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House of Assembly - Fifty-Second Parliament, Second Session (52-2)
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NATIONAL GAS (SOUTH AUSTRALIA) (GAS TRADING EXCHANGES) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 25 July 2013.)

Mr HAMILTON-SMITH (Waite) (15:54): I rise on behalf of the opposition as lead speaker to agree with the minister that this is a very important matter. Getting the regulatory framework and the market arrangements right in the energy sector is vital not only to our energy security but also to the ever more burdensome costs upon business and households of energy prices, and this is an important measure in respect of gas. I want to speak for some time, before going into the detail of the bill, about the opposition's position on the gas market more broadly, which sets the framework around this bill, because I think it is important for the government and the bureaucracy to understand the opposition's thinking on this issue.

During the last decade the resources debate in South Australia has, in our view, been dominated very much by mines and mineral resources. I recently attended the Australian Petroleum Production and Exploration Association (APPEA) conference in Brisbane on 27 and 29 May. It is apparent from my attendance at that conference and the many, many meetings that I have had since with industry advocates and those who are mining that oil and gas are now emerging as the key opportunities for future growth in South Australia.

We have seen the spectacular no-go of Roxby Downs and the Olympic Dam expansion, a great disappointment to the state, but we now see other very, very exciting opportunities that are emerging in the gas area that offer great prospects for the state. However, there is volatility—great volatility—in both gas and petroleum. In the long run, growth in demand for liquefied natural gas seems to be driven by China and India, placing upward pressure on prices. In the short to medium term, however, that market faces considerable instability.

Conflicting signals in the market are likely to place upward pressure on domestic gas prices in the near-term but downward pressure on our LNG export prices over the long-term. These developments have implications for investment, infrastructure and jobs in SA and across the country, of which we should all take note. The other interesting development is occurring in North America, where shale oil and gas, not only in the United States but also in Canada, will see a flood of exports from 2016. According to Treasury, this will lower our terms of trade possibly by as much as 9 per cent over the coming year, beyond the 7.5 per cent fall estimated in the last federal budget.

After facing years of decline, the US is now poised to become a major exporter of gas. This will displace Middle East oil supplies and disrupt traditional markets. The second big change in North America is the potential for gas prices to be linked to the Henry Hub gas price, the US domestic, rather than the international crude oil prices which could lead, in my opinion, to further downward pressure on LNG prices. This could place further pressure on Australian LNG project costs, and these two developments have, in my view, changed the LNG global dynamics fundamentally.

The other interesting factor in considering this bill has to do with coal prices. I note from work done by the Grattan Institute that US shale gas is already contributing to the decline in thermal coal prices down from around $100 to $90 a tonne. American coal producers are increasingly exporting in response to shale gas flooding the US market thus replacing domestic coal as a fuel. This effect will impact significantly on Australia's coal exports in both volume and price. BHP have announced recently coalmine closures and selloffs as part of an $800 million cost-cutting program. Coalminers have been hard hit by a plunge in the commodity's price. We should note this in the context of the bill.

Gas and coal exports from emerging economies are also an important consideration. Seventy-six trillion cubic feet of gas has been discovered in Africa over the past five years, where projects totalling 33 million tonnes per annum are now on the drawing board; five years ago there were none. This African gas will be exported to Asia, representing another new source of competition for Australia in the Asian LNG market. Emerging coal supply basins in Mozambique and Mongolia will also come online impacting upon LNG markets.

In my opinion, these developments are going to have a dramatic effect on LNG prices and investment here at home because there is uncertainty, and that clearly has been demonstrated by the cancellation of some very large LNG contracts in recent times. Chevron recently revealed their flagship $52 billion Gorgon scheme was only 65 per cent sold on its gas production. South Korea's KOGAS has not followed through on a September 2009 deal to take annual deliveries of 1.5 million tonnes of LNG.

The volatile environment puts at risk the new wave of LNG projects to carry on from the $160 billion of investment underway. As a result of this volatility, combined with declining productivity and increasing capital costs, Australian projects hanging in the balance include Woodside Petroleum's Browse venture; Shell and PetroChina's Arrow project in Queensland; the Scarborough floating plant proposed by ExxonMobil and BHP Billiton; and the GDF Suez-Santos Bonaparte floating venture, another $100 billion.

In contrast, Royal Dutch Shell plans to invest about $30 billion on other projects. The fact is that there is uncertainty in the Australian gas market. Unconventional and coal seam gas have changed the way things are done. At the APPEA conference, to which I referred earlier, industry leaders expressed alarm at the lack of support from the NSW government for unconventional gas.

The O'Farrell government in response to pressure from environmentalists has recently imposed restrictions on any gas field within two kilometres of a township. This has had the effect of closing out most of the prospects in New South Wales and risks causing a halt to coal seam gas investment in that state. SANTOS chief, David Knox, then chair of APPEA, told the industry that extremists and greens must not be allowed to control the agenda. The point was agreed to by Federal Resources Minister, Gary Gray, and shadow minister, Ian McFarlane.

Difficulties with unconventional gas approvals have also arisen in Queensland as a result of planning and development failures by the previous state Labor government which, frankly, made an absolute mess of things. The LNP government has been more supportive and is currently working through the complex issues with the industry.

