AL
PRIME MINISTER
FOR MEDIA 27 JUNE 1979
ENERGY POLICY
Most Australians share the world-wide concern about the energy
situation, oil shortages and escalating oil prices. Some of
the impact of this has already been felt in this country. Oil
prices have risen, and shortages have developed in petroleum
products, notably aviation gasoline and fuel oil. The effect
of the strike that recently shut down the Kurnell Refinery in
New South Wales have pointedly brought home Australia's
increased vulnerability to disruptions to domestic supplies.
The Government has carefully monitored the world energy situation.
With a further increase in OPEC prices imminent, with heightened
international and domestic concern, the Government's view is that
rather than wait for the next session of Parliament, it should
announce its policy response to this situation now.
This statement outlines a series of new Government initiatives.
My colleague, the Minister for National Development, will be
providing further information on these measures.
The World Energy Situation
The present turmoil in the world oil market has forced on the
world an accelerated recognition of the need to adjust energy
use patterns away from oil and towards alternative energy sources.
That process of adjustment will be protracted and, particularly
in the short run, painful for many countries. ./ 2
-2-
The most pressing-problem is to match the demand for oil with
its supply. Prospective world oil supplies in 1979 are about
two million barrels per day below what was anticipated in 1978
The present situation was triggered by the Iranian oil crisis
earlier this year. It has persisted because Iranian exports
are still well below their previous levels. Saudi Arabia, the
only producer capable of substantially increasing oil supply in
the short term, appears to be less willing than previously to
raise production to compensate for shortfalls in production
elsewhere. Further interruptions to supplies cannot be ruled out.
In response to the supply shortage, oil prices have been rising
sharply. The price* of . OPEC crude -inc-luding premiums is already about
per cent above 1978 levels. A meeting of the OPEC. Ministers
is currently taking place. All the indications are that another
substantial increase in the OPEC price.
oil consuming nations are under pressure to reduce their demand
for oil, both by restraining energy consumption and by
accelerating the substitution of other energy sources for oil.
The short term pressure is great because stocks, run down earlier
this year, need to be re-built for the northern winter.
International Energy Agency ( IEA) Minis ' ters representing most
western oil consuming nations stressed at their meeting in Paris
last month that strong action is urgently required to curb the
demand for oil:
" As to the short term, Ministers concluded that
the international oil market has evolved rapidly
into a situation of overall supply stringency,
which has affected different countries in different
ways, and that this situation is likely to continue
into 1980. They expressed particular concern about
the large and rapid increase in crude oil and product
prices. .3
-3-
" Ministers therefore confirmed the decision by
IEA countries to reduce their demand for oil
on the world market in the order of two million
barrels per day which would correspond to about
five per cent of IEA consumption..."
These conclusions were endorsed two weeks ago by the
Ministerial Council of the OECD; which concluded that:
" There is now a real danger that, without
responsible policies by oil consumers and
producers alike, the energy situation will
seriously damage the world economy."
At the moment, the world energy situation is being considered
at the Economic Summit in Tokyo by the leaders of seven of the
largest non-communist developed countries.
Most countries are acting to reduce their demand for oil and to
augment supplies. The severity of the present situation bears
very heavily on those countries which have little or. no domestic
energy resources, particularly Japan and a number of European
countries. The world's poorest countries, the non-oil producing
developing nations will be the hardest hit.
The oil situation has major implications for the world economy.
Disturbances to oil supplies and increases in oil prices depress
economic activity, add to inflationary pressures, and produce
instability in exchange rates.
Australia cannot ignore the world-wide consequences of what is
happening. / 4
-4
Australia's Situation
Australia is relatively'well placed as regards indigenous
energy resources.
We have abundant rich coal resources from which most of our
electricity is generated.
We have substantial reserves of natural gas which are being
used increasingly as a'source of industrial and domestic energy.
About 70 per cent of our oil requirements are being met from
domestic crude oil, and liquified petroleum gas ( LPG) is
progressively being used to supplement these resources.
