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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2023-02-22 Daily Xml
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National Gas (South Australia) (East Coast Gas System) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 21 February 2023.)

The Hon. D.G. PISONI: I draw your attention to the status of the house.

A quorum having been formed:

Mr PATTERSON (Morphett) (16:30): I am very thankful to be able to continue my remarks on the National Gas (South Australia) (East Coast Gas System) Amendment Bill, so if we pick up maybe a bit of summary first and then move on to where we were.

Just remember, this bill is around reforms coming from the Energy Ministers' Meeting held last August, and giving AEMO powers that it has not had before in the gas market, and that is a market that is primarily based on bilateral contracts between producers, retailers, infrastructure service providers, and larger users. These bilateral contracts have been extremely reliable, and proven to be that way in making sure that contracted positions have been met.

Many of the market participants do mitigate their major supply risk through contracts, and this bill here, as was said last time, intervenes into the gas market in quite a major way as well. Because of that, and the fact that it has been quite rushed; the consultation for this one has been very abridged—about four weeks compared to years quite often for other bills that we see on national energy laws, as an example.

There is the possibility there could be unintended consequences and certainly uncertainty coming into the market, which was not there before, which we do not want to see affecting investment into gas production and infrastructure in this country because that will have effects on not only Australia's energy security but, importantly for us here in this house, South Australia's energy security as well.

The challenges that the national gas market is facing is a lot around supply/demand balance, and that balance being in deficit in terms of supply; not enough supply for the demand we need here domestically. How can we unlock what is an abundant amount of natural gas in the east coast basins, and get that to work here, which will have the impact of providing plentiful gas that then brings the gas prices down of course. That not only flows into gas users at home but also industry uses gas for heating purposes, and also from the electricity market as well. It is really critical for our electricity market as well. That keeps prices down.

I will not labour the point on that. I just wanted to give a bit of a recap. In terms of this bill here, as I said, it had some key elements around function and rule making, around transparency, around signalling and directions powers, and that is a key area of concern for stakeholders, and also about cost recovery, and the compensation. Of course, when you make these directions, the impact is that potentially contracts are being broken, there are opportunities lost, and costs that are involved as well, and so there will be compensation.

You cannot avoid the fact that how that eventually flows through is on to people's gas bills. At some level, it arrives there. It is not something that happens in isolation and that we are protected from as gas users. Whether you are industry or whether you are a householder, there are costs there. I think where I had been up to in my contribution was around the fact that this bill would allow AEMO to have additional cost-recovery flexibility in relation to their directions powers. They already do have the ability to recover costs, but there were some amendments in this bill to give them recovery flexibility in relation to any directions powers.

Of course, there is the legislation that we see with all of these energy laws that come through, and they are backed also by rules that are put in place. In this case, those rules are enabled by the minister here in South Australia to enact rules here. For those rules, usually the power for the Minister for Energy and Mining here in South Australia is the first tranche and then the rest are run through the AMC. But in this case with this bill it allows the Minister for Energy and Mining to make further rules for a maximum period of six months from commencement of the bill, subject to further consultation processes conducted by the Energy Ministers' Meeting.

The idea, it is been stated, is to enable the Minister for Energy and Mining here to make further changes to the rules if there are any issues arising in the first six months of the legislation coming into effect, and that the head of the power to give those rules will lapse after six months. But that also speaks to the fact that the consultation part of this process has been so small. There is the potential for unexpected, unintended consequences, and the fact that the minister can make broad changes six months after speaks to that as well. That may also be a cause for concern from stakeholders because of that, and hopefully in committee the minister will be able to give a bit of comfort to stakeholders from that point of view.

Part of the process involves reaching out to various stakeholders and, as I have said previously, a common criticism of the bill is that the consultation was incredibly short. Stakeholders had two weeks to analyse and form an opinion on the proposed reforms. It is worth saying that they acknowledge the rationale, at a bigger picture, of these new rules and functions and powers given to AEMO because of the possibilities of gas shortages in the winter of 2023. However, they are very concerned that there could be unintended consequences that arise from the application of these powers.

Another concern raised by stakeholders was the extent of the powers that AEMO will be given into the gas market, which at present is primarily a private market based on contracts. They are concerned that, yes, the issue at hand is the winter of 2023, but by giving this expansive power to AEMO over a longer term horizon, that is a way of giving them massive powers over and above the short term, so concerns were raised around that.

Some of the concerns of the Australian Competition and Consumer Commission were with the policy measures. They stated:

The ACCC recognises the need for considered policy measures to address issues in the east coast gas market. However, we have material concerns with the breadth and unqualified nature of the proposed extension to AEMO's functions and powers.