My understanding now is that up to 3,000 farmers have signed up, with enthusiasm, for unconventional fracking operations on their land, and I am advised that as a consequence of these new developments, young people who saw no future in the country and headed off to Brisbane and the Gold Coast to train as accountants and lawyers are now going back home to the regions where they now see a drought resistant income stream from the farm properties and a future for themselves and their families as a consequence of the co-existence of gas operations and mining beside food production in that part of Queensland.

These are all very good developments. Can I make it very clear on this side of the house that the opposition, having considered this issue very carefully is, as far as we are concerned, open for business when it comes to unconventional gas fracking techniques. Of course, there is a matter which addresses this very point in the other place to which I will not go to for obvious reasons, but I just want to make the point that the state Liberals are very supportive indeed, and are firm in the view that current protections are adequate if properly exercised, but we will have more to say about that at a later point.

It is likely that delays in New South Wales and Queensland in opening up coal seam gas, which at present accounts for 35 per cent of East Coast gas supplies, is failing to meet growing demand. It is likely that New South Wales will be experiencing gas supplies within two years. Australian gas is going to move to an international price. Australia presently enjoys gas prices which are below international benchmarks. To meet international contracts, increasing quantities of Australian gas including gas from Moomba, will be converted to LNG for export. As a result, the domestic market is facing a short-term gas shortage which will see retail prices rise. Compounding this pressure will be an expected doubling in demand for LNG in this decade.

Santos is a major player in these developments, and there are others. It is important to note that calls for a reservation of gas for domestic use have been rejected by the outgoing federal Labor government and by the incoming Liberal Coalition government and by governments in the Eastern States.

Rising gas prices will have an impact on manufacturing. As Australian gas prices rise from some of the lowest in the developed world towards world market-linked prices, there will be a significant impact on a range of trade-exposed industries right here in South Australia, including agriculture, aluminium construction and elaborately transformed manufactures.

Industry leaders have, in the past week, expressed the view that rising gas prices are a far greater threat to industry than the renewable energy target, claiming that 200,000 jobs are at risk. Companies facing rising gas prices are often the same companies being penalised for carbon emissions under the federal Labor government's policies.

It is important, too, in the context of this bill, to note developments with gas in the Cooper Basin. There are three main players in the Cooper: Santos, Beach Energy and Senex. US giant Chevron recently reached agreement to purchase an initial 30 per cent stake in Beach Energy's Cooper Basin operation with the option to increase their share to 60 per cent, and 18 per cent in its Queensland operations, providing $349 million for Beach's exploration and development.

The arrival of this foreign direct investment from Chevron into SA, at this time, is a very significant event. The Beach/Chevron venture, which will employ unconventional drilling, has the potential to exceed the capacity of Santos's Moomba field, according to the company. The point here is that there is significant life to come in the Cooper Basin and that, despite the failure of BHP's Roxby Downs expansion at Olympic Dam, the growth story going forward is likely to be one of natural gas rather than minerals, which is not to dismiss the minerals story but simply to note the emergence of gas as a leader.

The government has recently announced that Sydney-based Bridgeport Energy—a New Hope Corporation subsidiary—will invest $24.4 million over 400 square kilometres of the western Cooper Basin searching for oil and gas. That news is welcome. This will bring to four the number of significant players in the Cooper.

Of course, there is petroleum exploration underway in the Great Australian Bight. BP is presently surveying and will commence drilling for oil in the Great Australian Bight, south of Ceduna, while investing $1.4 billion. The science looks extremely encouraging. I thank BP for their briefings. The depths from surface to seabed may be up to 2,500 metres, with drill penetration up to a further four kilometres in prospect—a stunning technological achievement.

This will involve helicopter operations out of Ceduna and infrastructure development at Port Adelaide. If significant deposits are found, the subsequent development will be extensive. The commonwealth will receive all royalties and income and company taxes from BP operations, but many benefits will accrue to the state budget bottom line by other means.

In a recent significant development, Norwegian energy company Statoil announced it would acquire 30 per cent equity in the project with BP. Having these two major international companies in SA is a very significant development indeed. A further exploration licence beside the BP tenement has been offered by the commonwealth, I understand. This second major announcement, which I believe will be made later in the year—we are all waiting with bated breath to hear the name of the company involved—offers the prospect of a second major venture in the bight. Having a third major player active in this space is indeed a very positive development for South Australia.

Then there is the Otway Basin. The state government announced some time ago that British company NP Oil and Gas will invest $54.6 million searching for petroleum and gas in the Otway over a 5,600 kilometre tenement stretching from the north of Robe, through Lucindale and Naracoorte, to the Victorian border. Exploration activity will also comprise Beachport, Millicent, and a zone south of Mount Gambier.

Of course, we also understand that Beach Energy is going to be exploring down in the Otway towards the end of this year. I commend that company and its principal, Reg Nelson in particular, for the way they have approached the community consultation and the way that they are planning to involve local stakeholders in their plans. I think that demonstrates—in fact, it shows leadership—to others around the country as to how things should be done.

We should note, as a parliament, that it is highly likely that fracking and unconventional techniques will be used in all of these ventures. These techniques vary from project to project and require very careful water management. The industry will need to ensure that the community is fully engaged—and indeed they are.

We will need to be mindful of interstate experiences as these prospects develop, but we should not be scared off by emotional and irrational arguments about moratoriums, bans, or an unconvincing case that somehow or other mining for natural gas and food production cannot coexist. Of course they can coexist; they must coexist, and as a community, we need to be thinking and talking about how we can optimise the value of our land for food production whilst at the same time accessing the minerals and natural gas reserves underneath it. To do otherwise is simply to raise the white flag.

