Governing gas – one on one with Martin Ferguson

Martin Ferguson speaks to <em>Gas Today's</em> Associate Editor Katherine St Lawrence.

Martin Ferguson speaks to Gas Today's Associate Editor Katherine St Lawrence.

Gas Today sat down with the Hon Martin Ferguson to discuss the Federal Government’s perspective on the issues which are shaping Australia’s gas industry. Katherine St Lawrence and Stephanie Clancy report.

First elected as a Member of Parliament in 1996, Martin Ferguson has served as Australia’s Minister for Resources and Energy since Labor was elected to government in 2007.

On his achievements as Minister and his priorities for the rest of the term…
I’ve just clocked up three years as the Minister and they have been an interesting three years. We’ve been fortunate to be at the centre of managing some huge investments in Australia, especially in the LNG sector. These investments will see Australia go from the fifth largest exporter to about the second largest exporter of LNG in the world behind Qatar by 2015–16.

Projects such as Gorgon and the east coast coal seam gas (CSG) projects out at Gladstone represent wonderful investment opportunities for Australia and will have a big impact on jobs and wealth over time.

We also have key investment decisions in the pipeline on Ichthys, Browse, additional east coast investments on LNG and potentially the first-ever floating LNG project with Prelude. One of our priorities is ensuring these projects are delivered on time and on budget.

We are also working on securing final investment decisions for these major projects and seeing the start of construction on Macedon in Western Australia. Another priority is working out how, with the LNG projects in Queensland, we make sure we’ve got sufficient domestic gas on the east coast of Australia, because we’re going to need it.

On a single offshore petroleum national regulator…
One of the big issues I’m working on at the moment is a single national regulator in the offshore oil and gas sector. That is very much a big priority for me. Effectively three independent reports have strongly recommended a single national regulator, as do the reports out of the Macondo incident in the Gulf of Mexico. The single national regulator is supported by industry; it’s supported by all state and territory governments except Western Australia.

I simply say to my Western Australian colleagues that this is not about a Commonwealth takeover, there’s no way we would ever develop on land a gas hub without full and proper consultation with the Western Australian Government. Browse is a prime example – if anything, the push for Browse has actually come from the Western Australian Government and we are working with them to facilitate it with proper environmental considerations side-by-side with negotiating successful Indigenous outcomes.

The community’s expectation of the industry following the Montara and Macondo incidents is higher. They expect the Commonwealth to deliver a stronger single national regulator, and I think that is a very important down payment on the right of this industry to continue operating in Australian waters.

On the Petroleum Resource Rent Tax…

The Argus/Ferguson report was presented to the Treasurer on 23 December 2010. There is now a process for a whole-of-government consideration of that report, led by the Treasurer and myself. In due course we will announce our public response and present legislation to Parliament going into the implementation of the Argus/Ferguson report, which is a new tax. It is a different tax proposal to the original proposal of 2 May 2010.

For petroleum, the real issue is the extension onshore of what is a well-established and accepted petroleum resource rent tax regime. That was very much sought by industry, so you’ve got a level playing field onshore and offshore.

On a carbon price…
We’ve announced a premise for discussion out of the multi-party climate change committee. I am very firmly of the view that a price on carbon is going to create a huge growth opportunity for gas. That is really the only viable form of alternative clean energy in Australia at the moment – it’s reliable, and it’s lower emitting.

The other growth industry because of the recent price on carbon is effectively wind. However wind, from my point of view as the national energy minister, is an entirely different proposition because it lacks reliability. Gas is there to be brought forward with a market opportunity coming its way if we resolve the debate on a price on carbon and get certainty for investment decisions. That’s the big ‘if’.

On gas-fired power generation…
The capacity of gas-fired power generation to grow in Australia will be dependent on market opportunities and commercial decisions. We as a government don’t seek to pick winners, but to create the framework for the market to sort out investment decisions. The only thing we’re doing is seeking to create a price on carbon side-by-side with a renewable energy target, which creates a new framework for the development of our energy system in Australia.