So in saying that, they had concerns about not only the breadth of those proposed powers but also the lack of guidance on how those powers would be exercised, and the absence of methodology for and certainty of the costs of likely intervention and how the costs would be borne.

One of the things the ACCC suggested was limiting the new functions and powers to address immediate, shorter-term risks arising from unforeseen disruptions in gas supply, such as a gas processing plant having an outage. It is the ACCC's view that any more than that—so any more fundamental structural supply issues—should be developed through a more considered and robust rule and regulation process over a longer period which, again, speaks to what usually happens with national energy laws where there is a significant period of consultation that goes about this.

The basis of their concern is related to the cost of these measures which, as I said, would ultimately be borne by gas consumers, whether they are households struggling with cost of living in all facets of their lives, whether it is interest rates going up, food going up, electricity prices going up, or if you are an industry where you have fixed costs and you are trying to make a business sustainable and have not factored price spikes into the business model as well.

The ACCC is concerned about the proposed breadth of the directions and trading power, given the distortionary effects and unintended consequences that these types of regulatory interventions can give rise to. Their view is that powers should be emergency powers only, going on to say:

Such a broad power able to be exercised in any circumstances creates significant uncertainty as to regulatory risk in the market, may impact investment incentives for entry and expansion in the market, particularly where the costs of such measures and how they will be calculated and borne is not clear. On additional cost recovery and compensation functions, there is a potential for significant costs to arise from the exercise of the new proposed functions and powers. These costs will ultimately be borne by gas buyers and consumers.

That is the feedback from the ACCC.

Other stakeholders, the Australian Pipelines and Gas Association, said they understood the need to extend powers to AEMO to act at times of crisis but that this reform does not deliver increased supply which, again, is something that I touched on earlier in my contribution: that the nature of these bills is looking to get involved in giving more powers to the regulatory bodies as opposed to the core issue which is a supply issue as well. The Australian Pipelines and Gas Association made the point that:

Great care needs to be taken in extending such powers that it does not further damage the investment environment. More investment in natural gas, and increasingly in renewable gas, is critical to addressing the fundamental issues in the East Coast gas market, high prices and a challenging market for supply of gas.

They went on to state their key points around these measures:

1. The power to direct is too broad.

They were also concerned that:

2. Care must be taken to ensure the extended powers do not undermine the reliability and quality of contract services.

The rationale around this being:

The ability for AEMO to issue directions that override these contracts between producers, retailers, infrastructure service providers and large users but instead direct gas to parties without contracted positions has implications for the reliability of contracts.

Whether it be an incentive for companies that previously they have contracted—and now they see that those could be broken so being uncontracted is not as much a risk as maybe it previously was. Another point they made is:

3. The importance of transparency and engagement and that should be recognised in the national gas law.

Again, their rationale is that: 'It is vital to the effective market function that participants: are aware of when the directions are being issued,' and, importantly, before these directions are being issued, that they 'are engaged to the greatest extent possible' as they are contemplating an issue so that they can have input, and that maybe a regulatory body that is not at the coalface might not see what a consequence of that action could be down the line, so making sure there is good consultation where possible.

Another point they made was around directions to infrastructure service providers. These directions must consider the title to the natural gas as well. The issue they raised was specific to infrastructure service providers because these infrastructure service providers do not typically own the gas that is being transported or stored in their assets.

A direction to an infrastructure service provider to deliver gas or make its facilities available without an equivalent order to the owners of the natural gas can certainly raise some issues, one being that the infrastructure service provider may be placed in the untenable position of deciding which contracts to break. Quite often, gas pipelines are not sending gas down just from one provider. They have multiple producers that it goes through. So they would have to decide which one to choose, which producer's gas gets redirected.

Customers of infrastructure service providers may not understand or follow the directions. They might ask, 'Why do I not receive the contracted gas that I have contracted?' Additionally, if following a direction requires curtailing some customers, an infrastructure service provider may inadvertently exacerbate the market issue leading to the direction. That goes back to making sure there is proper consultation before a direction to make sure there are no unintended consequences.

There was other feedback from stakeholders. Again, they made the point that an alternative to setting up a way for AEMO to intervene in the market is to increase the supply of gas in the east coast market, particularly in Victoria and New South Wales. This would alleviate the need to direct gas from Queensland to the south at times when there is a perceived shortage. That is again underpinning the fact that the real issue is around supply and demand. Another point made by stakeholders is that we should make sure we are not undermining investment because, by doing that, we are also undermining ongoing investment into increasing supply. Really, allowing that is what is going to underpin the future industry growth.

As I said, you can see the issues they have around supply. It is basic economics, that getting more gas into the east coast gas market is critical to keeping gas prices—and ultimately electricity prices—down for families and industry and business. As I said previously, according to the ACCC the domestic market requires more than 450 petajoules of new gas development in the upcoming future. More investment in natural gas and increasingly in renewable gas will be critical to addressing the fundamental shortage issues in the east coast gas market that ultimately lead to high prices and a challenging market for the supply of gas.