It is not a case of either-or, as the Greens might argue, and it is not a case of being scared of doing something simply because there are aspects we may not fully know of. The fact is, all decisions must be made based on the science, all decisions must be subject to thorough development and environmental assessments, and all decisions must be made in consultation with local communities, farmers, local councils and all other stakeholders in a collaborative, collegiate and sensible way.

If food producers, miners, governments at all levels and stakeholders around the issue all treat each other with decency and good manners and understand each other's positions, we can achieve this goal of having a vibrant gas and mining industry whilst at the same time having an equally vibrant food production sector; that is what we should all be aspiring to.

As a condition of any licence being granted, companies will be required to prepare environmental impact reports and statements of environmental objectives for on-ground activities, in line with state government commitments to sustainable development. Bridgeport Energy will also be required to resolve native title access issues, as will other companies, in line with the commonwealth Native Title Act 1993. The Otway Basin is prime agricultural acreage, unlike the Cooper Basin, which is marginal farming land.

We should expect similar challenges, as experienced in Queensland and New South Wales, when unconventional oil and gas operations are actually proposed and commenced, but we need to go forward and face them together with a view to ensuring a prosperous future for those we represent going into the future.

I want to talk about productivity and capital cost, because this is an issue that should be transfixing everyone dealing in this space. Gas-based projects now make up the vast bulk of remaining spending of the now receding Australian resources boom. By my calculations, based on ABS statistics, out of the $268 billion of resources investment still under construction, $205 billion is in energy. Australia's problem is that it has made itself the most expensive supplier in the world energy industry. The high dollar, although it has eased recently, has been adding to the problem.

High capital costs are a crushing impost on our miners. Problems facing the industry include the highest taxes in the world, royalties, PRRT, import duties, tariffs, accelerated depreciation, capital allowances, silly carbon taxes and so on. Other imposts include excessive regulation, labour rates and productivity, the high costs of the service market and supply chain, inadequate industry collaboration and poor project planning.

These were the same issues that contributed to the collapse of the Olympic Dam expansion. When you go through and work them out one at a time, you can see that government has either caused or could have solved, but hasn't, many of those problems through better laws, better legislation, better regulation and better engagement with the industry. We are, at both state and federal level, as governments, partly to blame for the high capital costs that are crushing the industry.

It is a story about productivity. I recently encountered research by McKinsey and Company regarding Australian workers, engineers, construction, procurement and operations taking roughly 8 per cent longer to complete the same amount of work as their Canadian counterparts. Productivity in the US is even higher than Canada. According to the research, Australian workers take 30 per cent more time to complete the same work as do their counterparts in the US. Australian construction labour rates are also 20 to 30 per cent higher than in the United States, according to McKinsey.

The causes of these productivity concerns include time wasted by flying in and flying out workers to remote locations, rather than having them live nearby. It includes shift patterns, material and equipment not being available, training and skills issues, wage levels and the Australian dollar. Unless state and federal governments have the courage to face up to these causes of low productivity, we are not going anywhere. We will throttle this industry. There are problems there that need fixing, and particularly Labor governments and Labor parties need to face up to the lack of labour productivity. We can bark and bark and bark, but unless we achieve greater labour productivity, our gas and mining industries will slowly choke.

In summary, before going into the detail of the bill, I have made the following points that I think set the frame for this bill. Gas and oil are taking the lead, with the bulk of investment and opportunity in the Australian resources boom now within the gas and petroleum sector, particularly so in this state. Markets are unstable. There is significant instability and conflicting price signals within the international and national gas markets.

Unconventional gas has arrived. These new techniques, including coal seam fracking are the future of the mining industry in this space. Without these new techniques, thousands of jobs and billions of dollars of investment will be at risk. New South Wales arguably has the wrong policy settings. Not that it is our job to tell the New South Wales government how to do business in New South Wales, but we certainly will be commenting on how business should be done in South Australia. Queensland has done better, particularly under the LNP government. SA must learn from the experience of other jurisdictions, look at what mistakes were made and not repeat them. We should support unconventional gas while requiring vigorous environmental and planning controls based around sound science. All of this is critical for regional development and investment.

Energy investments in the SA regions will be a key to jobs and prosperity, not only for the state, but for the regional communities themselves. The arrival of major players, including Chevron, BP, Statoil and others, into this state are significant developments, and there is considerable activity in the Cooper and Otway basins and the Great Australian Bight.

Finally, cost and productivity are the key. Australian mining, as I have mentioned, is facing a crisis in productivity. High capital costs, unproductive labour practices, inefficient taxes and poor policy decisions are creating inefficiency, putting at risk the long-term benefits of the resources boom. Governments can help fix these problems. We must address these issues, and we must help the industry to thrive. Having said that, I now want to turn my attention to the detail of the bill.

The National Gas (South Australia) (Gas Trading Exchanges) Amendment Bill 2013, as we have heard, was introduced by the minister on 25 July. The bill proposes to make amendments to national gas law and national gas rules for the establishment of gas trading exchanges (GTEs) for the supply of the eastern domestic gas market.

I was not expecting this measure to come on this week but I am delighted that it did, and the opposition is very happy to expedite the measure. I can indicate that we will be supporting it without amendment, and look forward to seeing it progress through the parliament. I also thank the minister and his department for the briefing I received just this Monday.

