PRIME MINISTER
FOR MEDIA TUESDAY, 26 AUGUST, 1980
STATEMENT TO PARLIAMENT: ENERGY POLICY
AND RELATED RESOURCE DEVELOPMENT
I would like to review the Government's energy policy and
to outline the quite exciting prospects ahead for Australia
in the area of resource development.
Our energy policies are firmly in place and recent events
serve to illustrate their correctness. Successes in this
area are already evident; but in view of the uncertainties
about future oil prices and supplies we cannot relax our
efforts. Associated with the rapid increases in crude oil
prices, there has been a dramatic increase in the demand
for the energy resources with which Australia is richly
endowed. It has provided Australia with great opportunities.
Australia's objective must be to make the most of those
opportunities, while continuing to reduce our vulnerability
to disruptions of world oil supplies, and to further
increases in world oil prices. The energy problem is a
global problem. Failure to make appropriate adjustments
will mean lower world economic growth, higher unemployment
and inflation.
Sustained economic growth in the remainder of the century
will require further major changes in the Western world's
energy usage patterns. Australia is participating in
discussions on energy with our industrialised partners.
within the International Energy Agency. The lEA has
emphasised the need for measures to reduce levels of
imports, to use oil more effectively, and to develop
alternative energy sources. There is over-whelming agreement
within the IEA that domestic oil prices must reflect fully,
movements in internationally traded oil prices.
The Venice Economic Summit in June agreed on the need to
place maximum reliance on realistic pricing to reduce
dependence on crude oil. These strategies represent a full
endorsement of Australia's energy policies especially our
crude oil pricing policy.
Australia's position is one of considerable opportunity,
but at the same time, of some risk to which I shall refer
later. Our energy resources, combined with abundant supplies
of many raw materials, create the opportunity for a large
expansion in energy exports and in energy intensive resource
developments. / 2
-2-
These developments will add greatly to our national product,
to incomes and to wealth, and all Australians stand to benefit
from being members of a wealthier society. The benefits of
economic growth will, as always, extend far beyond those directly
involved: they will extend to all sections of our society.
Our potential is illustrated by increased interest in, and demand
for, direct exports of energy sources from Australia primarily
coal, but also increased desire to process raw materials
in Australia: accelerated plans to increase coal-based
elactricity generating capacity in Australia.
The developments in prosp--ct will., of course, need to comiply
with Government requirements in areas such as the environment,
foreign ownership, and taxation. We are determined that all
companies, both domestic and foreign owned, shall operate in
the interests of all Australians. Australia recognises its
responsibilities in an increasingly energy hungry world. Our
rich resource endowment carries with it an international
responsibility to make our resources available on fair terms
and conditions to countries who are less well endowed than
ourselves. Developed and developing countries alike are vitally
dependent on stable and secure supplies of resources for their
economic advancement and well-being. In turn', Australia expects
consuming countries to provide stable access for our resources
by way of long term contracts. This is absolutely essential
if companies are to commit the huge amounts of risk capital
which are necessary to bring Australia's resource projects on
stream in the 1980s.
Australia'. s greatest energy resource is coal, which comprises
over eighty per cent of our identified energy resources. As
well as providing seventy to eighty per cent of the country's
electricity, coal is a major and rising export product, with
total exports reaching 38 million tonnes in 1978-79. With
increasing emphasis on coal-generated electricity throughout
the world, Australian exports of steaming coal are expected
to increase greatly in the future. The Government is determined
that potential developments should not be held back by lack
of necessary infrastructure.