As has been said by stakeholders, this amendment bill is necessary to address winter. We have to be careful of this government's intervention in the gas market. We acknowledge that it is a major change, and it needs to be acknowledged that there is the potential to create unintended consequences. This uncertainty could certainly have an effect on investment into gas production and infrastructure at a time when investment is going to be crucial to Australia's and South Australia's energy security. With that, I conclude my remarks. As I have said in my contribution, I will look to flesh out some of those questions at the committee stage of this bill.

Mr FULBROOK (Playford) (16:48): I speak in support of the National Gas (South Australia) (East Coast Gas System) Amendment Bill. This bill is another in the series where the South Australian parliament has the task of fixing up the mess left by others in the energy sector. I am pleased to speak on this, just as I have spoken earlier on consumer data rights, sandboxing and efforts made to remove the cash grab by the previous Marshall government on electric vehicles.

Regretfully, our nation has suffered a lost decade in energy policy—a decade that, when the Coalition held office nationally, has left behind a trail of confusion and unnecessarily high costs. Currently, the Australian Energy Market Operator (AEMO) does not have an explicit reliability or supply adequacy role across the interconnected east coast gas network. This situation, which this bill seeks to address, is among the many problems left to us by the Coalition's failure.

In consultation about the bill, the Australian Aluminium Council speaks of the frustration felt by industries that are high users of energy. Energy use accounts for 30 to 40 per cent of the cost base of companies manufacturing aluminium, so the impact of price and supply is keenly felt and a key determinant to international competitiveness. In a submission to the consultation process for this bill, the council said that it:

…notes that industry has been calling for gas market reforms for more than a decade. The Council and its members are seeking an efficient, effective and deep Australian domestic gas market—a market which is comprised of many buyers and sellers who are able to negotiate contracts where both sides can obtain a fair return and where, for example, shortages in supply lead to higher prices, which in turn brings on additional supply to satisfy this demand.

However, the Council is concerned that in the decade since, Australian gas prices have increased, despite numerous inquiries and policy agendas, little has changed on the ground, and indeed as outlined in the Paper and by the ACCC, the situation has become worse. The Council urges the implementation of actions to address the situation, not simply more consultation.

The Council recognises the need to balance Australia's contribution to the world's energy security and the trust trading partners and international investors have shown in Australia's resources and energy sectors, with the needs of domestic consumers. Currently the pendulum has swung too far in favour of exports, to the detriment of domestic consumers.

The Aluminium Council also added:

At a time when manufacturers are facing serious challenges, energy is one of the few advantages Australia has to offer and which Government can help to deliver. There needs to be sufficient supply of competitively priced natural gas to meet the forecast needs of energy users within Australia…The Council seeks a national climate and energy policy framework which is transparent, stable and predictable, while maintaining the economic health of the nation including vital import and export competing industries.

These are wise words from the Aluminium Council, which I hope the conservative side of politics heed rather than continuing their obsessive approach of driving down costs by hurting working people.

After that lost decade, we now have before us a bill to give greater powers to AEMO to gather information and, if necessary, intervene in the market to ensure manufacturers and households have a reliable gas supply. During the consultation phase, the Australian Gas Infrastructure Group, which owns South Australian distributor Australian Gas Networks, acknowledged that the energy supply problems of 2022 led to the policy reforms proposed in this bill. In discussing the consultation leading to this bill, it is noteworthy that they expressed concerns about some aspects of the reforms, including the possibility of increased costs. The peak body wrote that it was:

…strongly of the view that any costs associated with increased reporting and compliance because of the proposed reforms should be kept as low as possible and should be paid by the entities whose actions or policies have given rise to the shortfall.

It also added:

To the extent that recent energy supply challenges have been the product of electricity shortfalls and government policies that either discouraged or disallowed gas production, it does not hold that gas infrastructure companies and our customers should incur the cost of ensuring it does not reoccur. In our view this would be an unfair and inequitable outcome for consumers.

As has been frequently observed, the governments of New South Wales and Victoria have been impediments to gas development, and their policies have now created potential for costs to increase for consumers. Building products manufacturer Brickworks, a high user of energy, say risks of gas shortfalls are a major concern for the industry, and they support the intent of AEMO having more powers to identify and resolve problems.

