Wednesday, 10 December 2014

Gas Politics in the States December 2014

Gas and the Efficient Structure of the Australian Economy
Deakin Policy Forum with APPEA
Wed Dec 10th at PwC Southbank
Many thanks for the invitation to be here today from Deakin University, my respected friend Prof Michael Porter and David Byers of APPEA.
I am only here today because I was invited by then Victorian Premier Ted Baillieu to chair the Victorian Gas Market Taskforce. But I am glad I took on the task and I remain interested because the future of this industry is very important and I like the challenge of what seems to be an impossible task, especially in Victoria and probably NSW.
Despite the noise generated by the greens movement and their allies, the gas industry is safe, great for reducing emissions, plays a useful role for wind power and can offer jobs and investment to lift living standards.  The challenge for the industry is a political one; not as tough a challenge as selling the GST but difficult all the same.
Needless to say the resource States of WA and Queensland have clear views on the industry and Australia is fortunate in what they have achieved already with more coming especially in Queensland.
SA is a resource State and it has a pro-resources Minister for Energy who is also SA Treasurer. SA’s economy has been under pressure for many years and as time rolls on, the State becomes more desperate for economic opportunities. Under these circumstances, it is surprising that the Liberal party has joined with the Greens in the SA Upper House to convene an inquiry into the gas industry. It’s not as if the gas industry or fracturing or other aspects of the industry are new in anyway. It’s not as if the science of the industry is not well known. And let’s face it; the Greens would only be involved in this inquiry to further their opposition to any fossil fuels. One of the first lessons I learnt from Queensland is that if you want a gas industry then governments have to make it clear that they support the industry. Why a Liberal party wants to join with the greens contrary to the interests of SA is hard to believe. And why the Liberals would countenance the loss of jobs and investment desperately needed in SA is also hard to believe. It’s a case of giving the greens an inch and they will take a mile. There is no way that the greens will accept the science on coal seam gas and I hope the Liberals have the political stomach to stand up against the greens and publicly provide bipartisan support for the industry with the SA Labor government.
The situation in Victoria is even more barren; Victorian parties have a bipartisan policy of opposing the gas industry.  The new Labor government will do nothing to support the gas industry and I expect that they will keep the moratoriums first put in place by Minister Michael O’Brien MP then made even worse by Minister Russell North with the encouragement of Peter Ryan MP in the dying days of the Napthine government.  Victoria stands totally opposed to any exploration on-shore; this blanket opposition must be one of the world’s most anti-resources policy ever seen in Australia and probably internationally. It is an embarrassment to rational policy making. In the recent election the Coalition’s junior partner, the Nationals have lost the seat of Shepparton, and nearly lost the Gippsland seat of Morwell. The Nationals leader Peter Ryan has resigned and we do not yet know if the Nationals will remain in bed with the greens under new Leader Peter Walsh as was the case with Ryan. Likewise, former Premier Denis Napthine has stood aside for a new Liberal leader in Matthew Guy. Napthine has announced he will stay in the parliament and presumably will continue to oppose gas jobs and investment in Victoria. Why the Nationals are so tied to the Greens at the expense of farming communities that could do with significant revenue from gas and the chance to make their farms immune to drought, is a mystery. In the recent Victorian election, in Gippsland East the Nats had a primary vote of 60.7%, in Gippsland South Peter Ryan got 57.69% and 66% (TPP) and in Narracan the Liberal vote was 55.7% and 61.8 (TPP). The Greens vote in these three seats was between 9.48% and 7.69%. The Nationals are losing support as demonstrated in Shepparton. Now is certainly the time for the gas industry to press the Coalition to reconsider their policy. The Coalition claims to support the manufacturing sector and yet manufacturing is under costs pressures and an on-shore gas industry could be a huge a fillip to Victoria if only the Coalition could grasp the opportunity next time it is back in government.
As for NSW, it faces the biggest immediate risks of days without gas and a long term prospect of gas prices higher than needed to be. The odd thing is that “Uncapped CSG reserves in NSW could partially ease medium term east coast gas pressures if current planning impediments are addressed urgently” (Energy White Paper – Issues Paper December 2013).