There is a need for this bill. In December 2011, the COAG committee of energy and resource ministers, the Standing Council on Energy and Resources (SCER), agreed to undertake a scoping and cost study for a gas trading exchange. GTEs are short-term supply markets for reallocation of gas between national market participants as opposed to the wholesale market. The government argues that this would lead to greater transparency and trading, allocation and price efficiencies. It is intended that the process required in the bill would be voluntary for participants, I understand—and there are nods from the advisers in the box; that is good, it is always nice to have some nods.

The process is of interest to the debate. In response to recommendations, I understand, from the Queensland government Gas Commissioner, who did a review into this matter in June 2012, SCER agreed to undertake a detailed design process. An extensive consultation unfolded with industry, followed with the establishment of a Gas Supply Hub Reference Group of key participants. I know that the government has relied fairly heavily on national rather than local consultation on this bill, but we have been assured that that national consultation has been thorough, so we are taking the government at its statements on that matter.

There are costs in respect of the measure. In October 2012, the SCER tasked the Australian Energy Market Operator (AEMO) to conduct a design analysis of the proposed GTE at Wallumbilla. The report found an implementation cost of $1.4 million to $1.7 million establishment cost and an annual operational cost of $570,000. The majority of industry participants estimated that their annual participation would cost around $100,000. AEMO conservatively estimated that the on-flow benefits of trade would be approximately $13 million annually.

DMITRE has indicated to me that there will be negligible benefit to gas prices as a consequence of the measure, and I understand that there is some uncertainty about that and it will be a bit of case of wait and see. However, we note those cost impacts and potential benefits. In respect of implementation, in December 2012, SCER agreed to proceed with the implementation of the project with the intention of creating an initial exchange at Wallumbilla, 125 kilometres west of Brisbane, in early 2014.

Turning my attention to the bill itself, and reading its clauses, it is clear that it seeks to amend the national gas law to facilitate the establishment of GTEs and create the rules and regulations by which they will be governed. The bill provides the AEMO statutory functions to facilitate the GTEs' operations and to set fees. It also outlines the minimum standards by which exchanges must be made. While the first exchange will be established in Queensland, the bill provides the regulatory framework for future GTEs. After the initial implementation of the bill the Australian Energy Market Commission would assume the regulatory role over GTEs.

In respect of consultation, as I mentioned the Standing Council of Energy and Resources went through a thorough process, including the establishment of the Gas Supply Hub Reference Group. The initiative to establish the GTE was primarily driven by industry's need for greater flexibility to trade unutilised capacity on a daily basis. In June 2012, the Australian Energy Market Operator concluded that:

Without a new market at Wallumbilla (or an alternative), the current gas markets will only provide for 10 per cent of gas in Eastern or South-Eastern Australia in 2020.

I sought comment myself and followed up with the Energy Supply Association of Australia (ESAA), the Energy Retailer's Association, Alinta, EnergyAustralia, Envestra and several other stakeholders. We have received responses. Most of them are supportive and there has been little criticism of the measure. I am assured, to the extent that we have been able to consult locally, that no-one's alarm bells are going off. We will see what happens when the measures unfold. No doubt there will be issues that arise and we will probably be back here with some amendments, but that is not uncommon with such matters.

In summary, the national gas market is about to undergo some very significant transformations indeed following the commencement of liquefied and natural gas exports from Queensland from 2014. It is highly likely that the price of gas will rise in the medium term. These arrangements comprised in the bill are designed to facilitate gas trading with a view to offering flexibility during this period of transition.

Importantly, I note South Australia is the lead legislator, and it is important that we get it right. The arrangements will result in the national gas law referring control of gas trading exchange functions to the Australian Energy Market Operator. The AEMO will be governed by these new rules. In effect, the state government and state government regulatory agencies, as I read it, will be referring their powers to these national arrangements through AEMO.

On that basis, can I indicate the opposition's full support for the measure. We do not propose to put amendments or to go into committee. I know there are some other speakers on the matter. I commend the bill to the house.

Mr PEDERICK (Hammond) (16:27): I rise to speak to the National Gas (South Australia) (Gas Trading Exchanges) Amendment Bill 2013, and I commend all the comments of our shadow spokesman, the member for Waite.

I also want to make a few comments about fracking, because I was involved in the process 30 years ago in the Cooper Basin. Hydraulic fracturing (fracking, as it is commonly called) was first trialled in 1947 and this process progressed through to 1949 when Halliburton (which is an oil and gas field services company still operating, well and truly, today) performed the first two commercial hydraulic fracturing treatments.

As of 2012, right throughout the world, there have been 2.5 million hydraulic fracturing jobs completed in oil and gas wells, so this is not something that has just happened. There is a lot of discussion around unconventional gas and shale gas but, certainly from my understanding, fracking would have been operating in the Cooper Basin for around 40 years. When I was involved and worked for Gearheart Australia and we were shooting wells in 1983 and 1984, we worked alongside Halliburton to complete those jobs.

For the interest of the house, I will explain how it worked in those days. I am sure things have moved on a little bit in that time, but it would be fairly similar. Basically, you have a workover rig—not a drilling rig but a workover rig—over a gas well or oil well that is already cased and cemented and generally would not have tubing in it, that would take the flow of the oil or gas. We would turn up in our service truck and we would have four-inch guns that were loaded with armour-piercing slugs, I suppose you would call them. It was armour-piercing equipment that could shoot through 22 inches of solid steel. I know I am talking in Imperial measurement, but that just shows how old I am.