However, Brickworks were also apprehensive about the costs. They have described gas contract pricing as already being at 'extreme levels' and, as they put it, it was essential that reforms were formulated with protections 'to minimise any uncontrollable costs that will ultimately be passed through to gas consumers'. Brickworks said they strongly opposed costs of intervention being socialised across all market participants; rather, Brickworks have said that the entity that causes an issue that requires AEMO's intervention should be the entity that pays the cost. The view of 'causer pays' was shared by pipeline owner and energy operator Epic Energy. I quote:

It is critical that compensation costs (for AEMO intervention) be apportioned to the entity responsible and this be linked to a reliability requirement for supply. This approach would encourage market participants to maintain an adequate level of risk coverage or hedging to ensure they do not incur costs in relation to the exercise of AEMO powers, which should encourage appropriate behaviour and the limitation of utilisation of AEMO powers.

In the discussion paper, which led to this bill, the type of costs which are likely to be incurred from these reforms were categorised, and these are:

administrative costs to the AEMO of establishing and undertaking its ongoing market monitoring and signalling roles;

costs to the Australian Energy Regulator and AEMO in their competitive enforcement and rules administration roles respectively;

costs of compliance to the industry in respect of information provision and internal compliance processes;

costs incurred by persons subject to directions issued by AEMO in complying with those directions;

costs incurred indirectly for those affected by AEMO's directions or trading; and

costs incurred by AEMO in trading in gas where necessary to address reliability and supply adequacy issues.

With these potential costs in mind, it will be important that private companies in the market take notice and do whatever they can to ensure gas supplies are plentiful. If they do that, the need for AEMO intervention will diminish and so will costs. Companies all claim they want to serve the best interests of their consumers. They must now practice what they preach.

In finishing up, I want to pass my thanks on to everyone who has helped in bringing this essential piece of legislation to our parliament. I can see that a lot of effort has gone into the consultation process and pick up on the frustration and necessity for this long overdue bill. I also want to place on record the assistance of Chris Russell, from Minister Koutsantonis's office, who has been first-rate in backgrounding me and no doubt other members of parliament on this bill.

Irrespective of persuasion, our political staff in South Australia play a crucial role in the passage of legislation. While we see a bill before us, Hansard does not reflect the hours they have spent trawling through each and every clause, the numerous meetings they have held and the accompanying novels they have written for each bill they are overseeing. So a big thankyou to Chris and everyone else involved in bringing this bill before us and, with this in mind, I commend it to the house.

Mr PEDERICK (Hammond) (16:57): I rise to support the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022. This bill aims to implement a framework that provides the Australian Energy Market Operator (AEMO) with the tools and power to monitor risks to supply adequacy in advance of those risks being realised, to signal those risks to the market and seek a response.

Late last year a heads of agreement with the LNG exporters (liquefied natural gas exporters) was designed to prevent a gas supply shortfall and secure competitively priced gas for the domestic market. This included a commitment to offer additional uncontracted supply to the east coast market. In spite of this, the ACCC and AEMO still identified that a number of risks to gas supply shortfall still remain.

I note the federal Labor government intervention with price capping on gas, but I am pretty sure the gas in South Australia is still under those caps naturally anyway, and I am concerned about market intervention at that level because it creates an uneven market and it can have the reverse effect on gas supplies. Unlike the National Electricity Market, which has well-established frameworks under which AEMO maintains reliability and supply adequacy, AEMO has limited powers and tools to identify and respond to supply/demand imbalances in the east coast gas market outside of Victoria.

The suite of reforms was agreed to by the Energy Ministers' Meeting. On 12 August 2022 the Energy Ministers' Meeting agreed to take a range of actions to support a more secure, resilient and flexible east coast gas market. Senior energy officials undertook consultation between 26 September and 21 October 2022 seeking stakeholder comments on proposed regulatory amendments, which included a draft bill, draft regulations and an initial set of minister-initiated rules. On 28 October 2022 the Energy Ministers' Meeting agreed to the amendments to the National Gas Law to extend AEMO's functions and powers to manage reliability and gas supply adequacy for the east coast gas market over winter 2023 and beyond.

On 30 November 2022 the Minister for Energy and Mining, the Hon. Tom Koutsantonis, introduced the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022 into this house. In December 2022 the Energy Ministers' Meeting considered the initial rules package which sits under this new framework based on consultative feedback. The time frame of the suite of reforms has been unusually short in comparison to previous national energy law rules amendments that were considered last year.

The National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022 aims to implement a framework that provides AEMO with the tools and powers to monitor risks to supply adequacy in advance of those risks being realised, to signal those risks to the market and seek a response. These actions seek to address the winter 2023 east coast gas supply adequacy concerns raised by both the Australian Competition and Consumer Commission (ACCC) in its July Gas Inquiry—Interim Report and AEMO's Gas Supply and System Adequacy Risks report.

The bill also seeks to address forecast future risks to reliability and supply adequacy going forward. These risks are emerging with the forecast decline in southern gas reserves, increasing reliance on gas from Queensland, and challenges to the reliability of coal generation as the energy market transitions. I will talk a bit more about that later on.