Production of crude oil from Bass Strait is estimated to be
about 5 per cent higher than this time last year.
Australia is a net exporter of energy, but we have to import
about 30 per cent of our crude oil requirements, and our
outlook for access to imported crude oil and petroleum products
for the rest of 1979 has become more uncertain in recent weeks.
This is due to continued restraint of production by OPEC and
to continued high demand in the major consuming countries,
including demand for rebuilding of stocks.
We depend on imports of heavier imported crude oil to meet our
fuel oil requirements, and we are reliant on imported aviation
gasoline. We have already experienced shortages of these
products. There will continue to be problems in these areas.
The motor spirit situation. continues to be tight. The outlook,
particularly in New South Wales, will be difficult to assess
until the New South Wales refineries resume full operations
but there clearly will be difficulty in rebuilding stocks in
that State. oe
Looking at the overall petroleum product position, information
from the industry indicates tnat the position should be
manageable in the third quarter of 1979. However, there is
uncertainty about the outlook for the last quarter of 1979
which corresponds with the onset of winter in the northern
hemisphere. Our inability to draw readily on imported supplies of refined
products to meet temporary shortages resulting from
disruptions to domestic production will pose a continuing
problem. The situation will have to be handled with a great deal of care,
common sense and co-operation.
Existing Policy
The Government has already introduced a number of measures to
ensure secure and stable supplies of energy, reduce dependence
on imported oil and, in the longer term, to develop a diversified
energy base which minimises our dependence on scarce liquid fuels.
Hard and effective decisions have been taken on pricing and
tax policy to encourage exploration and development and support
major energy development projects.
A number of incentives were announced in the 1976-77 Budget:
Petroleum exploration and development expenditures
were made deductible against income from any source;
Rapid write-off provisions were introduced for
eligible capital expenditures by petroleum mining
companies as well as other mining companies on the
development of a mine or field and on transport
facilities;
Oil from discoveries after the 1976-77 Budget were
freed from the crude oil levy. / 6
-6-
A number of measures were also introduced in the context of the
North West Shelf project which have somewhat wider application:
The investment allowance was extended by two
years; The gas liquefaction plant was included as an
allowable capital expenditure under the
petroleum mining provisions;
And a shareholder rebate scheme for off-shore
petroleum exploration was introduced.
We have increased support for energy research and development,
promoted energy conservation and inter-fuel substitution, and
been active in the area of international co-operation.
Fundamental to the Government's energy policy has been the use
of the market framework. As the then Minister for National
Resources said in November ] 977 in this Government's first major
energy statement: " Quite clearly, the Commonwealth Government's
role should not be to attempt to dictate the
precise future path along which energy producers
and consumers should move It is, however,
necessary to set the scene i. e. given our
other objectives, allowing the forces of the
market to allocate our available resources of
manpower, capital and technology."
It is of the highest importance that the price of petroleum
products should be realistic. Allowing the pricing system to
work, will: / 7
7
Sencourage conservation of scarce sources of
energy in particular, liquid fuels other
than LPG;
promote the use of the available alternative
energy sources mainly natural gas, LPG and
coal-based electricity;
Sstimulate commercial development of major new
energy projects in areas such as shale oil,
coal liquefaction, ethanol and methanol;
Sprovide a major incentive to increase oil
exploration activity and maximise development
of existing fields.
Although the OPEC countries had quadrupled the world price of
crude oil in 1973-74, Australian prices for petroleum products
remained artificially low, due to the availability of domestic
crude oil at less than half the world price.
Recognising this the Government began in the 1977 Budget the
move towards import parity pricing for Australian produced
crude oil.
The move toward import parity has provided for the return to
domestic producers to reach parity before crude oil levy on
at least 50 per cent of their production by 1980-81.
In the 1978 Budget, the Government decided that all Australian
produced crude oil would henceforth be priced to refineries at
import parity levels and that consumers of petroleum products
would from that time pay prices based on world oil prices.
