(EnergyAsia, November 8 2011, Tuesday) — The following is an edited version of the speech delivered by Martin Ferguson, Australia’s Minister for Resources and Energy, on October 24.
“Pipelines are essential to our standard of living. They provide us with gas for cooking and heating, along with water for drinking and washing – not to mention the important role pipelines play in maintaining public health by transporting sewerage and waste water.
The focus on the pipeline industry these days is predominantly related to our growing oil and gas sector. Australia’s energy security, prosperity and transition to a cleaner energy future all rely on adequate pipeline infrastructure.
We are in a golden age of gas, which also means opportunities for the pipeline sector.
Australia’s pipeline network includes more than 33,000 km of high-pressure transmission pipelines, with 25,000 km carrying natural gas, and the remainder carrying water, oil, slurry and ethane.
Our network also consists of more than 100,000 km of gas distribution pipelines, and probably the same for carrying water distribution and sewerage.
Recognising the important and essential nature of this pipeline infrastructure, governments at all levels have an obligation to ensure that appropriate corridors exist to enable future pipeline infrastructure to be constructed efficiently.
Over the past decade, around A$4 billion has been invested in or committed to new gas transmission pipelines. (US$1=A$0.95).
The current regulatory period for gas distribution assets includes allowed expenditure of A$2.5 billion in capital spending over five years. These numbers exclude investment in recently sanctioned coal seam gas projects, and also exclude billions of dollars being spent on water pipelines and other pipelines.
We see 84 km of pipeline nearly 2 metres in diameter associated with the Victorian desalination project. The Productivity Commission released its report on October 12 into Australia’s urban water sector.
Urban water is one sector deserving of a close look by governments at all levels.
There are some valuable lessons learned from the reform of our energy sector over the last two decades that could be applied to our urban water sector – particularly around the establishment of clear objectives and an appropriate institutional framework to deliver them.
But gas remains the most high profile growth area.
From our first discovery of gas in Roma Queensland in 1900, we are now not only finding gas in more places, we are finding new ways of extracting it.
Our coal seam gas industry is growing significantly. This will support LNG export opportunities and growing domestic gas fired electricity needs.
Gas-fired generation is forecast to account for 37% of Australia’s electricity supply within 20 years, more than double the 15% it accounts for now.
Investment in gas fired power stations will bring on necessary investment in pipeline infrastructure. The Mortlake power station in Victoria includes associated investment in 83 km of 500 millimetre transmission pipeline.
Our gas reserves make us well placed to provide secure, reliable, adequate and accessible energy to Australians.
Our export opportunities are even bigger, with around 20 million tonnes of LNG to be shipped next year. When Woodside’s Pluto project gets into full production that figure will rise to around 24 million.
Australia’s seven new LNG projects in various stages of construction comprise more than A$140 billion of new investment.
That means over 50 million tonnes of new export capacity and thousands of jobs.
The pipeline industry is a vital part of one of Australia’s fastest-growing energy export industries.
As Australia becomes the world’s second-biggest exporter of LNG, our pipeline industry will be front and centre in facilitating this development. The industry needs to position itself to take advantage of the work that can flow from these projects. This goes to issues of competitiveness and capacity.
Businesses awarding contracts must ensure they are providing a fair opportunity for Australian manufacturers and suppliers to compete for contracts.
The government is playing its part on both fronts. We are helping Australian businesses become more competitive and improving their access to opportunities.
This is what the A$34 million Buy Australian at Home and Abroad initiative is all about – encouraging better links between the resources sector and capable Australian firms.
Expanding the Supplier Access to Major Projects program will place a specialist in the procurement teams of major resources projects, ensuring the capabilities of local suppliers are well known.
The government is also requiring greater transparency from major project proponents when it comes to the opportunities on offer.
Following consultation, the government intends to make it a requirement that Australian Industry Participation Plans are made public to boost transparency.
Future project developers will also be required to publish more extensive details on opportunities available to Australian businesses as a condition of receiving the 5 tariff exemption on imports for major projects under the Enhanced Project By-law Scheme (EPBS). Australian industry must be internationally competitive if our resources sector is to sustain its growth.
This means that inputs to this sector must be innovative and competitive. So we do not support mandated levels of local content.
Mandates risk making Australian projects more costly, less viable and less attractive compared with other investment destinations.
There’s over A$14 billion worth so far in goods and services from the Gorgon project. Work is ramping up on the new coal seam gas projects in Queensland.
Another major benefit of a growing petroleum sector is growth in employment. On the east coast, Queensland’s coal seam gas industry may generate as many as 18,000 jobs. On the west coast, the recently sanctioned Wheatstone project alone calls for 3,000 construction jobs, on top of the many indirect jobs that will flow from this project.
While job creation is good for the nation, it is also creating sectoral pressures in terms of wages and labour given our very low level of unemployment. Understanding our future workforce needs is among APIA’s important roles.
The Australian government understands the need to invest in training and skills. New apprenticeships and other training measures from our A$3 billion investment in skills in this year’s Budget all aim to help industry make the most of the opportunities to grow.
The government’s changes to migration arrangements, including the introduction of Enterprise Migration Agreements are also designed to ease pressures in the short term. Businesses should take advantage of these measures.
Talking about the future brings me to the issue of our broader gas market reform agenda. Market transparency and consistent regulation is critically important.
The National Gas Law gives us a framework to ensure the efficient operation of pipeline services, efficient investment and the effective regulation of gas networks.
The Gas Statement of Opportunities helps gas-market participants identify investment and market opportunities. The Gas Bulletin Board has given the market an important level of transparency.
The Short Term Trading Market (STTM) is starting to bring price transparency to the overall market.
Clear market and pricing signals encourage better-informed investment and risk-management decisions.
Wholesale gas prices have been historically low in Australia by some international standards, but in recent years we have seen increases in long term domestic gas prices.
This is especially so in Western Australia where LNG exports are necessary to justify the cost of developing much of the reserves that could be used to replace exhausted domestic gas supplies, or even increase them.
Without this export market, the costs of development together with the comparatively small domestic market would prevent projects from being sanctioned as they would not be economically viable.
This creates a link between gas prices on the west coast and world LNG prices.
I note the recent comments and concerns raised in terms of ensuring adequate gas supplies for the domestic market from our vast reserves.
As Commonwealth Minister for Resources and Energy I take a keen interest in ensuring that the development of our gas resources benefits the Australian community – including meeting our domestic requirements – and the Energy White Paper being prepared by my Department will have more to say on this matter. A draft will be released for public comment later this year, with the final paper released in 2012.
Over the last two decades, since exports from the North West Shelf project began, Australia’s east coast gas market has been characterised by different market dynamics to the west coast.
There is significant ramp gas in the spot market in the lead up to LNG exports out of Gladstone.
This does mean that spot prices are quite low, however at the same time it is difficult to secure long term contracts. Until exports out of Gladstone begin in three or four years this uncertainty in east coast gas markets is likely to continue.
Governments at all levels must keep watch on how this developing export industry is affecting domestic gas markets.
Given the significant change occurring in our energy markets, and the expectation that over the next 20 years we will see a significant increase in the use of natural gas as a flexible, reliable and lower emission energy source for our electricity generation – driven in no small way by our carbon price reforms – this transparency is important.”