Unlike the National Electricity Market, which has well-established frameworks under which AEMO maintains reliability and supply adequacy, AEMO has limited powers and tools to identify and respond to supply/demand imbalances in the east coast gas market outside of Victoria. The broad aim of the proposed regulatory amendments is to implement a framework that provides AEMO with the tools to identify risk to supply adequacy in advance of those risks being realised, to signal those risks to the market and seek a response, and to allow AEMO to manage situations if adequate market responses are not forthcoming to ensure AEMO has multiple options to better manage the forecast threats for winter 2023.

To ensure transparency in AEMO's use of these new powers, the regulatory package imposes reporting requirements on AEMO. Practically, this will require AEMO to report to ministers on the use of its directions and trading powers over time. The reforms outlined in this consultation paper are proposed to complement other initiatives by government and industry to address forecast shortfalls in the east coast gas market. This includes the commonwealth government's actions to renegotiate the heads of agreement and amend the Australian Domestic Gas Security Mechanism.

Key elements in this bill include function and rule making, transparency, signalling, directions, powers, cost recovery and compensation. In regard to the function and rule making this legislation seeks to put in place, AEMO's new east coast gas system reliability and supply adequacy functions are proposed to encompass:

monitoring trends in supply and demand across the system;

identifying, communicating and publishing information about actual or potential threats to reliability and adequacy of gas supply within the east coast gas system;

reporting to energy ministers on these matters;

giving directions on trading in gas and associated services to maintain or improve the reliability and adequacy of gas supply in the east coast gas system; and

other functions conferred on AEMO by the rules for the purposes of the new east coast gas system reliability and supply adequacy functions.

The bill also provides the head of power for the regulations to specify:

the relationship between the operation of AEMO's east coast gas system reliability and supply adequacy functions, or a provision of these functions, and a law of a participating jurisdiction, in the event of an inconsistency;

the extent to which a relevant ability is or is not required to comply with an east coast gas system direction in circumstances where the direction is inconsistent with a law of a participating jurisdiction; and

the extent to which an east coast gas system direction is not valid in circumstances where the direction is inconsistent with a law of a participating jurisdiction.

In regard to transparency in the legislation, this is to ensure that AEMO has the necessary information to undertake this new function, the draft regulatory framework sets out additional disclosure obligations on certain industry participants over specific forecast periods.

In addition to those explicit additional disclosure requirements, the regulatory framework enhances AEMO's ability to seek specific information relevant to the exercise of its functions from a wide range of entities, including gas producers, pipeline operators, storage providers and large users.

In regard to signalling, the regulatory framework provides AEMO with significant flexibility in how it will undertake its monitoring and signalling functions. Generally, where an emerging risk or system threat is identified (both over the short or longer periods), the signalling framework would allow AEMO to notify the market and seek market responses to address the threat.

As to directions powers, where the market does not or cannot respond to AEMO's signalling and an actual or potential threat emerges, the framework provides for comprehensive directions powers. The proposed powers would allow AEMO to instruct a range of entities to take specific actions to maintain or improve the reliability and supply adequacy of natural gas across the east coast gas system. These powers have been made broad to ensure AEMO can take actions to manage the risk of gas supply shortfalls in winter 2023.

AEMO will be empowered to exercise a range of directions powers relating to reliability and supply adequacy, including:

to maintain and improve the reliability of the supply of natural gas within the east coast gas system; and

to maintain and improve the adequacy of supply within the east coast gas system.

AEMO directions may relate to the operation, maintenance or use of any equipment or installation, the control of the flow of natural gas, or any other matter that may affect the reliability or adequacy of gas supply within the east coast gas system.

AEMO must, before making an order relating to an east coast gas system reliability and supply adequacy function, consider the extent to which persons of the class to which the proposed order is addressed may make representations about the terms of the proposed order and invite those persons to make representations to the extent AEMO considers possible in the circumstances.

In regard to cost recovery and compensation, AEMO may already recover costs from all or a specific subset of market participants in relation to the exercise of its powers. The bill provides additional cost-recovery flexibility in relation to AEMO's directions powers.

In regard to the rules around this legislation, as is the case with most legislation that is derived from the Energy Ministers' Meeting, the bill will provide the Minister for Energy and Mining with the power to make an initial set of rules.

The bill will also enable the Minister for Energy and Mining to make further rules for a maximum period of six months from commencement of the bill subject to a further consultation process conducted by the Energy Ministers' Meeting. This will enable the Minister for Energy and Mining to make further changes to the rules if any issue arises in the first six months of the legislation coming into effect, and the head of power will lapse after six months.