To this end, projects involving borrowings amounting to around
$ 228 million to provide coal export facilities have already
been approved by the Loan Council under the infrastructure
program. In addition, the Loan Council has approved borrowings
of $ 182 million for up-grading and electrification or the
Waterfall-Port Kembla railway, primarily to facilitate haulage
of coal to the new loader at Port Kembla. Possible infrastructure
borrowings to finance electrification of other coal railways
are under consideration. / 13
-3
Plans for the North-West Shelf project are firming up, with
arrangements for the joint venturers to supply natural gas to
Western Australia in 1984 and to commence exports of L. N. G.
in 1986. The joint venturers have demonstrated their confidence
in the project by letting contracts for construction of some
of the major facilities, and arranging the borrowings to finance
development of the project.
Australia contains around 16 per cent of the Western world's
low cost reasonably assured uranium reserves. Although
anticipated growth of nuclear power programs in some countries
has been reduced in the last few years, there are signs that
the contribution which nuclear power can make to energy needs
is being reassessed in the light of the over-riding priority
of reducing reliance on oil:'
As the cost of oil continues to rise, it is becoming increasingly
attractive to process raw materials in Australia in preference
to transporting them to other countries where energy costs are
higher or where there is a doubt about the availability of the
required energy. The availability in Australia of low cost
coal-based electricity is of prime importance. The combination
of low cost energy and plentiful supplies of raw materials has
increased the opportunities for economic raw materials processing
in Australia.
The mos t outstanding example here is aluminium smelting. Annual
smelting capaci . ty is expected to expand from 280,000 tonnes
at present to about 1.3 million tonnes over the next five years,
requiring the investm-ent of around $ 2.9 billion. Further
aluminium projects under serious consideration could lift annual
capacity to over two million tonnes in the second half of the
1980s, bringing total potential inve-stment in the industry to
around $ 4.5 billion. In addition, substantial new facilities
are planned for the petrochemical industry, based primarily
on hydrocarbon feedstock material from Bass Strait and the Cooper
Basin. Investment in additional electricity generating capacity
represents one of the greatest development challenges in
Australia. Recognising the very high cost of, and long lead
times asociated with the construction of electricity generating
stations, the Commonwealth has taken a series of initiatives
to encourage and assist the State authorities concerned.
The Commonwealth has encouraged the States to bring forward
proposals for coal-based electricity projects to be financed
under the infrastructure program which it initiated specifically
to facilitate the provision of public sector infrastructure
required to complement the big prospective increase in private
sector investment in development projects.
Borrowings of $ 3 billion have been approved under this program
for electricity generating projects with an estimated total
cost of $ 7.4 billion. In addition, there are under examination
further electricity generating projects proposed, including
those by New South Wales and Queensland for which total
borrowings of about $ 4.4 billion are being sought towards outlays
of $ 9.1 billion, and further proposals from other States have
also been foreshadowed. / 14
-4
It is difficult to convey the magnitude and importance to
Australia of these developments. Projects already approved will
add 40 per cent to Australian electricity generating capacity
by about 1990. The proposals from New South Wales and Queensland
currently being examined by officials involve almost half as
much again.
Installed generating capacity in Australia has grown dramatically
since 1950: between 1950 and 1960 it grew by 165%~ or 3,500
megawatts; between 1960 and 1970 it grew by 160% or 8,400
megawatts; between 1970 and 1980 it grew by 71% or 10,000
megawatts. On the basis of current plans, installed generating capacity
is expected to rise by a further 9,000 megawatts by 1985 and
a further 12,000 megawatts in the second half of the decade
to reach about 45,000 megawatts by 1990. In this decade the
increase in generating capacity is expected to be greater than
in any previous decade, or even two decades. In 1979, the
Commonwealth in conjunction with New South Wales, Victoria,
South Australia, and Tasmania, set up a committee of inquiry
into electricity generation and sharing of power resources in
South-East Australia.
The main function of the inquiry is to examine the feasibility
of a strongly integrated electricity supply grid in South-East
Australia. Resources-and energy related developments have an immense
potential for generating economic growth in this country and
raising the standard of living of all Australians, but the
realisation of this potential could be imperilled if appropriate
policies are not pursued.