We would have these all loaded up in the workshop in Moomba and travel out to the appropriate well site. Being a 24-hour process, that could be any time of the day or night. The process was that we would run these guns down to the 10,000 feet or 3,000-plus metres of the well. You would gently touch the bottom of the hole, and it is interesting to note that at that depth, a cable could stretch up to 30 feet, or possibly 8 to 10 metres, so then you would have to work out the depths of where the zone was to shoot the oil and gas with what is called a casing collar locator. That would get the engineer to sort it out exactly (once you calibrate those measurements) so that you could shoot on depth, as it is called. That worked very well.

The last thing you wanted to do in those sorts of jobs was drag up some guns that had not gone off because it could be quite explosive. Apart from the fact they could kill you, they could certainly disable you on the surface and tear your body in half at the very least.

That is what happened—you would shoot the well and pull the guns out. Halliburton would then have a series of tanks full of fluid and something called frac sand which is like a silica sand which is essentially very much the same shape sand particles. They would be pumped down under huge pressure using V12 and V16 Detroit GM motors—quite a noise I must say and sometimes they could have up to 20 of these motors linked together with one operator on one throttle to get the appropriate pressure up to pump this fluid down to fracture where the shot had taken place in the zone. That would then open up the fracture so that the well could have a far better oil and gas production. Generally, it works very well.

There are a lot of things at stake if you do not shoot at depth. I witnessed an engineer being sacked for shooting off depth. I was on the same job and there is a lot of concern, obviously, about possible contamination—whether it is groundwater contamination or freshwater contamination—and the last thing oil companies want (the last thing anyone wants) is shooting off site because when you are shooting oil and gas, you do not want to shoot water. Sadly for this engineer, he got his calculations wrong and he shot water and I would assume that that well would have had to have been plugged and recemented and reshot.

It can be done in other ways. We used to do what is called three tubing through tubing perforating where the tubing was already in place to take the oil or gas flow and this was mainly in oil wells in the Jackson Oil Field in Queensland near Noccundra and we would basically set up our equipment one day. The workover rig would be mounted over the well, we would shoot at the next and the rig would move. We would do another well and we did a series of wells over a period of time. So it can be done fairly quickly and sometimes the through-tubing jobs were just done on their own just to open up the formation without any further pumping of sand.

So it has been around a long time; it is not as if it has just loomed up in the last five years. There has been a lot of emotion, and I concur with the member for Waite's comments that, yes, we do need to get on with the job, we do need to be careful, and we do need to make sure we have the appropriate environmental management and the appropriate water management. But I can assure you—and I know very much from experience—the last thing people want to do is make a mistake in these jobs.

Certainly, in regard to geothermal work—and I know they have been doing this work in the Cooper Basin, just out of Innamincka, for a long time—there are various opinions about whether they will ever manage to calm the beast of geothermal up there at Innamincka. There has been hundreds of millions of dollars poured into that project. I know for a fact that there have been many fracture jobs done on those wells. For any people who think that fracturing is not part of geothermal, well, they need to have a good look, because it is certainly there.

I was talking to a Halliburton hand, as they call them in the oilfield, last Saturday night and he said that Halliburton in the Cooper Basin recently had four fracture crews working around the place. I must say that there are quite a few people from my electorate—my next door neighbour works for Halliburton at the moment, and quite a few others have had the opportunity to either get off-farm income or get their main income from working for companies like Halliburton and others in the oil business, as I did for two years all those years ago.

We do have to make sure that the process is operated effectively and we certainly cannot have a process where hydraulic fracturing is taken out of the equation, because it is certainly a big part of making sure that the economy of this state gets going. As the member for Waite indicated, I think we are on the verge of a far bigger industry than what we already have in the oil and gas field in this state. I certainly hope that it can take the lead, as I think it will have to, now that the Olympic Dam issue has fallen over for the moment, and that it can generate some real income for the state.

In regard to the bill and the gas trading exchanges, the Standing Council on Energy and Resources took out a scoping and cost study for a gas trading exchange, and these are short-term supply markets for reallocation of gas between national market participants. This should lead to greater transparency in trading, allocation and price efficiencies. According to the bill, the process required will be voluntary for participants.

In October 2012, the Standing Council on Energy and Resources tasked the Australian Energy Market Operator to conduct a design analysis of the first proposed gas trading exchange at Wallumbilla in Queensland, and this would incur an implementation cost of around $1.4 million to $1.7 million to establish, and potentially an annual operating cost of $570,000. Most of the industry participants estimated that their annual cost to participate in the scheme would be around $100,000. There is an estimation that the on-flow benefits of trade would be approximately $13 million on an annual basis, and it is said that DMITRE claim that there will be a negligible benefit for gas prices as a consequence of the measure.

The bill seeks to amend the National Gas Law to facilitate the establishment of gas trading exchanges and create the rules and regulations by which they will be governed. It will give the Australian Energy Market Operator statutory functions to facilitate gas trading exchanges in their operation and their set fees. It will also outline minimum standards by which these exchanges will operate. While the first exchange will be based in Queensland, the regulatory framework will extend to future gas trading exchanges.

There was quite thorough consultation with industry, and some of the industry were a little bit reluctant at the start. However, from the consultation that the member for Waite had, they have all indicated that they are now comfortable with the bill. The issue is that if this measure was not taken, if we did not have these gas trading exchanges open up, we could see that by 2020 it would provide for only 10 per cent of gas, and eastern and south-eastern Australia would only be able to operate it within the market.