Upon reaching out to various stakeholders, a common criticism of the bill is that the consultation time was quite short. Stakeholders had only two weeks to analyse and form an opinion on the proposed reforms. Another concern raised by stakeholders was the extent of the powers that AEMO will be given in the gas market, which at present is primarily a private market based on contracts. I think we need to remember that key point—a private market based on contracts. All of these things that have been discussed at a federal level and a state level here today interfere with that private market.

The stakeholders consulted include the Australian Gas Infrastructure Group, Australian Pipelines and Gas Association, Australian Gas Association, Australian Petroleum Production & Exploration Association, Australian Energy Market Operator, Epic Energy, Origin Energy, AGL Energy, and Santos. In relation to Santos, they have had recent media coverage with their carbon capture and storage project, and I wish them all the best moving that forward.

I believe the reason that this legislation has come forward is because of some flaws in legislation around the country. There have been issues in Victoria and New South Wales especially, as has been already mentioned. Victoria is pulling back on exploration activities, drilling activities. Bass Strait was, and still is, a large source of gas for the country. A friend who I worked with in the Cooper Basin 40 years ago still occasionally goes to jobs out there with Haliburton. I note the long-term project, the Narrabri project, that Santos have had onshore in New South Wales. It has been a long-running project to get up and going in consultation with local landholders.

There have been other issues right around the country, and offshore of Australia, with potential gas projects worth many billions of dollars. There is one off the west coast of Western Australia. It is a huge project worth many billions of dollars. People can rightly question how it works and what interferences it will have on the country and that kind of thing. But gas wells do not take up a lot of country, especially offshore wells, which are in a pod and the gas is piped ashore. Onshore, it is just a well. You visit them, say, somewhere like the Cooper Basin—a Christmas tree is what they call the wellhead sticking out of the ground—and that is connected to the satellite gas station and then the bigger plant like at Moomba or Ballera.

There have also been issues to the north of Australia. Bills like this come about because it has been made hard to get supply into the market. Some people do not like the idea of gas, but it will be a transition fuel for a long time as we transition to full, so-called, clean energy. We have plenty of clean energy in this state, whether it is solar or wind. There are hundreds of kilowatts of solar panels in my electorate, or they were in my electorate, especially at the big solar farm at Tailem Bend. The simple fact is, as we move forward over the next decade or so, at least five to seven coal plants are coming out of service. We will need gas to power not just our state but the country into the future.

The same friend of mine, David, who I mentioned worked offshore in Bass Strait, has also done a recent job up at Karratha, where he was involved in a major unconventional well. They did a 1,200 metre perforation, run by Inpex, a Japanese company, for gas contracted to Japan. We all understand there is a lot of offshore gas contracted out of Australia, whether it is out of ports like Gorgon in Western Australian, Darwin in the Northern Territory or Gladstone in Queensland. So we do need to make sure that we get adequate supply as we move into the future.

Certainly, here in South Australia when we were in government, we commissioned the interconnector through to New South Wales, which will assist this state in sending its renewable energy to the east and bringing coal-fired or even some gas-fired power back to South Australia when the sun is not shining and the wind is not blowing. It will certainly make good use of our renewable sources here.

Let's see how this legislation goes, but we must make sure that we do not have a situation such as we found in September 2016 when the lights went out in this state because people acted too fast, and the next thing everything fell over. I have never seen anything like it, and did not think I ever would. It was an interesting day. I think it was 23 September at about 4.20 in the afternoon that year.

In a difficult time—well, some people think it is a difficult time—around policy and what we need moving forward, and certainly in the transition phase, we need to make sure that we have the energy supplies so that we can transition into the future without hurting people who are on the end of the use of that power, whether it be through electricity or straight gas, and so that we do not hurt the cost of living. We need to make sure that we have adequate supplies of energy into the future. I commend the bill.

The ACTING SPEAKER (Ms Stinson): Thank you, member for Hammond. I enjoyed your recollections about Karratha, which is where I lived when I was just 21.

Mr HUGHES (Giles) (17:16): I also rise to speak on the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022. I think it is always worthwhile when we are talking about energy matters—matters that have been highly contentious in this country and in some other countries and less so in some other places—that we never lose sight of the big picture. I am talking about the really big picture, the global picture, and what we have to do to evolve our energy systems and a whole raft of other things in a particular direction to ensure that we do not stuff up the planet that we live on.

A year or two ago, some authors of the prestigious science journal Nature did a body of work. It was work that in a number of ways replicated stuff that had been done by a whole range of scientists, analysts, the International Energy Agency, the various bureaus of meteorology around the world, and all sorts of research institutes. The scale of the challenge—and it is interesting when we are talking about gas today—was that 60 per cent of the oil and gas and 90 per cent of coal reserves must not be exploited.