On the role of LNG in a carbon constrained economy…
In November 2009, a package agreed between then Prime Minister Kevin Rudd and Leader of the Opposition Malcolm Turnbull settled an appropriate framework to consider energy-intensive trade-exposed industries, and the LNG sector was part of that negotiated outcome. Clearly we understand the importance of that sector, not only from an export point of view but in the global clean energy strategy. Natural gas emits approximately 55 per cent less carbon dioxide equivalent emissions per megawatt hour than coal-fired generation and it also uses substantially less water. An example of that is Australia’s newest combined-cycle gas-fired power station built by Origin in Queensland, which requires about 3 per cent of the water used by a conventional coal-fired power station.

One tonne of CO2 produced in production of LNG in Australia saves four tonnes of CO2 emissions in China compared to the use of a coal-fired power station. That speaks for itself.

On the Sunrise Gas Field in the Timor Sea…
At Sunrise we’ve got a long-standing, and in my opinion, generous treaty to Timor-Leste and we expect it to be honoured. The joint venture partners have presented the joint commission between the two countries with a project proposal which is based on floating LNG. The joint venture partners think that the proposal has been selected in accordance with the intent of the treaty, which goes to the best commercially viable option. That is a matter that will be discussed on an ongoing basis through the established processes and I understand that the joint venture partners have spent several hundred million dollars getting it to this point, and I don’t dismiss lightly their proposition.

On GasLand

Firstly, I have clearly indicated to the various CSG proponents that they should have a lot of respect for the regulatory approval process and the conditions that have been imposed upon them as a result of their environmental approvals – we expect them to be adhered to, to the letter of the law. Secondly, the groundwater monitoring is very important to both the Commonwealth and Queensland governments and don’t forget the Queensland Government is the lead agency to a large extent on this, and Queensland will get the majority of the benefits from a royalty perspective out of these projects. I’ve also told the companies to go out of their way to properly engage with the local communities. There is clearly some tension with some farmers, and the companies have got to work at ensuring that there is no question of any impact on groundwater and the aquifers, or ongoing disputation with the farmers.

We’ll attend to Australia’s environmental requirements. In the same way as we are held up internationally on oil and gas regulation as being best-practice, I think we know how to get our regulatory environment right without being told what to do by some US film, which is questionable as to its accuracy.

On natural gas vehicles and the alternative fuel excise…
Firstly, the industry has been running for some time. In the last 6–12 months I’ve been at a turning the sod ceremony for a gas fuelling operation in Dandenong which is for the trucking industry, and opened a mini-LNG plant in Westbury in Tasmania which will fuel trucks in Tasmania, especially in the foresting industry.

I’ll just say this on the excises: I was a shadow minister who entered into an agreement with the Howard Government about a phased increase to half the existing excise rate from 1 July 2011 through to 2014, with a lead time of about eight or nine years, which gave industry certainty. It’s the Howard Government’s agreement that we signed up to in Opposition that we are seeking to legislate, and we haven’t moved away from it, and the industry can’t say it hasn’t had sufficient notice because it was consulted and it was party to that agreement in 2007.

I’ve got a lot of knowledge of this because I was one of the shadow ministers who shook hands and signed off on it. If the Opposition now wants to break its word on that agreement, then it’s for them to explain why. Remember this: this is potentially a huge impact on revenue, from a government perspective. The LNG sector is making investments on the basis of an excise regime that it has known about for eight or nine years.

On the gas industry maintaining competiveness in the long term…
For the gas industry, it’s about being able to take the risk on investment. It is a proven, reliable form of clean energy. If they can see not only a market opportunity through our growing demand for energy but also the potential retirement of some old coal-fired power stations, then they will make the decisions and gas will come through. Where investors can see a market opportunity five or six years down the track they can make the investment decision and do the build, and they get growth plus the retirement of some turbines which means the investment stacks up.

The Government’s ambition to introduce the carbon price is 1 July 2012. You’ve seen the reaction of companies such as Origin, TRUenergy; they’ve clearly got options on the table that they can take to the board for consideration once they know the investment parameters. That’s effectively where we’re at. It’s going to be a pretty exciting period that occurs because we have to actually get investment decisions.

Looking forward five, ten, fifteen years about where we’re going to need investment, focusing on Queensland and New South Wales, just in terms of normal growth strategy with the retirement of older coal-fired power stations.

One way or another, we’ve got to have the fight on a price on carbon and resolve it. Industry needs an outcome one way or another.

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