/ 8
-8
By means of the crude oil levy arrangements, the bulk of
the proceeds of the increased prices resulting from the
1978 Budget decision accrued to the public revenue.
There have been furtherOPEC price rises since that time
and, as announced by the Treasurer on 24 May 1979, the
Government decided to increase the proportion of those
price rises accruing -to the public revenue.
The Minister for National Development will shortly be
announcing -the prices and rates of levy to apply to
domestic crude oil production after 1 July 1979.
It needs to be recognised that import parity prices based
on the official OPEC price for crude oil. ( which was, prior
to the current OPEC meeting, U. S. $ 14.54 barrel) is the
lowest price at which significant quantities of oil are
traded internationally.
Since the Iranian crisis many OPEC countries have been
adiding premiums of several dollars per barrel to that
official price. In addition, increasing amounts of oil are
being traded in the spot market at prices ranging up to
per barrel and higher.
Notwithstanding import parity pricing, Australians still
pay much less for petroleum products -than consumers in most
other western countries. Most Australians pay about half the
price of motor spirit prevailing in European countries and
Japan. For example, the price in Australian cents per litre
in Japan is 48.9, United Kingdom 46.5, West Germany 41.7,
France 49.8 and Italy 51.6. About the only countries with
motor spirit prices b:., low Australia's are the United States
of America and Canada. / 9
9
Our energy decisions must be based on realistic pr: ice.-for
petroleum products. Countries which have been slow to face
up to the reality of higher prices for oil have experienced
shortages as a result of the world oil situation. The most
notable example is the U. S. which consumes more than its fair
share of the world's finite resources. Furthermore,
unrealistic prices in the U. S. encourage a gross misallocation.
of resources.
The choice is between paying realistic prices for petroleum
products or not having access to adequate supplies.
There are no other options. Austalia, like all industrial
nations, is heavily dependent upon oil as an energy source.
It is inevitable that either we pay world parity price for
our own domestic crude oil, or we will have to pay it for
imported crude oil. In the former case we encourage explo-rat'Lo
and development of our own resources; in the latter we become
dependent on foreign suppliers. But either way we pay world
parity price.
The benefits of Australia's realistic pricing policies are
already evident. Under the previous pricing policies oil
exploration was dead, development was dead. As a result of
our oil pricing policy and exploration incentives, oil search
has revived, development has revived. our policy has already
led -to an increase in economically recoverable reserves of
some 600-700 million barrels. This is equivalent -to about
three years' consumption.
The recovery in exploration confidence under this Government
is reflected in -the number of exploration wells drilled. In
1978, 52 wells were drilled, more than double the number
drilled in each of the previous three years.
The indications are that the higher level of activity in
1978 will at least be maintained. Offshore, a total of
68 exploration permits are currently in force, 27 of which
have been granted in the last two years, including 7 since
January 1979.
The improved outlook for petroleum exploration is especially
demonstrated by the fact that companies are prcpared to face
the difficulties and enormous costs of exploring the
Exmouth Plateau. This exploration effort is one of the most
intensive deep-water undertakings anywhere in the world,
with companies operating on the frontiers of current technology.
A single well will cost around $ 10m. Drilling of the first
well there was completed in May 1979 arid three further w-ells
are curren tly drilling on the Exmouth Plateau. Of the
world's 12 deep-water drilling rigs, three will be operatirg
off Western Australia this year.
New Initiatives
The mteasures which arc, being announced today will build
further on the foundations which have already been laid down.
The Government reaffirms its policy of import
parity pricing for domestic crude oil based
on the official OPEC price. It will adopt
a more flexible approach to the timing of
price adjustments to take account of OPEC
pricing decisions.
-11-
The Government expects oil companies to obtain
imported oil supplies, as necessary, to meet Australian
requirements. It will ensure that the Prices
Justification Tribunal will permit oil companies to
pass on to users the higher costs associated with spot
purchases, and will provide an assurance to this effect
to the companies. The companies will be required to
satisfy the Prices Justification Tribunal that spot
purchases are bona fide and at arms length. The Governme. nt
will ask New South Wales and South Australia to take
similar action.