They are the reserves that we already have and that already figure into the economic profiles of companies, and we are being told that we cannot exploit those reserves of 60 per cent of oil and gas and 90 per cent of coal if we are to have a chance—a 50 per cent chance—of meeting the 1.5° global temperature increase. It looks as though we are going to go past that, and potentially way past that, because not only are we rapidly exploiting those particular reserves but the big companies, the big fossil fuel companies and the big national entities, are adding to those reserves with the intention of exploiting them. So despite the overwhelming balance of the scientific evidence, we are, to a degree, continuing on as a globe with business as usual.

It is interesting to reflect on the fact that the science was solid back in the 1980s. In the intervening 30 years, we have actually burnt more fossil fuels and emitted more greenhouse gases to the atmosphere compared with the previous 200 years of industrialisation. We have had the science before us, we have had lots of conferences, we have had all sorts of things going on, and yet we are still continuing on in the same direction. It does not hurt to set that big picture about what we need to do, as I said, not just in the energy market but in a whole raft of areas.

The transition is not going to be an easy one; it is going to be a challenging one. As the member for Playford said, 10 years—a decade—was wasted in Australia when it came to energy policy. Like a lot of people, I think I had lost count of the number of incoherent, cobbled-together energy policies that the Coalition developed in its period in office. I think it was over 20, none of them particularly coherent or effective. In fact, the things that did work were the things that were inherited from a former federal Labor government. Unfortunately, the Coalition did not in a sensible way add to those earlier initiatives, and it created a climate where companies looking to the future had difficulty when it came to making investment decisions in energy markets.

It has been mentioned in passing that clearly the opposition are not great fans of interfering in markets. But markets fail. I am a great supporter of essential services like water and energy being in public hands, especially when it is monopolies and oligopolies. I think interfering in the market can be a good thing at times. By all means, let the market do what it does. It does it very effectively in all sorts of areas, but sometimes when it comes to the area of energy I think we have made some past mistakes. I would be an advocate for the development of the gas export industry in Queensland and elsewhere. I think we missed the boat by not having a domestic reserve policy.

I remember it was the Carpenter government in Western Australia, back about 15 years ago or so. The Carpenter government indicated it was going to introduce a domestic gas reserve policy in Western Australia, and the companies there went ballistic. They threatened all sorts of things. They said, 'We're not going to invest in Western Australia. If you do this it will destroy investment.' You had the Howard government calling Western Australia 'Venezuela'; you had this chorus of attack from the usual vested interests. What did the government do? Well, it honoured its commitment, it introduced the policy, and gas policy in Western Australia has been sensible policy. It has been able to manage the cost of gas when it comes to domestic suppliers.

When the current federal government talked about and then introduced some changes, I think the head of Santos (in his massively exaggerated language) actually used the term 'Stalinist' in relation to it. It was just bizarre. Once again, this over-the-top attack was interesting because it was happening at the time when I met with the biggest employer in Whyalla, GFG, and we were discussing this very issue. We were discussing what was going to happen to GFG if there was not some intervention in the gas market. The exporters did not give a damn about the manufacturers. They seemed to be happy enough to see them go to the wall, as long as they continued to make their enormous profits.

They were happy to see them go to the wall and did not want the market interfered with. What GFG said, and they had been out to test the market because some of the contracts were coming to an end, was that potentially it was going to add $90 million a year to their business because they are a big gas user. I am all for transitioning away from gas but it is going to take time because it is integral to a whole range of processes.

If you look at something like a steelworks, you have the con-castor that uses gas to cut billets and slabs and other sections to size. You have the massive reheater furnace, you have other users, and other bits of kit on site that use gas. At the moment, it is essential and it is going to take a long time to transition away from that. But it is technically possible, and it has to be commercially possible as well to do that.

It is worth reflecting what did happen when it comes to having a look at how essential gas is. Back in April 2015, I had not all that long been elected, the gas pipeline that fed Pirie and Whyalla had a major incident. We lost gas coming into our communities, and that had a major impact. There are those people who advocate incredibly rapid movement, and I get the science and understand where they are coming from, but unfortunately we are not in a position to do it.

When we lost gas that had a major impact on the industry. Fortunately, some gas could be returned and they got it back up for places like nursing homes and other places where gas was also essential. Of course, it had an impact there because for a lot of people in communities like Whyalla, or in significant parts of the community, it is reticulated gas. So when it comes to industry itself, when it comes to heavy industry, gas is still essential and will be for some time to come.

Some of the debates that are going on at the moment globally are interesting. As part of the culture wars in the United States, they are talking about a transition away from gas for households and a whole raft of other users. The Australian Capital Territory here has actually moved in that direction. But when you look at households, especially new subdivisions, if you are looking at the cheapest cost of energy, you are far better electrifying new subdivisions. You should not, in my view anyway, be putting on gas.

