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Interview with ABC RN Drive program

15 March 2017

Interviewer: 
Patricia Karvelas

Subject: East Coast gas supply, high efficiency low emissions coal, INPEX project

E&OE

PATRICIA KARVELAS:

The Government says domestic gas supply will now be guaranteed following commitments from producers on the East Coast to increase production and reduce exports. The Prime Minister met with the gas companies in Canberra today to find a solution to the looming shortage of the resource. Here he is speaking earlier this afternoon.

[Excerpt]

PRIME MINISTER:

The producers have given us a guarantee to ensure that gas is available for the National Electricity Market so there won’t be a repeat of a situation where a gas peaking power plant is called on by the regulator to produce electricity during a heatwave and there’s no gas available. That won’t happen again.

[End of excerpt]

PATRICIA KARVELAS:

Matt Canavan is the Minister for Resources and Northern Australia and was at the meeting today. Welcome back to RN Drive.

MINISTER CANAVAN:

Thanks Patricia. How are you?

PATRICIA KARVELAS:

Good. You’ve had commitments that domestic supply will be guaranteed. Isn’t this just a gas reservation by another name?

MINISTER CANAVAN:

Well, no it’s not Patricia because the industry themselves are bringing these commitments to us. The guarantee is for the electricity market, so when gas-fired power providers need gas at times of peak demand, they’ll be able to request or go through the regulators to make sure they have gas available. We have seen incidents in the past year where they’ve been short of gas because of the market situation. Now, there’s a bigger question though, of course, too about making gas available for manufacturing and other processes that use gas directly. They don’t use it to produce power but they use it to boil a furnace or produce ammonia. What we’ve got from the industry there is they will bring more gas to the domestic market. They have been working hard on this and I’ve been speaking to them for the last month. They recognise that the Government has a firm commitment to guarantee energy security for this country. They’re developing our resources, and while we are happy and have a good record of exporting energy to the rest of the world and making good money from it, we need to of course maintain our own domestic energy security first.

PATRICIA KARVELAS:

The Prime Minister said that the commitments that the Government got today mean there will always be enough gas for electricity generation in times of peak demand. Can you now guarantee there will be no more blackouts because there’ll be enough gas; can you keep the lights on?

MINISTER CANAVAN:

Well, Patricia, I’m from Queensland so sometimes blackouts can occur for acts of God, if you like, and in cyclones and what have you, but what this is intending to do is ensure we don’t have that situation where a gas-fired power plant is ready to operate, could help meet a level of peak demand, but because gas is tied up in contracts or there’s not an availability of getting access to a pipeline, they stay off and put at risk energy security. So, those forms of blackouts will be stopped by this change. Now, I trust the industry will meet those commitments and work with us on these issues. As the Prime Minister said, though today, if we don’t see action and don’t see progress, well, there are other things the Federal Government will consider doing to ensure all Australians have energy security and we maintain the thousands of jobs that rely on gas.

PATRICIA KARVELAS:

So, how is this domestic supply guarantee going to work physically on the ground, you know, in a real way? Will companies keep reserves for emergencies?

MINISTER CANAVAN:

Well, Patricia, we have similar processes in place for the electricity market. In times of peak demand the electricity regulator can direct certain things to happen. What we will do now is work with regulators to translate rules like that to the gas market. They will need to apply not just to the producers of gas, but also pipeline operators and retailers so the gas can come to where the needs are. We are working to have those in place by this summer so that when we do get those peak events next summer, and in a situation where we won’t have the Hazelwood Power Station, we can guarantee gas supplies to electricity providers.

PATRICIA KARVELAS:

If you’re just tuning in, my guest is Matt Canavan, he’s the Minister for Resources and the Minister for Northern Australia. And our number if you want to text in – I know many RN Drive listeners are very keen watchers and participants in this debate – 0418226576, that’s the text line and you can also use Twitter, @RNDrive is our handle.

Given how tied production is to the export market and therefore the export price, how is more production coming online going to lower prices?

MINISTER CANAVAN:

Well, what we’ve seen, particularly recently in the last few months Patricia, is prices coming to levels that are much above the export price. So I was at a gas conference this morning, speaking at the Australian Domestic Gas Outlook conference, and a number of users of gas in Australia are reporting that they’re paying prices that are sometimes 50 per cent and even double what is the price in Japan or Korea at the moment. Now, that is not a tenable and sustainable situation. There are opportunities for more gas to come onto the domestic market and alleviate that situation. One of the issues that exists though is that there are long-term contracts involved here which are stopping that gas flowing and what we’ve asked the industry to do today is to go away and work on those contracts to make sure we don’t see those kinds of outcomes in Australia where prices here are much, much higher than overseas. Those users said to me they’re happy to pay…(interrupted)

PATRICIA KARVELAS:

When you say working on those contracts – sorry to interrupt you, that was a bit rude – but when you say working on those contracts, what can they do to vary those contracts?

MINISTER CANAVAN:

Well, they’re all agreed between different parties and there can be a change in those contracts from time to time. I mean, there is the potential here, Patricia, for a value-based trade because the price is high in Australia, and so there’s a reason to send gas domestically. The price has gone down internationally because oil prices have gone down. Now, that wasn’t necessarily what was expected when these contracts were signed, that’s what has happened, and they can be renegotiated and there can be different ways of providing gas to Japan or Korea but while maintaining gas supplies here in Australia.