I refer p articularly to: our vulnerability to disruptions to
supplies of crude oil and the need for appropriate energy
policies to minimise the risk; the need for sound economic
policies which will provide an economic environment in which
the massive investments which will be required can be made with
confidence; and the need for unions to play a positive role
in this development, and to avoid the industrial. unrest which
might put at risk major investments by adding to costs and
uncertainties and might prejudice Australia's image as a reliable
supplier. The Commonwealth will continue to consult with the
trade union movement in every effort to improve the industrial
relations climate.
The National Energy Advisory Committee has estimated that if
we do not find more oil * our self-sufficiency in naturally
occurring crude oil is expected to fall from about 67 per cent
today, to about 40 per cent in 1990, and to ten per cent by
the year 2,000.
In order to avoid increasing reliance on potentially unreliable
overseas supplies of oil, Government policies need to be directed
at reducing our dependence on crude oil and towards cushioning
the effect in Australia of any external oil shock.
A6
The cornerstone of our policy is the pricing of indigenous crude
oil at import parity. When we introduced import parity pricing
policy, we knew that it would not be popular; but we believed
that it-was right, and necessary, for the future well-being
of Australia.
Import parity pricin g is vital to conserve our scarce supplies
of liquid fuels, to encourage exploration for oil and to assist
the development of alternative sources of energy this policy
is clearly working.
The case for the policy is overwhelming. It is vital that we
should price our own supplies of oil at the value placed on
them in world markets and not allow them to be used at
artificially low prices. If we were to allow our irreplaceable
indigenous oil reserves to be squandered used up at
unrealistically low prices, it would be an act of extreme
selfishness towards our children.
Only by pricing indigenous crude oil to reflect world prices
can alternative sources of energy, such as shale oil, ethanol,
become viable and thus contribute towards reducing our dependenc6
on imported oil. Because these developments will take time toh
have their full effect we must begin to make-the necessary
adjustments on a wide scale now. The choice we face is between
paying realistic prices for petroleum products now or paying
even higher prices later to producers in other countries when
we may be unnecessarily dependent on expensive and uncertain
supplies of imported oil. The crude oil-levy recovers for
taxpayers generally a substantial part of the windfall profits
which would otherwise accrue to domestic oil producers as oil
prices rise. It has assisted the Government to meet defence
obligations which could not be postponed, to help reduce the
deficit, and to finance cuts in taxation applying from 1 July
1980.
Notwithstanding our adherence to import parity pricing for
indigenous crude, the price of Australian petrol is-amongst
the lowest of OECD countries for example, prices in Europe
range from 550 a litre in the to 620in the United
Kingdom and to 78d a litre in Italy.
Australia's import parity pricing is based on the price set
for " Arabian light", the lowest price at which a major part
of the world's oil is traded. In addition, the Government has
backed up its pricing policy with supplementary measures to
achieve its desired objectives to which I should now like to
refer. Conservation offers the most effective'means of reducing our
reliance on oil in the short term, and has the potential for
further gains as investments are made in energy efficient capital
equipment, vehicles and buildings. Pricing of crude oil at import
parity encourages conservation by ensuring that consumers make
decisions based on realistic prices.
-6-
To encourage conservation, the Government launched last November
a national energy conservation campaign; introduced a national
industrial energy management scheme to promote and foster
efficient energy consumption patterns in industry; will be
seeking a commitment from industry to establish and maintain
energy management programs, under which companies will monitor
energy use, establish goals for reducing energy use, and report
this infcrmation through their industry association.
The available evidence suggests that despite strong economic
growth consumption of petroleum products is slowing in Australia.
Whenever possible C * he Government wishes to replace the use of
petroleum products by other, more readily available substitutes.-
Again, of course, the prime incentive for such substitution
is provided by realistic pricing of petroleum products arising
from import parity pricing.