The Australian Energy Market Operator will be governed by the rules, and, in effect, the state government and state government regulatory agencies will refer powers to these national arrangements through the Australian Energy Market Operator. I think this will certainly open up the trading for gas throughout the country, and it is something we always have to be mindful of. I am always intrigued about how cheaply we sell gas for overseas.

I know that is certainly in a bulk arrangement, but when you compare that price to what we have to pay at home you wonder what goes on when we source so much gas from Cooper Basin. This is a very worthwhile bill to make sure we get the trading right. I want to reiterate that we must keep on with our work for the prosperity of this state, to make sure that the drilling and opening up of our oil and gas reserves go on for our future prosperity.

Mr TRELOAR (Flinders) (16:41): I rise to support and commend this bill to the house. I congratulate the member for Waite in his role as shadow minister for his research and contribution today, and also the member for Hammond, who drew on his vast personal experience within the oil and gas fields of the state to contribute. As I understand it, the national gas amendment bill was introduced by the minister on 25 July. The bill proposes to make amendments to the National Gas Law and National Gas Rules for the establishment of gas trading exchanges, otherwise known as GTEs. This is for supply to the eastern domestic gas market.

The bill will create the rules and regulations by which that gas market will be governed. The bill provides the AEMO statutory functions to facilitate the GTEs' operation (gas trading exchange) and also set the fees. It also outlines minimum standards by which exchanges must be made. While the first exchange will be established in Queensland, the bill provides the regulatory framework for future GTEs. After the initial implementation of the bill, the Australian Energy Market Commission will assume the regulatory role. So, not only does this bill provide for the regulation of the gas market but in a sense it frees it up.

How quickly the world changes. I listened with interest to the contribution from the member for Waite, and he made some really valid points about the history of hydrocarbons and their role in our civilisation and where we might be in the future. They certainly are the key to our economy, our lifestyle and our civilisation, and I think to dispute this would be not only putting your head in the sand but foolish. For the last 150 years or so initially coal and then oil and more recently gas have underpinned our society and our civilisation.

It was only a generation ago, in 1973 I think, when there was a world energy crisis, a world oil crisis. The price of oil skyrocketed and there was much despair because people could foresee the world running out of oil. As I said, it underpins our civilisation but also our farming production systems, and I think this is a key point. It is actually oil and gas that enable our agricultural production to achieve the levels it does today. You could argue that our current systems are unsustainable simply for that fact, that one day we will run out.

The member for Waite mentioned the APPEA conference. I attended the one here in Adelaide the year before last and was surprised and interested to hear that latest estimations are that in the last 150 or 160 years—or since the middle of the 19th century at least—we have used about one trillion barrels of estimated reserves of hydrocarbons, and the latest estimate is that there are approximately six trillion barrels of hydrocarbon still to be extracted. Obviously the new technologies that are available to us now are technologies that have developed in very recent years and will enable us to do that. For many years to come, I would suggest that the hydrocarbon industry will underpin, as I have said, our society, our civilisation and our production systems.

So it is an exciting place to be here in Australia at the moment, and there is no doubt that we as a nation are rich in natural resources. We have become wealthy from a productive landscape. We have mined our coal and our iron ore. We have had limited supplies of oil and we have had copious supplies of gas, which look like increasing, even. It has been mentioned today that there is exploration going on out in the bight, and this is adjacent to my electorate of Flinders.

We are watching it with great interest and I must congratulate the two companies that are involved so far—both BP and Bight Petroleum—for their preparedness to keep us across the developments and expectations as far as those projects go, because, as the member for Waite quite rightly pointed out, the geology looks good, and the companies involved are optimistic.

Recently I was in England and I visited BP's headquarters in Sunbury, London, and they took me right through the geological mapping that they have done, and it is quite incredible to understand that the science enables oil exploration companies to recreate the geology and geography of areas of the world from some many millions of years ago, and they have highlighted this particular spot in the Great Australian Bight as a very likely chance, and highly prospective as far as oil and gas go.

They do not know yet what they are going to find but BP, of course, is committed to drilling four exploratory wells over the next three years, at great cost. Of course, it is an expensive business. They have undertaken their seismic survey. People had concerns about that, but BP managed to get through that with little or no disruption to either the tuna or the whales—thank goodness.

The world marketplace is changing. Obviously, India and China have been identified as a market for a whole host of things, not just oil and gas, but primarily they are importers of energy. I think we are in a prime position, situated where we are, and with a likely surplus of energy going into the future, to provide much of that requirement to India, China and East Asia as they grow. With production around the world, the production dynamics are changing. It has been mentioned that Africa now has a resource in oil and gas that it never realised it had in the past. Australia is likely to have increased production with new fields and, more particularly, new technology.

The most interesting one for me is what is happening in North America, not just in the US but also in Canada—there are oil sands in the north of Canada that are now being exploited. The barrel price of oil has reached a point where it is economic to go into that really hostile environment and extract the oil from what is essentially sand. Also, the new technologies with regard to extracting gas have made North America—or are about to make North America—once again, self sufficient and, more particularly, the US self-sufficient in its energy needs, which it has not been for a long time.

