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ABC Radio National Breakfast

28 February 2018

Interviewer: 
Fran Kelly

Subject: Gas prices, National Energy Guarantee, Adani coal project, Bill Shorten, Cabinet reshuffle

E&OE

FRAN KELLY:

Yesterday, here on Breakfast, we heard that two companies, including energy giant AGL, are looking to set up gas import terminals onshore. That’s because, despite Australia being on track to become the world’s biggest gas exporter, we’re still struggling with high gas prices and a lack of domestic supply. Energy analysts say we should get used to these high prices, with our domestic gas price now forever linked to international markets – like our petrol prices are linked to global oil prices.

The Resources Minister Matt Canavan joins me in the Breakfast studio. Minister, welcome back to Breakfast.

MATT CANAVAN:           

Morning, Fran, how are you?

FRAN KELLY:      

I'm well thank you. You’re going to be telling a Gas Outlook Conference this morning that the gas market on the East Coast remains tight. Gas prices are, quote, “Still too high for many businesses”. Does that mean the government's efforts last year to boost the domestic supply haven't yet really paid off?

MATT CANAVAN:           

No, it doesn't, Fran. This is a major conference that occurs every year and this time last year I addressed the conference and at that time it was in the context of very high prices here. The price of gas in Adelaide was $14 a gigajoule; that was compared to $11 in Japan. So, the prices here in Australia were higher than our export markets. A year later – today – the price of gas in Adelaide is $8 a gigajoule. In Japan it’s gone up a bit to $13.

So, the action we have taken has certainly taken pressure off the market. The ACCC found that in their monitoring report in December last year but that doesn't – I’m not going to go to gild the lily either … There are still issues, in particular around getting more supply of gas in southern markets. We cannot get prices down in Adelaide, in Melbourne and in Sydney if we continue to rely just on Queensland and Northern Australia for our gas supply.

FRAN KELLY:      

Just to stay with prices for a minute, energy analyst Saul Kavonic says your gas export restrictions announced last year, coupled with the ACCC’s attention to the whole sector, have helped bring down prices for users, as you've said. But he says it's not sustainable in the long run. Let's have a little listen to what he had to say.

[Excerpt of Saul Kavonic]

There's nothing about that policy which is going to, one, change the fact that we’re linked to international prices which are going to rise. And, two, it's not sustainable to keep it in place with this level of government focus, each and every year going forward. So, there's been some relief because of it but fundamentally that policy has also resulted, for example, in a move to gas contracts becoming much shorter, more sporadic and this is actually a problem.

[End of excerpt]

FRAN KELLY:      

That’s energy analyst Saul Kavonic speaking to us yesterday.

And you say in your own speech there's only so much a gas control framework can do. So, he makes the point: high gas prices are here to stay because the domestic price is linked to the overseas price.

MATT CANAVAN:           

Well I think it's a bit more complex than that but I think Saul summed it up quite well. We’ve introduced the gas control framework for five years because we view this as a, hopefully, a temporary measure while we get more gas produced or gas into production here in Australia. So, for example, the Narrabri gas project here in New South Wales could supply half of New South Wales’ annual gas needs but it's been held up through regulatory delays and, if we get that going in the next few years, well, we won't have the same need. Now that may help bring prices down. While there will be a link to international prices…

FRAN KELLY:      

Which we can’t control.

MATT CANAVAN:           

… there will be a link – which yes, we can’t control.  There is a big, big difference between how much it costs to get gas to Asia and how much it costs to get gas from anywhere to here. So, if we can produce the gas close to where demand is, the price – the end price for the user – will be a lot, lot cheaper because it won’t include those transports costs.

FRAN KELLY:      

Well, there’s a few companies at least that seem to be punting on your intervention not perhaps being as effective as you'd hope. We reported yesterday Andrew Forrest for one and AGL plan to set up gas import terminals. If two separate companies think there might be money to be made by importing gas back into Australia, doesn't that suggest that business doesn't have a lot of confidence in your intervention?

MATT CANAVAN:           

Well, no, what it suggests Fran is the economics of transporting gas. So, there's this – I think unfortunate – misconception that, because Queensland has a lot of gas, therefore it should just be very simple for Victoria or South Australia to also have a lot of gas at a cheap price. There's two things fundamentally wrong with that. One: the gas produced in Queensland is quite high cost compared to most other gas production in the world. Coal seam gas has – needs – more wells drilled and there’s no oil associated with coal seam gas.

