Using our natural gas reserves to advance national interest

Tonight I want to talk about Australia's natural gas reserves and how they can be best used to generate Australian jobs and provide energy to Australian homes. In a few short weeks, parliament will be over and we will return to our electorates. The campaign for the 2013 election will begin in earnest and debate will be joined on the issues around which the next government will be formed. Elections are always a crowded place for discussing detailed policy, but one issue that is worthy of an important national debate is how we best use our bountiful reserves of natural gas to advance the national interest.

Australia is a leader in the supply of natural gas to world markets. Growth in Australian gas and LNG development is set to continue for many years. The Bureau of Resources and Energy Economics reports that our LNG exports reach 20 million tonnes, worth $12.4 billion in 2011-12. We will be the third largest exporter in the Asia-Pacific region and the fourth largest in the world. Exports are forecast to exceed 23 million tonnes this year as Western Australia's Pluto facility reaches its full capacity.

Seven major LNG projects are under construction representing more than 60 million tonnes of additional capacity and investment in access of $175 billion. When these projects reach capacity, Australia could be the world's No. 1 LNG exporter by around 2017. Yet more gas projects are in the planning, including the Equus project off Western Australia and the Arrow and Browse projects in Queensland.

Australia's rapid rise in the global LNG production is due to a number of factors: strong demand from our Asia-Pacific trading partners has seen new projects underwritten by some of the world's largest supplier agreements with customers in Japan, China, Korea and India.

The International Energy Agency projects strong global demand for natural gas to 2035. The proportion of Australia's natural gas that has been sold for exports has increased rapidly since 1990. By 2034-35, gas exports are predicted to be more than double Australia's domestic consumption level. In the meantime, New South Wales long-term gas contracts will be expiring at the end of 2016-17. This means that New South Wales must now negotiate new supply contracts at a time when demand for gas on the eastern market will be increasing, largely due to export.

Heavy demand for natural gas is placing pressure on the price we pay. Manufacturing Australia have raised the concern that 'the tight demand and export focus are rapidly driving local prices towards the Japanese net-back levels.

Over the last three years, ACIL Tasman and others have consistently raised price forecasts as domestic users struggle to extend contracts in this very tight environment. Some forecast a rapid doubling of prices, which would make Australia one of the most expensive major gas export markets. This is no small issue for industry, and no small issue for households. Manufacturers consume around 32 per cent of our domestic gas. Electricity generation accounts for another 29 per cent, and mining for 23 per cent. Meanwhile, we have been encouraging households to move to less-carbon-intensive energy sources, including natural gas.

An increase in gas prices will have a dramatic impact on these sectors. Manufacturing Australia says:

If not managed will, substantial sections of Australian manufacturing will be negatively impacted by this near term gas crisis, to the point of reduced production, investment and jobs.

We estimate that 40% of our domestic chemicals industry, 25% of our non-ferrous metals industry and 10% of our other manufacturers (including building products) and 2% of our wood paper and printing industries are at risk.

This is why there is a call for governments to rethink their approach to our gas supply. In an address to the National Press Club recently the head of Dow Chemicals, Andrew Liveris, observed that giving primacy to the export of our raw materials over other considerations is leading to an imbalance in the Australian economy. We use a shorthand: the mining boom.

He drew a contrast with the United States, where the discovery and exploitation of shale gas is being used to restart their manufacturing industry. Indeed, over 500,000 new manufacturing jobs have been created as a result, and millions and millions of dollars are being reinvested in new manufacturing capacity. He makes the point that Australia has to potential to value-add our raw materials, particularly our gas, to increase jobs and national wealth. He says:

It gives us what may be once-in-a-lifetime opportunity to create a manufacturing renaissance. But only if we make the best use of this vital resource.

Unfortunately, this is not a given.

Some still believe the best thing you can do with a cubic foot of gas is burn it as a fuel, whether for transportation or electricity.

But do that and you get power out of it only once. A one-time value add.

Others want you to export it.

Well, I am all for exporting natural gas—in the solid form, not the liquid.

Here is what I mean by "solid form":

If you do not bum that cubic foot of gas, export it, or sell it immediately...

If you instead take it and use it in advanced chemical processes...

If you use modern technology and convert it into high-value chemicals, plastics, composites, materials, and other high-tech products...

Then you do not just get a one-time value add.

You get, on average, an eight-times value add across the entire economy. This is the work we do at Dow, every day.

There are many within the Australian business community who are calling for a rethink of policy. They are calling for an introduction, for example, of a national interest test for the granting of export licences for gas. Others say that we should be ensuring that there is a secure supply of reasonably priced natural gas for domestic and industrial purposes. They say, further, that reserving a percentage of gas for national use is in the national interest. The DomGas Alliance, a group formed to push for such change, suggests that a 15 per cent domestic gas reservation policy is in the national interest.

These are not fanciful suggestions. They deserve serious consideration. Indeed, in Canada a national interest test has been introduced. Countries like Saudi Arabia and the United States, as I have already mentioned, have domestic reservations and, closer to home, Western Australia has a 15 per cent reservation for gas from new fields coming on line. These are the sorts of debates that we should be having. These are the sorts of debates that I will be having with my Labor colleagues. These are the sorts of debates that I will be raising in my electorate in the lead-up to the 2013 September election.

As I said at the outset, elections are always crowded places for discussing detailed policy, but this issue is worthy of an important national debate. When we look across the Pacific and we see countries such as the United States—once seen as a basket case for manufacturing and manufacturing jobs—seeing over 500 million jobs being created and billions of dollars being invested in new manufacturing capacity, we say that there is a way forward powered by our bountiful supply of natural gas. As Mr Liveris said in his National Press Club speech: 'You burn it, you use it once; you export it, you get the export value once; but if you look at our natural gas supply not only as a source of energy but as a feedstock for complex petrochemical and other manufacturing industries then the world is our oyster.'

Elections are crowded places for discussing detailed policy, and I have no doubt that we will have a heated debate around the pricing of other energy sources, but I wager that, when we look down the track and we think of the policy considerations that we can have that will have a lasting impact and the right impact on the way that we use our domestic resources, this will be a lot more important than debates, for example, around carbon pricing. How we use our bountiful supplies of natural gas to advance the national interest, to create good sustainable jobs now and into the future—jobs not just for now but jobs into the future—and how we use our bountiful supply of natural gas to transform our domestic use and our industrial use to a cleaner energy future are the sorts of debates that we need to be having in the course of this federal election. These are the issues that I will be raising, as I said, in my party room and in my electorate, because they are too important and this is too important an opportunity to let this issue be put aside.

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