It has been forever reliant upon the Middle East and, as North America in time, over the next short number of years, becomes self-sufficient, it will change the dynamics of the global economy. So, it will be interesting to see how that shift plays out. Obviously, America is well placed to capitalise on its own wealth and once again become the primary industrial powerhouse of the world.

It has been mentioned that, historically, we have been able to extract gas out of the Cooper Basin, and there is exploration going on in the Otway Basin and the Officer Basin—all of which will be interesting and, hopefully, lucrative for this state. In the seat of Flinders, we are watching with interest what happens in the Great Australian Bight. We hope to be able to gain some activity on the back of whatever is discovered out there. Certainly, even in these early days, Ceduna has been identified as a place where the daily helicopter trips will travel out to the bight.

I think it is important to highlight that this particular drill site, or tenement, is a long way out. It is west of Port Lincoln, it is south of Ceduna, it is right on the edge of the Continental Shelf, it is at the very edge of where technology is. So, it is high risk and high reward, hopefully, minister.

I think that is about all I need to say. I think that, in essence, we support the bill. As I said, it is an exciting time. It ensures that the regulations are in place to free up the gas market. It seems to be a bit of a dichotomy, but that is the fact of it. It will allow us to capitalise on our very real natural wealth and take our place in the world.

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Transport and Infrastructure, Minister for Mineral Resources and Energy, Minister for Housing and Urban Development) (16:51): I feel really impressed by the speeches I have heard today. Can I just say I am greatly impressed, especially with the regional members standing up for fracture stimulation—good on you. I think that is really impressive. I am really glad that they are standing up to the voices that are anti-mining in this state. They are growing and we need to combat them in a bipartisan way.

In my experience, what is going on in New South Wales is where I am going to disagree with the member for Waite, but not in the political way. I think bad policy in Australia is bad for South Australia. What Barry O'Farrell and his predecessors of the Labor government over there have done in terms of mining—I am talking about Eddie Obeid and Ian Macdonald and not talking about Barry O'Farrell in terms of any form of corruption at all—is talk about mining and exporting our natural wealth as something that is bad for our economy or bad for our natural environment.

Quite frankly, I am glad that Liberal members around the country are speaking up against the LNP government of New South Wales. I think their policies are wrong. Chris Hartcher is a good friend of mine. I tell him regularly that I think he is wrong. I think he is in a very difficult position. I think he is fighting a losing battle within his own cabinet, but I think that, ultimately, common sense will prevail.

The reason I say bad policy in New South Wales hurts South Australia is that it is South Australian companies that are investing millions and millions of dollars into those markets but, thankfully, those regulatory refugees can come home to the safety of South Australia. They can bring their hard-earned capital where it is safe and invest in our Cooper Basin and our Otway Basin. When the shut-the-gate activists turn up at the Otway Basin, I know I can stand side by side with the member for Waite.

Mr Hamilton-Smith: You're friends with the Greens though.

The Hon. A. KOUTSANTONIS: I can stand side by side with the member for Waite and say, 'Comrades, to the barricades!' The Greens and the National Party represent a clear and present threat to our prosperity in this state by attempting to ban fracturing. I will take up a point of the member for Hammond. He said the first fracture stimulation occurred in the 1940s. Was it you or the member for Waite?

Mr Pederick: 1947.

The Hon. A. KOUTSANTONIS: It was actually in the 1860s when the term 'moonlighting' was invented. Moonlighting was when young entrepreneurs wanted to avoid paying royalties, so they would throw dynamite down drill shafts and, obviously light up the sky, so they called it 'moonlighting', which, they found, increased the flows of oil and petroleum out of the ground, which is one of the reasons why they think the term came about.

Fracture stimulation has been going on in this state since the 1950s. Mr Playford began a great legacy for this state, which we should be very proud of. He started the South Australian/Northern Territory oil search. His swag, which he would take out and sleep in for weeks in the Cooper Basin while awaiting the results of fracture stimulation, is still in the department's keeping.

The basis of our fracture stimulation here in South Australia is that we do no harm. I am disappointed to hear that the member for Hammond struck water and polluted one of our aquifers. I will get onto the department about whether or not he was fined appropriately, and whether or not the—

Mr Pederick: The engineer was sacked!

The Hon. A. KOUTSANTONIS: Good, good. But, in all seriousness, we are about to embark upon exploration in the Otway Basin. My very good friend, Nick Kotsiras, who is the Minister for Energy and Resources in Victoria, has just banned fracture stimulation in Victoria.

Mr Hamilton-Smith: I went to see him; he's a good guy.

The Hon. A. KOUTSANTONIS: He is a very good man; he is from the same part of Greece as my father. He is a very good man and he is very concerned about—

An honourable member interjecting:

The Hon. A. KOUTSANTONIS: Yes, Messenia. He is very concerned, and he is looking to South Australia for our regulatory response. There was recently a bipartisan committee of the Victorian parliament that investigated the best regulatory aspects of mining and resources, especially in terms of gas. Their recommendations, on unanimous and bipartisan findings, were that South Australia had the best regulatory regime in Australia, if not the world, and they are seeking to mimic ours.

I have entered into cooperation with Mr Kotsiras and the Victorian government to try to offer as much assistance as we possibly can to their regulators to help, one, share information, two, educate them and, three, help them with their community consultation, because the major issue with their ban on fracture stimulation in Victoria is that Beach Energy had to cease work. Beach Energy is a great South Australian company doing amazing things, and they needed some regulatory certainty; unfortunately, they did not find it in Victoria.