Natural gas, which is already available in all mainland capital
cities, and in many other centres, provides an attractive
alternative to crude oil products for many use Irs. The Government
is committed to extending natural gas pipelines to provide wider
access to this energy source. Construction has commenced on
a Sydney-Newcastle pipeline and will shortly commence on a line
from Young to Wagga Wagga and Cootamundra. Plans have been
approved for a spur line to Canberra and consultations are being
held with New South Wales, Victoria, and South Australia on
the possible extension of the Southern lateral from Wagga Wagga
to Albury. Such a line would-link the Victorian and New South
Wales ga s distribution networks, an d the Cooper Basin and Bass
Strait gas fields.
In June last year, I announced a number of initiatives to
encourage the automotive use of LPG. When it became evident
that massive increases in the world price of LPG threatened
this policy the Minister for National Development and Energy
announced last April measures. designed to restore an element
of certainty to potential automotive users of LPG by tying the
price of LPG to that of indigenous crude oil. These measures
also recognised the position of household consumers of LPG by
providing a temporary subsidy of $ 80 a tonne. This will give
households the opportunity to switch gradually to more suitable
indigenous fuels such as natural gas and electricity.
The Government's import parity pricing policy provides a basic
framework within which alternative fuels can be developed. The
Rundle Shale oil project is a classic example of the
effectiveness of the Government's import parity pricing policy.
The developers of this project have made it clear that the
Government's import parity pricing has been crucial in their
decisions to make the very large investments required in this
project. This emphasises that if we are to compete internationally for
capital, expertise and skills, we will only attract these to
Australia with rewards which are internationally competitive. 7
-7-
The first stage of Rundle is expected to cost between
$ 300 million and $ 400 million in 1979 values, and if it is
successful to lead to a project costing many billions of dollars,
and producing about 200,000 barrels of syncrude a day probably
between 25 and 30 percent of our expected requirements at that
time. Its output should come on stream as Bass Strait oil
production declines in the early 1990s. Indeed, it is likely
to be the largest project ever undertaken in Australia, and
one of the largest in the world. Rundle is only one of several
rich oil shale deposits. If it proves to be viable it will
almost certainly lead the way with its technology in the
development of a great new industry for Australia.
Development work is being carried out to arrive at processes
for the economic conversion of coal to oil. Joint ventures have
been set up by Australia with Germany and Japan to investigate
these possibilities. Another promising alternative to crude
oil is ethanol, which can be produced from a number of vegetable
products, such as grain, sugar cane, sugar beet. It has potential
for use primarily as a petrol extender in blends containing
10-20 per cent ethanol.
The Commonwealth Government is providing funding to assist in
an economic and technical evaluation of the potential
contribution of fuel ethanol to Australia's liquid fuel needs.
Ethanol for use as an on-farm or transport fuel has' been exempted
from excise whether produced on the farm or commercially.
Research into alternative energy sources and other aspects of
energy use is necessary to develop viable techniques to reduce
our dependence on oil. The Commonwealth is providing increased
funding for a substantial research and development program.
The response by oil explorers to the Government's policies has
been very pleasing. Confidence of investors has been restored
and exploration activity has increased dramatically. Import
parity pricing has, of course, provided the certainty as to
future returns which has underpinned this recent expansion in
oil search activity.
For instance, the Australian Petroleum Exploration Association
now expects that expenditure on petroleum exploration and
development will exceed $ 715 million in 1980, compared with
$ 150 million in 1975. Last year 108 exploration and development
wells were drilled in Australia and in 1980 it is expected that
121 such wells will be drilled only 29 wells were drilled
in 1975.
The Government has been concerned to provide greater security
of supply of petroelum products to Australian consumers. In
the event of a major interruption to oil supplies we would need
to have adequate stocks of both crude oil and petroleum products.