In relation to imported aviation gasoline and fuel
oil the Government has already ensured that oil suppliers
have full opportunity to pass on costs of necessary
purchases. The Government will act to ensure that existing price
relativities on domestic petroleum products do not
inhibit production of products in short supply.
The Government will ask the oil industry to proceed
to vary the octane ratings of motor spirit sold in
Australia. The octane rating of supergrade motor spirit
will be reduced from 98 to 97 and one major company
will introduce a new regular grade of motor
spirit of 92 octane. These changes could be implemented
within a month and could save up to one per cent of
Australian crude oil requirements.
The Commonwealth will request the New South Wales and
South Australian Governments not to proceed with more
stringent emission standards until a longer term national
emissions strategy is developed. In the meantime, urgent
consideration should be given to supplementary energy
saving emission control measures. Proceeding with the
proposed third stage of the emission controls would
result in 3 to 5 per cent more fuel usage. / 12
12
The Commonwealth will raise with the States the
scope for a revision of lead content rules for
motor spirit. This could increase the supply
of petrol by about three per cent. Until January 1975
the acceptable maximum lead content in petrol
was .84 grams per litre. Following a report
by the National Health and Medical Research
Council, a number of states legislated to
reduce the lead content of motor spirit. The
phasing down produced an increase in energy
consumption in refineries. The Royal Commission
on Petroleum recommended that the phase down should
not go beyond a level of 0.64 grams per litre, the
National Energy Advisory Committee recommended that it
be set at 0.6* 5 grams -A number of states have gone
beyond this. The Commonwealth recognises that health
considerations have to be taken into account but
this measure is one which can be implemented quickly
and reversed quickly.
The Government will explore the scope for special
reciprocal trade arrangements under which indigenous
crude oil or lighter petroleum products in reasonable
supply in Australia might be exchanged for heavier crude
oil or heavier petroleum products which are in short
supply in Australia. Such arrangements could be made
through normal commercial channels. Discussions with
companies interested in this possibility have already,
been initiated. / 13 I
13
Export controls for petroleum products will be modified.
Blanket approvals of exports will be suspended. For
the time being prior approval on a ship-by-ship basis
will be required for all exports of petroleum products.
The Government policy will be to approve exports where:
traditional markets are being supplied and the
level of exports to such markets is consistent
with any cutbacks applying in the Australian
market, or
additional quantities of crude oil are provided
for processing for export, or
acceptable counterpart or exchange arrangements are
available, or
special technical considerations are demonstrated,
or,
Sthe exports are excess to Australia's requirements. / 14
-14-
The Government will also ensure that any allocation
schemes implemented by companies follow sensible
and fair practices across the industry and are coordinated
with State and Territory Government
emergency schemes.
( 11) In order to improve the basis of the Government's
monitoring of the oil situation, the Minister for National
Development will write to the oil companies formally
requesting that they provide comiplete data on the supply,
consumption, stocks and exports of petroleum products.
( 12) The Government will undertake with the oil companies
a review of the adequacy of existing oil storage
facilities in Australia and possible ways and means
of adding to this capacity. The review wil~ l have regard
to the needs of industry, including primary industry,
and to geographical problems and seasonal requirements.
Conservation Measures
TJ. he highest priority is to conserve liquid fuels used in motor
transport. The Government will proceed immediately with a voluntary program
of national fuel economy goals for passenger vehicles. The fuel
economy targets require the weighted average fuel consizmption
of new passenger cars to be reduced from the present 11 litres/
100 km to 9 litres/ l00 km by 1983 and 8 litres/ l00 km by 1987.
This should result in savings of motor spirit of approximately
per cent in 1983 and 12 per cent in 1987.
15
The Government has initiated a study of the scope for saving
liquid fuels within Government departments and agencies.
State Governments are being invited to undertake similar action
in relation to their Departments and agencies.