And, two: it costs a lot of money to transport gas long distances. So even though it's in the same country, those gas fields are up to 2,000 kilometres away from where the gas needs are. So, the economics are that it may well be competitive – if New South Wales and Victoria did not open up their states for gas production – for people to import gas from elsewhere.

FRAN KELLY:      

Even if they do though … Well, you're going to say today, I think, in terms of that, that you're sick of, quote, “The voodoo science” on gas around opening up the gas on land, the coal seam gas. Even if jurisdictions like Victoria and Northern Territory do overturn their bans, is that going to have much impact given the international forces now at work dominating this?

MATT CANAVAN:           

Well, as I say, it will be because of the transport costs involved. It's very expensive to ship gas long distances. So, if you can produce gas close to where the demand is, it'll be cheaper. It'll be cheaper for the end users there. And that's why you've got a significant manufacturing industry in Victoria. It's right next to the Bass Strait, where we traditionally have got our oil and gas from, or at least for the last 40 years. Now that resource is declining and that's the principal problem we've got in southern markets at the moment.  

It's not the Queensland gas industry or the export industry that's caused these issues: it's the declining of our traditional sources of gas supply and our need then to replenish and replace those. At the moment, we're relying on a higher-cost form of gas which is further away from those manufacturing facilities. We need to try and change that and that's why we need state governments to get off their backsides and actually look at the science properly and protect these jobs and our manufacturing sectors.

FRAN KELLY:      

What about federal governments and state governments getting off their backsides and getting a better transition plan to renewable energy, as the point Saul Kavonic made yesterday, too, that we need to get less reliance on gas because of these international forces now and supply forces. We need to transition to more renewable energy, which is here, made onshore, and that would leave the gas supply for the industrial users.

MATT CANAVAN:           

Well that's one thing that my colleague Josh Frydenberg is doing through the National Energy Guarantee, is trying to do, but of course I don't think we should have a preference for a particular type of energy production over others. What we should be looking to do…

FRAN KELLY:      

It’s a plan really, not a preference.

MATT CANAVAN:           

Well, we all – and that’s what the National Energy Guarantee will be – but we surely want to provide the cheapest form of electricity with the lowest emissions profile and gas certainly …

FRAN KELLY:      

And that would be the renewable wouldn’t it? With gas – the price of gas?

MATT CANAVAN:           

Well, the cost obviously is important. And, as you mentioned a little bit in your question, we need gas for many industrial users and the ACCC made this point very strongly: for many industrial users they can't substitute to renewable energy. Gas is the feedstock.

FRAN KELLY:      

Of course, for industrial users that’s true.

MATT CANAVAN:           

For boilers, for petrochemical, for plants, and they are struggling to get gas right now…

FRAN KELLY:      

Okay.

MATT CANAVAN:           

… and at a price of $8 a gigajoule it's pretty hard for those businesses.

FRAN KELLY:      

Let's move on. On the Adani coal mine in Queensland, businessman and former head of the ACF Geoff Cousins told the ABC last night that Bill Shorten had privately assured him at least half a dozen times, he said, that a Labor Government would revoke Adani’s coal mining licence on environmental grounds. But, in a statement this morning, Bill Shorten says, quote: “Labor doesn't rip up contracts and we don't create sovereign risk.” So, you'd be reassured to hear that wouldn’t you?

MATT CANAVAN:           

Well, I still think there's questions there. These meetings – these secret meetings – that Mr Shorten had weren't disclosed to the Queensland people. Mr Shorten …

FRAN KELLY:      

Oh well, if he’s meeting stakeholders, that’s fair enough isn’t it? Do you tell everyone every meeting you have?

MATT CANAVAN:           

No, no, but he went up to Queensland – I think he met Mr Cousins on this trip or around the time – and he went on a listening tour. He’s saying he is listening to the people of North Queensland and they desperately want jobs but he didn't disclose or tell people that he'd made certain commitments or had these discussions with Geoff Cousins.

And the concern we always have in regional areas and regional Queensland – we’ve seen it at last year's state election – is the Labor Party do these secret deals behind the scenes with the Greens. We don't know about them until after elections, or just before in the case of the Queensland election, and they sell out the jobs and industry that we rely on in our areas.