-8-
Our greatest protection against disruption in international,
oil markets is continued production from Bass Strait. The
Government considers that a prudent objective for stock holdings
in Australia is the equivalent of about 75 days of total
consumption of crude oil and petroleum products. To put this
objective into perspective, at the beginning of 1979 stocks
of crude oil and petroleum products in Australia were equivalent
to about 52 days consumption. They have now risen to about 67
days, and discussions are being held with the oil industry to
increase these stocks to the target level.
Member countries of the IEA are required to hold a minimum level
of stocks equivalent to 90 days of net oil imports in th~ e
previous year. Australia easily complies with this
requirement. Our oil and gas production facilities in Bass Strait
and the associated onshore facilities in Gippsland mets some
62 per cent of our domestic oil consumption and all Victoria' s
natural gas requirements. The Government has taken action in
consultation with Victoria and with Esso to enhance the security
of these installations and to enable more rapid restoration
of supply in the event of disruptions. The Government is acting
to reduce further the risks of accidental collision by vessels
with the offshore installations. On 6 June the Minister for
Defence announced that increased surveillance and related
activities were being, undertaken by units of the Australian
Defence Forces,' including naval and air units, in the vicinity
of the Bass Strait production platforms.
Sound economic managem ent is of fundamental importance to thie
realisation of Australia's great development potential. Continued
downward pressure on inflat * ion and the avoidance of
de-stabilising imbalances in the economy are pre-requisites
for the very large investments required. The Government' s record,
in this area is good and the recent Budget demonstrates our
resolve to continue to pursue anti-inflationary policies.
The Government's foreign investment policy is understood and
accepted by foreign investors. It ensures consistency, equity
and predictability for investors, while ensuring that Australians
get maximum benefits from developments.
Planning, development and operation of major projects involving
the investment of very large sums require reasonable certainty
about costs and timetables. Delays arising from industrial
unrest which could adversely affect both costs and timetables
must therefore be avoided. We also need to avoid industrial
unrest in the production phase particularly in the mining
sector, as disruption to supply can be a source of concern to
our trading partners, as well as to prospective investors. An
essential component of Australia's image as a reliable trading
partner is our ability to meet contracts as scheduled. The
Commonwealth will encourage consultation and co-operation
between management and workers-in an effort to reduce the level
of disputation and to provide a constructive industrial
relations environment.
Events of the past twelve months confirm that the Government's
strategy is working. In 1979-80 consumption of petrol declined
by 0.7 per cent, compared with an average annual increase of
4.6 per cent in the five years precedinig full-import parity
pricing. / 19
-9
In 1979-80 consumption of heating oil and fuel oil fell by 36
percent and 8 percent, respectively, over 1978-79. Introduction
of natural gas into Sydney is estimated to have saved the
equivalent of 2 million barrels of oil in 1979. Esso and the
Rundle partners have announced that they have signed heads of
agreement todevelop the huge Rundle oil shale deposit.
Exploration for oil has increased dramatically since the
mid-1970s. The latest survey by the Department of Industry and
Commerce has identified investment of $ 29 billion either
committed or in the final feasibility stage in major resource
and manufacturing projects, with some two-thirds being energy
related. Investment in electricity generation and transmission
exceeding $ 19 billion over the next decade has been foreshadowed.
The policies being pursued by the Commonwealth will create the
conditions which encourage the massive investments necessary
to bring the potential resource-based developments to fruition.
The investment of many billions of dollars in resource based
development will stimulate economic growth and-employment. This
investment, the growth of great new industries and the expansion
of others will mean increased incomes and higher living
standards for all Australians. This exciting prospect has
relevance for-all of us: we all stand to participate in it.
Our energy policies are firmly established and their success
is already evident. The Commonwealth will continue to build
on these policies to ensure that Australia is well placed to
meet possible upheavals in the international oil markets. The
measures I have outlined tonight evidence this determination.
Mr. Speaker, in the statement-I have made,' I have provided an
outline of the Government's energy policy and the prospects
for resource development. For the information of Honourable
Members, I now table a more comprehensive statement on these
matters. 000---