This is not an issue that just affects Liberal conservative governments on the Eastern Seaboard, where they have communities close to farmland; this is an issue that affects our nation. It takes political courage to stand up to interest groups and say, 'You are wrong.' I think the Queensland Labor government did a great deal of damage in the way that they handled the gas industry and the 'Shut the farm gate' campaign, and they have a lot to answer for. I think the Newman government is doing good work to try to overcome some of those bad practices.

They say they have a long way to go, and I think they realise that their future prosperity is linked to gas. Coal is going to become harder and harder to export; markets are going to be harder and harder to find. I am not saying coal is not a commodity of the future. Of course it is going to be important going into the future, but our future lies with gas.

As a quick example: 10 years ago, the US Department of Energy came out with a paper about how to make the United States energy independent. Their findings were to build 15 import facilities. Now, because of shale gas, they are rushing to build export facilities because they are, for the first time in a long time in their history, energy independent. In fact, I daresay it is changing their foreign policy. It is also changing the world outlook.

Energy means equity; equity means education, and it means electricity. South Australia has abundant forms of energy, whether it is uranium, oil, or gas. You could say that the western flank of the Cooper Basin will soon eclipse Gippsland for oil production thanks the work of Senex and Beach. Beach is now the largest oil producer in the Cooper Basin; what a remarkable achievement for a company like Beach. I think that is a fantastic achievement, and we should all be very proud of the work they do.

There are a number of companies that are doing great things, and the most important thing for us in the Cooper Basin is diversity of investment. It is not just the big three: there is Drillsearch, there is Origin, and there are other companies seeking to partner. Shell and Exxon are sniffing around the Cooper Basin. There are great things going on in our Cooper Basin, and we should be very proud of the work those companies are doing. The two largest oil and gas companies in the world, Statoil and BP, are here investing $1.4 billion to drill four holes off the Great Australian Bight—a remarkable investment.

I am proud of the fact that South Australia is a lead legislator in the energy field, because I think we are the exemplar. I know that incoming minister Ian Macfarlane is a good and decent man who cares passionately about the oil and gas industry and the mining industry, and I wish him well in his endeavours. I want to pay tribute to Gary Gray and Martin Ferguson, who I think carried those portfolios in difficult circumstances, and they did a very good job.

This legislation, which has come out of the SCER (Standing Council on Energy and Resources), I think is the best functioning standing committee of the commonwealth. It works well. There is good bipartisan support, other than when it comes to electricity prices, and then the states who own their assets behave a certain way and the ones who do not own their assets behave a certain way. Other than that conflict, we work very well together. This is an example of me working very closely with the Queensland government to try to get them the certainty they need without being too oppressive in the market.

It is important that we can allow gas trading to occur in a voluntary way. We do not want to be compelling people to use gas exchanges. There is some debate about that. I do not necessarily agree that we should compel them to use it. But, what it does do is it brings customers together and gives them the ability to maximise the molecules that are in the pipelines. That is the key to this legislation, and I think it is a very good piece of legislation.

I want to thank the opposition, so close to a state election, for not politicising this piece of legislation. I think we are one of the only states in the federation who can do something like this so close to the election that is so important to our future prosperity. Make no mistake, what is going on in New South Wales will affect our long-term prosperity. If New South Wales runs out of gas, it will not be because the pipelines are not connected and it will not be because the infrastructure is not there. It will be regulatory failure by the New South Wales government which means that South Australian companies are not given the tools that they need to find the gas and unlock it in New South Wales for their own constituents.

I will not and no South Australian minister should ever allow the New South Wales Premier to try to get us to overturn commercial contracts of our local companies to supply the lights in Sydney. If the lights in Sydney go off, it is Barry O'Farrell's fault, not ours. I will stand by Santos, Beach and every single gas exporter in this state and stand by their commercial contracts, because we will not become Cuba.

Ms Chapman: Like Arkaroola.

The Hon. A. KOUTSANTONIS: Thank you for that interjection, because it was the Liberal Party that called on us to exclude Arkaroola from the Mining Act. It was Ms Redmond who first led the charge, led by Mr Nick Minchin. So, thank you very much for bringing up and ending the era of bipartisanship. For a brief, shining moment we had a bit of bipartisanship. Yes, I did succumb to Liberal calls to ban mining in Arkaroola—I did. The pressure was overwhelming. Nick Minchin, Alexander Downer, Isobel Redmond, Mitch Williams—overwhelming pressure by those key conservative figures in this state who wanted to ban mining in the state. Luckily, however, there is a new shadow mining minister who has a very different view about the oil and gas industry.

I commend this bill to the house. I hope it has a speedy passage. I wish our Queensland counterparts well. I wish them good trading. I hope they can move those molecules as fast as they can to make a good profit, and I am glad that oil and gas companies make profits. That is a good thing. I was stunned yesterday that a member of the opposition was complaining about oil and gas companies making profits, but that is the world we live in.

I will say this: there is a proposal in the other place to ban fracture stimulation in South Australia. I consider that procedure to be a clear and present threat to the prosperity of this state. If that measure passes, it will dramatically hurt the prosperity of this state and must be defeated. I look forward to the government and the opposition defeating that bill in the upper house, despite some of the pressure that might be put upon your very close friends, the Greens. I commend the bill to the house.

Bill read a second time.

Third Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Transport and Infrastructure, Minister for Mineral Resources and Energy, Minister for Housing and Urban Development) (17:04): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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