Twelve months later, little has been done to protect NSW from likely gas shortages although at least the new Premier, Mike Baird, has said he wants to access NSW gas reserves ( Baird: “Do we want coal seam gas? Absolutely we do”)(Daily Telegraph 8 Nov 2014). As at today, my fingers are crossed that Premier Baird will stick to his commitment after the forthcoming election.
But before getting excited at the prospects of NSW finally taking on Alan Jones and the greens, I think I will wait until after the forthcoming election and then see if the Premier matches his public statements.
In the meantime, on the 13th November 2014, the Baird government announced its Gas Plan for the regulation of the coal seam gas industry. The report implements the recommendations of the report by Prof Mary O’Kane.
I do not have a final view on the plan but there are a number of matters which need further discussion.
The plan to hand over regulation of coal seam gas to the NSW EPA seems at odds with a desire to support the industry. The EPA has a clear environmental mandate. But it has no mandate to do anything to support the industry. It has no resources for the tasks of managing the industry and it seems odd to bypass the expertise within the NSW mining department.  At first glance, it seems the government has decided to wipe its hands of the industry altogether and flick pass all responsibility to the EPA which is statutorily independent of government. Even if the government says it supports the industry the EPA could effectively close gas projects at a whim. It could soon develop a recipe to blanket the industry with more and more regulation and interminable delays.  Abandoning the industry makes no sense and to my knowledge handing the industry to the EPA has not been tried anywhere else in Australia.
In my report for the Victorian government, the first recommendation was that the Government must make it clear that it supports the industry. When they refused to accept that recommendation, I knew that the prospect of a Victorian on-shore industry was finished. I don’t see why any company willing to assist NSW with its gas shortage would want to proceed to secure the necessary approvals to get gas to Sydney when the government is not prepared to back the private enterprise effort to supply gas. No support from the government means no gas for Sydney.
I do not agree that NSW should be buying gas from WA.  Firstly, because I don’t think that NSW should be rewarded by the Commonwealth for the failure of NSW to access the significant resources within NSW, particularly in the Pillaga scrubs in northern NSW.  Secondly, gas from places as far away as WA will be much more expensive simply by virtue of the need to build a pipe and the cost of transporting the gas.
Other proposals make me wonder what the NSW is really intending. One recommendation says that the gas companies have to demonstrate how projects will benefit NSW consumers. That is sort of ok but the Government’s constant failures to confront  Alan Jones and others has been a big part of the problem and whilst business has a role to play, the Plan makes no mention of government’s responsibility to engage in public debate and provide the reasons for government support.
My third big concern is the plan to extinguish petroleum exploration licences. And petroleum titles and applications will be reduced to cover 15% of the State – a reduction from 75%. This looks like a ploy to temper green campaigns at the expense of less competition and less prospects of securing new resources. In the immediate future I would surmise that in practice the only gas companies left will be AGL with their project in Gloucester and Santos at Pilliga. Lessening competition is not healthy and should not be the policy position of a free enterprise government.
There is another scenario. If I was running a gas business and constantly being blocked by the EPA then maybe shareholders might ask “why are we risking our capital when we could make more with less risk elsewhere?” And then my hypothetical gas company might take the rational decision to shut down its project and wait for a government that really wants to promote gas. In that scenario, the NSW government would be stranded with businesses going broke, workers losing their jobs and the companies holding the upper hand.
Compare the NSW approach to what happens in the US; it is enough to make you wonder what sort of free enterprise values determines the policy of the NSW government. It certainly suggests that NSW needs to think a lot more carefully about its plans and provide a lot more detail to allow the gas industry the opportunity to decide whether they should be involved in NSW at all.

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