The Government will proceed with a national energy conservation
publicity campaign. Planning for this campaign is well advanced.
The estimated cost of the campaign in 1979/ 80 is $ 2 miliion. The
Commonwealth will invite the States to participate in this
program on a jointly funded dollar-for-dollar basis.
The Commonwealth has also decided to sponsor a major national
conference on energy conservation in October. This conference
and the launching of the national publicity campaign will
coincide with the International Energy Agency's International
Energy Conservation Month.
The Government will authorise the Pipeline Authority to constru.: ct
a twelve inch gas pipeline from Young to Wagga Wagga and
Cootamundra costing approximately $ 15 million. A six inch line
would be adequate to service Wagga Wagga and Cootamundra but
the Government has decided to authorise the construction of a
twelve inch line with a view to extending it from Wagga Wagga
to Albury in the future and after consultation with the States.
That linkage would connect the Bass Strait and Cooper Basin
gas fields with the major cities thus establishing an eastern
gas pipeline grid.
Interfuel Substitution
Natural Gas: There has recently been a strong swing to natural
gas in the Sydney market. Savings of fuel oil are estimated at
about 2 million barrels of crude oil Cr 1 per cent of total
Australian oil requirements. / 16
-16-
Industries in the Sydney area which currently use fuel oil, anda
which could use natural gas, should consider an early changeover.
The proposed early commenement by A. G. L. of the natural
gas pipeline to Newcastle will provide further opportunities
for significant interfuel substitution.
LPG: LPG has considerable potential for saving motor spirit
in both the short and long term. Ultimately 10-15 per ( tent of
Australia's motor vehicles could be powered by LPG.
Last year the Government guaranteed an excise differential in
favour of LPG against motor spirit. It has decided now
* to remove -the 2.125 cents per litre tax presently
charged on LPG for automotive usage
* to remove -the 15 per cent sales tax presently
applicable to kits used in vehicle conversion to
LP G
* to convert Commponwealth vehicles to LPG
fuelling wherever feasible; in addition to the 100
already being converted in Melbourne we will
proceed with the conversion of:
200 vehicles in Melbourne at an estimated
cost of $ 200,000, and
250 Vehicles in Canberra at an estimated
cost of $ 250,000
* at the completion of existing contracts, tenders
for new vehid les for all Commonwealth departments and
instrumentalities will wherever possible call for
LPG fuel. In the first instance this will apply to
Sydney, Melbourne and Canberra. It wil~ l apply to ocher
States as adequate LPG outlets become available.
The Commonwealth will be inviting the States to
adopt a similar approach
17
SOur objective is to have LPG fuelled vehicles
built on production lines. To this end the
Minister for Industry and Commerce will initiate
discussions with the motor vehicle industry. He
will also consult with industry on solving the
present conversion bottleneck;
Sthe Minister for Transport will initiate
discussions with the State and Territory Ministers
to ensure that proper safeguards are instituted and
any unnecessary barriers are removed in the
specification of requirements for new LPG fuelled
vehicles, or for the modification and operation of
existing vehicles using LPG fuel;
to accelerate the work of the LPG Task Force
established earlier this year to provide advice
on practical aspects of greater usage of LPG and
ways of overcoming constraints on its wider use
in the Sydney market).
Home Energy Use: A range of domestic space heating appliances
consume oil. The Government wants to encourage greater use of
heating appliances which do not use oil. All non-oil fuel space
heating appliances of a kind ordinarily used for h1ousehold
purposes and solar appliances of all kinds not already exempt
from sales tax will therefore be made exempt after today.
The necessary legislation will be introduced in the Budget
Session to apply with effect from tomorrow. The cost to revenue
is estimated to be $ 3m in a full year.
Coal: Australia is already a substantial user of coal, particularly
for power generation. Further studies will be made by the
National Energy Advisory Committee of the scope for greater usage
of coal, particularly as a fuel for industry.
18
Petroleum Exploration and Development
The Government has given major encouragement to petroleum
exploration, by way of realistic pricing and taxation incentives.