FRAN KELLY:      

Well, here’s a bold statement coming out of the Labor leader's office: “Labor doesn't rip up contracts, we don't create sovereign risk.” Bill Shorten says if it doesn't stack up commercially and environmentally, it shouldn't go ahead. That's fair enough, isn't it?

MATT CANAVAN:           

Well one thing I can't quite understand at the moment is why the Labor Party are saying we should not have investment, that they’re going to be the umpire.

FRAN KELLY:      

No, they said if it doesn’t stack up environmentally or commercially.

MATT CANAVAN:           

Well, the federal Government is not spending a dollar on this project. The proposed loan to Adani is not occurring. That is finished, given the decision of the Queensland Labor Government. On what basis would a government say that investment in jobs should not occur if it doesn't stack up financially?

FRAN KELLY:      

Well the whole argument about the jobs…

MATT CANAVAN:           

Surely it’s a matter for the company. If someone wants to come here and blow a few billion dollars creating jobs and it ultimately doesn't make money for them, well, that's not my concern. I want to see the jobs. I want to see the investment.

FRAN KELLY:      

Is your concern Mark Butler…

MATT CANAVAN:           

And why would the government, why would Bill Shorten, be double-guessing now the economics of major investment projects? This is not something that we do on the LNG projects on Curtis Island. It’s not something we do on major renewable projects. The commercial incentives for any investment should be a matter for the business. What we should do at the federal government level and the state is make sure the environmental issues and the public good issues are taken care of.

FRAN KELLY:      

It’s 7:45 on Breakfast. Our guest is federal Resources Minister Matt Canavan. He's also a senior National Party Senator. Let’s talk about the National Party, post-Barnaby Joyce. Your new leader, Michael McCormack, will be rejigging his front bench today we think. There is some disquiet within your party room about the current line-up. Some have told me there's too many senators, for instance, on the front bench. You're a senator on the front bench of course in Cabinet. Have you sought any assurances from Michael McCormack that you'll continue in Cabinet?

MATT CANAVAN:           

No I haven't, Fran. It's completely a matter for the leader of the Nationals Party.

FRAN KELLY:      

Would you expect to stay in your job?

MATT CANAVAN:           

I will leave it to Michael, Fran. I think it's very important now we as a party come together. We've got a strong tradition of being a strong, small, relatively small, unit within the Australian Parliament that punches above our weight. Michael is the fourteenth leader we've had in 98 years and I fully expect him to have a long and successful tenure as leader like those that have gone before him.

FRAN KELLY:

Talking of coming together, the former Federal Director of the Nats, Scott Mitchell – he was your director in the last election – he’s written a piece in The Australian. He says Barnaby Joyce was a strong and effective leader but, during his time at the helm, the Nats became riven by factionalism, divided not by philosophy but by personality, populism and ambition. Is your party room  factionalised?

MATT CANAVAN:           

I disagree with Scott on that, Fran. I think…

FRAN KELLY:      

I’ve heard the same thing from some Nats myself.

MATT CANAVAN:           

I don't agree with it. The change of a leader at the front of a party is obviously a traumatic period and there's no doubt there's disagreements and disputes about that. But we, I think, have an incredible degree of mateship within the Nationals Party. I'm sure we'll come together now that we have a new leader. He will announce his team. I'll accept whatever he decides and all I commit to you and to my colleagues is to work very hard for our broader team and particularly…

FRAN KELLY:      

Is it true you …

MATT CANAVAN:           

…  what I am really here for, Fran, and why I do this, is to try and provide a better future for the people I represent, we all represent in the Nationals Party and those in regional areas who often don't get the same voice in our nation's politics as those in the major cities.

FRAN KELLY:      

Is it true you’d prefer David Littleproud for leader over Michael McCormack? That you urged him to run?

MATT CANAVAN:           

No, I'm happy with the result of the party room and Michael, as I said, will make a great leader I’m sure. He's got a lot to do, a big agenda to push forward, particularly the infrastructure portfolio. I'm sure he can make a good go of it.

FRAN KELLY:      

Matt Canavan, thank you very much for joining us.

MATT CANAVAN:           

Thanks Fran.

FRAN KELLY:      

Matt Canavan is the Minister for Resources and Northern Australia and Queensland’s National Party senator sitting in the Cabinet room.