training facilities are emerging in Queensland for the onshore petroleum sector.

I note that Gladstone LNG has announced its partnership with SkillsTech Australia to establish a specialised Coal Seam Gas and Gas Transmission Pipelines Operations Training Centre in Brisbane.

Growing the competitiveness and capabilities of local firms involved in the sector will deliver enduring dividends.

Acreage release
Today I am pleased to announce the 2013 Offshore Petroleum Exploration Acreage Release.

The 2013 Release comprises 31 areas across six basins in Commonwealth waters off the Northern Territory, the Territory of Ashmore and Cartier Islands, Western Australia and Victoria.

It focuses both on large frontier-basins and smaller blocks in mature areas.

These vary in their level of geological knowledge and water depths to 1200 metres, and are all supported by precompetitive and open-file geological and geophysical data from Geoscience Australia.

The Government is pleased to invite nominations for the 2014 Acreage Release, with nominations accepted up to 31 July this year.

For the first time, the 2014 Release will include a cash bidding system applying to mature areas or those with known petroleum accumulations.

The Government is also developing a Five Year Acreage Release Strategy outlining the key drivers for our approach to future offshore exploration opportunities.

I have asked my Department to consult and work with you on what the strategy should look like to help maintain energy security and promote geological knowledge of offshore basins.

The Government has also commenced a process for releasing offshore greenhouse gas storage acreage.

Stakeholders are again invited to nominate areas to be considered, before the cut-off in late June this year.

Regulatory reform
The Government is improving regulatory frameworks and ensuring that there is a clear policy regime to support investment decisions.

A year and a half after their establishment, NOPTA and NOPSEMA have transformed the regulation of this industry.

Titles administration has been streamlined and made more transparent.

NOPSEMA has grown into a competent and diligent regulator that engages internationally to draw upon and develop the world’s best practice.

Between January 2012 and April 2013, NOPSEMA received 132 new environment plan submissions.

Of these, 80 have been accepted, with the balance still under assessment.

Since last year’s APPEA conference, two critical compliance bills have passed through the Parliament with bipartisan support.

These will streamline regulation, reducing duplication within both the Offshore Petroleum and Greenhouse Gas Storage and Environment Protection and Biodiversity Conservation Acts.

Industry will be consulted extensively in the context of the current review of the OPGGSA Environment Regulations.

And there have been industry demands for NOPSEMA to be the environmental regulator.

We will achieve this, with streamlining of approvals by NOPSEMA under the OPGGSA and EPBC Acts a high priority for both myself and my colleague, Environment Minister Tony Burke.

Community engagement and consultation
Onshore, the Government is working closely with the states and territories to ensure coal seam gas activities are undertaken responsibly and sustainably.

But good regulatory processes alone are not enough for the industry to gain – and maintain – community support for its operations.
Sometimes activism in this area has not been about improving regulation or benefitting the environment, but about spreading fear and confusion to achieve a dramatic media-driven objective.

And it does achieve the objective of horror headlines and horror media coverage. But the noise is made by a relatively small number of people.

We need to put evidence and science into the current debate – and balance the misinformation that is being peddled in the public arena, and we need to be robust about it.

Industry needs to argue its case in every possible way, to stand aside from necessary commercial rivalries for the common good, and accept that these days a community perception in one part of the country becomes a problem for all.

This is a shared challenge for industry and government.

APPEA has taken up some of this challenge by providing facts on the coal seam gas sector.
Facts such as:
3,780 agreements signed, providing a win/win for the industry and farmers.
Facts such as:
the industry working responsibly with government to research and understand groundwater systems.

Without industry taking up this message with vigour and courage, fewer and fewer politicians will be able to prosecute sensible, logical, science-based policy and sustainable regulatory solutions.

All of the developments I have covered demonstrate that government, industry and community are working together to advance the petroleum industry for the benefit of our entire society.

This is an unprecedented period of opportunity, not only for the people of Australia, but also for our region.

The world will have the chance to observe the scale of growth in the industry in 2016 when Perth hosts LNG18.

I am immensely proud of Australia’s excellent reputation in reliability, safety, diversity and sophistication of our LNG industry, and you should be too.

I look forward to working with APPEA to support the Australian oil and gas industry’s drive for innovation, building on its stellar reputation, ensuring its sustainability and nurturing its strong growth for the future of our nation.

Thank you.