The industry, to give them their due, and I’ve been talking to them now for basically all of this year about all of these matters, they are working hard on making sure that that can happen. It is obviously complicated negotiations with different partners that they’re involved with, but today’s meeting was useful because they got a clear message from the Prime Minister that he expects action here, he has as a paramount objective our energy security, and we’re not going to see thousands of manufacturing jobs put at risk because of export contracts and providing gas overseas.

PATRICIA KARVELAS:

The Prime Minister said there’s more to do on the cost of power. A lot of people listening to this right now will want to know how the Government is going to reduce their household bills. So how are you going to do that in the gas market?

MINISTER CANAVAN:

Look, long term in particularly Victoria and New South Wales to a lesser extent, there is no sustainable way forward to lower prices for gas, and electricity in many circumstances, unless Victoria and New South Wales develop their own gas reserves. There is plenty of gas in Victoria, there’s Geoscience Australia estimate 40 years supply onshore in Victoria but last week the Victorian Government banned all forms of gas exploration and extraction, at least temporarily, in Victoria. They, in my view unbelievably, banned conventional gas development which has been safely used for more than 100 years. You can’t get lower prices in Victoria unless you develop resources close to where the needs are. There is a lot of gas development occurring where I’m from, from Queensland, but it costs money to send it down to Victoria, it’s not cheap. And if we want to get our prices down, and I think we do, particularly for some of those heavy energy users in petrochemical industries, they need lower prices and they need resources close to where they want to use that resource.

PATRICIA KARVELAS:

Sure, but you’ve made this issue of cost of living, of prices and energy a crucial part of this debate. That’s strong in the political rhetoric but today when the Prime Minister was asked can he guarantee that prices will go down, he couldn’t make that guarantee.

MINISTER CANAVAN:

Well, today’s meeting was about guaranteeing energy supplies in terms of gas on the domestic market. There is a broader bit of work that the Government’s doing to make sure that we do keep prices low for electricity. That of course does not just involve gas, it means making sure we have a mix of energy needs and the lowest-cost forms of energy. We are certainly promoting the fact that we can’t turn our back on coal-fired power, it’s still one of the cheapest forms of power to be provided, and the newer techniques that you can use to make coal-fired power are much more carbon efficient and can help us meet environmental goals as well.

PATRICIA KARVELAS:

But yet the industry has shown no interest in building a new coal-fired power station. You keep saying that but the market’s not responding in the way that you keep articulating, that apparently, they are going to. They’re not doing it.

MINISTER CANAVAN:

Well, I’ll make two points Patricia. The first point is some of those involved in the market, of course, have their own interests in not necessarily having more competition. We wouldn’t ask Coles or Woolworths if it’s a good idea for ALDI to come to Australia. And the second point I make is there is a lot of interest from people building a coal-fired power station in Australia. I just got back from Japan and there are a number of companies that are very keen to bring Japanese advanced technology to Australia. I was at a coal-fired power plant yesterday in Yokohama, Patricia, and you couldn’t see a piece of coal anywhere, and it had no dust, no dust, well at least to one decimal point In a part per million of air, at all emitted. It was perfectly clean. It resided within a site of luxury apartments in Yokohama. It is providing them energy security and in a cheap way. It is an advanced technology and there is no reason that we should not consider that as a country particularly as we’ll need to replace old coal-fired power stations over the next decade.

PATRICIA KARVELAS:

The Government will hold another meeting with the industry in four weeks to work out the commitments and the kind of rules it will pursue. How are you going to police these specific agreements between industry and Government? You’ve warned- the Prime Minister has made it clear that he’s prepared to flex more muscle, the Commonwealth is prepared to make a broader intervention if this fails. What are the rules we can expect in four weeks’ time?

MINISTER CANAVAN:

Well, we’ve committed to work to establish a taskforce between regulators, the industry, and other stakeholders to make sure we progress on these commitments. We’ll be meeting again to evaluate progress towards them. Look, I’m confident that the industry’s heard the message and will respond accordingly but as the Prime Minister has said, we at the Commonwealth level don’t regulate gas development, we don’t issue gas licences onshore but we do regulate exports. And while almost always the exporting of our energy resources is in our national interest - it creates jobs, it provides export revenue and tax revenue for us, if it becomes apparent that we need to keep more of energy resources here to guarantee our own energy security and that is in the national interest, well of course we’ll act in the national interest.

PATRICIA KARVELAS:

Just finally, 800 people working on a major gas project in Darwin lost their jobs today. The project is worth $36 billion. How much does this worry you about the volatility of major resource projects?

MINISTER CANAVAN:

Well, look it’s something I’m getting more information and advice on Patricia. I have been in touch with INPEX, the operators or the constructors of that facility today. It’s a commercial dispute between two parties and I, of course, don’t have therefore all of the information about that commercial dispute. My concern is primarily, of course, with the workers that you mentioned that are facing the loss of their jobs. INPEX at this stage have reassured me that the dispute’s not with the workers as such, it’s a dispute between a contractor and a contractee and they hope that arrangements can be put in place to ensure those workers affected can continue to work on the project. The work needs to be done, notwithstanding the dispute that’s occurring at the moment. But I’m very mindful of that and will be getting more information in the next couple of days.

PATRICIA KARVELAS:

Thank you so much for joining me tonight Matt.

MINISTER CANAVAN:

Thanks Patricia.

PATRICIA KARVELAS:

And that’s the Minister for Resources and Northern Australia, Matt Canavan.