The Government is conscious of differences in incentives applying
to offshore and onshore petroleum exploration and development
and is examining the matter.
The Government will give a new and upgraded role to the Bureau
of Mineral Resources. The Bureau is to be made into a
geoscientific research organisation with a substantial capacity
to undertake the more sophisticated scientific studies required
to support the fullest development of our resources. In this
regard it will have an enhanced role in relation to the exploration
for and assessment of Australian energy resources.
Alternative Energy Sources
Australia has a significant potential for producing liquid fuels
which might be substituted for petroleum products or blended with
them. These include shale oil, ethanol, methanol and coal
liquefaction products. Some of these prospects are becoming
economic as the price of crude oil rises. They have the added
advantage that they would make Australia less dependent on
imported crude oil, and correspondingly, less vulnerable to
fluctuations in supply and price. Some of the prospects are
already being explored by commercial interests.
The Commonwealth will commence discusssions with the Queensland
Government with a view to bringing the Rundle Oil Shale project
to the stage of commercial development with a minimum of delay.
/ 19
19
Demonstrated reserves of recoverable oil shale at Rundle are
2000 million barrels of crude shale oil and gas. Average grade
of the oil shale is 77 litres/ tonne.
This compares with demonstrated resources of recoverable
conventional crude oil totalling about 2) 00 million barrels.
Australia has about 3600 million barrels of in-situ demonstrated
resources of shale oil.
The Commonwealth's policies will facilitate projects, accelerate
energy research and development, and intensify economic
assessments of the possibilities for developing alternative energy
sources.
Energy Research and Development
The Government has already taken major initiatives to stimulate
energy Research and Development in Australia.
In 1978-79 178 projects worth $ 16.3m over three years were
approved. Projects supported include:
$ 4.50m for production of synthetic fuels from
coal, biomass, oil shale and wastes;
$ 3.13m for studies aimed at improving the
efficiency of coal mining, handling and
transportation.
The momentum achieved needs to be maintained.
The Government will make provision in the 1979-80 Budget for
expenditure on energy Research and Development of $ 9 million,
compared with $ 4 million in 1978-79.
Expenditure from the Coal Research Trust Account in 1979-80 i-s
estimated to be about $ 5 million, making a total of $ 14 million
for overall expenditure in 1979-80.
The Government will establish an Energy Research Trust Account
to complement the Coal Research Trust Account and to provide
necessary flexibility in the administration of the National
Research Program. In addition, the Government has decided to
give approval for total forward commitments of $ 6 million, f or
1980-81 and $ 3 million for commitments in 1981-82.
An examination is also being made of the current research
programmes of the Atomic Energy Commission with a view to
widening its role to encompass non-nuclear energy research.
The Commonwealth through the Australian Minerals and Energy
Council, will also invite the States to join with it in
establishing a Commonwealth-State Energy Research Liaison
Committee to ensure close co-operation and co-ordination of
energy research activities.
ULrban Mass Transit
In the long run, significant savings in the use of energy might
be effected by means of improved, more efficient urban mass
transit systems. / 21
-21-
Investigations are currently underway within the Australian
Transport Advisory Council to assess the scope for energy
savings in this area. These investigations cover such matters
as the scope for greater use of rolling stock and vehicles in
high density commuter corridors, additional rail electrification
where economically feasible, intercity passenger and freight
transport and rationalisation of services generally.
Contingency Measures for Emergency Situations
The policies I have outlined are of course designed to prevent
emergency situations arising. But if such a situation should
arise we have to be prepared to deal with it. There are a
range of measures which will be adopted in such circumstances
which, depending on the severity and duration of any emergency,
range from restrictions on access to service stations and lower
speed limits, to formal rationing.
It is sufficient to say here that we have the relevant measures
constantly under study. The Commonwealth, especially through
Australian Minerals and EnergyCouncil and the Australian
Transport Advisory Council, will maintain close consultation
with the States to achieve a co-operative and consistent
approach to measures that may be required.
0000----