I live in a household that is almost completely electric. It has a solar hot water heater, it has photovoltaics, and it is dependent upon electricity from the grid as well. The only gas is from an LPG bottle because the stovetop itself is gas, but the oven is electric. The stovetop is 20 years old. When it comes to the end of its life—it is a really good stove so I do not think it is ever going to come to the end of its life, and it will probably outlive me—I would go to an induction top. There are a lot of chefs now shifting in that particular direction and there are a lot of sensible things about it.

So you can completely electrify the household sector and it will save people money. In this state, the draw is mainly from renewable electricity and eventually it will be almost exclusively renewable electricity or storage and backup that is ultimately sourced from renewable electricity. So that is a direction we should be moving in.

I will not get on to one of my hobbyhorses, which is energy efficiency. We do an appalling job, an absolutely appalling job when it comes to using energy efficiently in Australia and in this state. I think I can claim credit to introducing the first energy efficiency standards in a development plan in South Australia back in the mid nineties. It was a Liberal government at the time and the public sector dumbed it down. They dumbed that policy down, so it ended up being a lowest common denominator approach, but it was the first time in this state that a council had introduced minimum energy efficiency standards.

I would like to hang my hat on it, but I cannot claim any great success. It made bugger-all difference. I have watched the changes to the household sector, the built environment, when it comes to energy efficiency, and I have to say it is woeful. We are still only at six stars, and I would argue there is very little in the way of genuine compliance even with those six stars. We are doing these huge subdivisions with all-black roofs, which is absolutely dumb. We still do not orientate within the subdivisions. There is a whole range of basic things that we do not do well. As a result, people pay more for their energy. I am getting a little bit off the track here; it is a bit of rambling.

As I said, when gas was cut off to Whyalla that had a major impact. Those events of 2015 were sudden and unexpected, unlike the risk of looming shortages which have been identified and which led to the bill before the house today. The far-reaching impacts of a gas shortfall on homes and businesses will be devastating, whether it is sudden or slow.

Loss or shortage of supply is something we must avoid. The bill is predicated on risks of a shortage, which are forecast by the nation's energy organisations. The most recent analysis on gas availability was published by the Australian Competition and Consumer Commission on 27 January, just a few weeks back. The ACCC's report is part of an ongoing inquiry into gas, which began in 2017, under a specific tasking from the commonwealth government. The ACCC January report warns that Australia's east coast gas market faces a shortfall of 30 petajoules this year if the liquefied natural gas producers were to export all their uncontracted gas.

For context, the commonwealth's department of energy says one petajoule is the energy required to power 19,000 homes for a year. On the supply side, the ACCC estimates that this year some 1,983 petajoules will be produced, mostly from developed reserves but also with some undeveloped reserves coming online, some net input from storage and some gas coming into the east coast market from the Northern Territory. On the demand side, the ACCC estimates:

about two-thirds of demand, or 1,296 petajoules, has already been contracted by the LNG companies for export;

some 22 per cent of demand, or 445 petajoules, will be needed by Australian customers, that is, residential, commercial and industrial; and

just over 6 per cent, or 126 petajoules, will be used in gas-powered generation of electricity—this is particularly important in South Australia, where gas-fired power is second only to wind generation in the annual contribution to our electricity power supply.

The ACCC lists 146 petajoules of demand from uncontracted gas that LNG producers expected to have in excess of their contractual commitments. The ACCC says that this uncontracted gas could be exported, placed in storage or used to supply the domestic market. If it were all exported, the ACCC warns there would be a 30-petajoule shortage in supply.

Most worryingly, the ACCC says the LNG exporters have become net extractors from the domestic market; that is, they purchase more from third parties to add to their exports than the quantity which they supply themselves into the domestic market from their own operations. It is worth thinking about that. This imbalance began last year, in 2022, and is expected to take place again this year with a net withdrawal of 17 petajoules from the domestic market.

A further issue of concern raised by the ACCC is that demand in the southern part of the east coast gas system—that is, South Australia, Victoria, New South Wales and the ACT—will significantly exceed production in the southern section, therefore gas will be piped from Queensland to the tune of 52 petajoules. The ACCC report does not break down the supply contribution from individual states; however, industry analysts calculate that South Australian producers put more gas into the system than the state consumes.

The net shortfall can really be traced to New South Wales and Victoria. In New South Wales, there have been long delays impeding gas development, most particularly Santos's Narrabri project. In Victoria, there has been the ongoing moratorium on onshore gas development. This is conventional gas development: we are not necessarily talking about fracking in Victoria, though that could also contribute. In Victoria, the moratorium on onshore gas development, which was instigated in 2012, stymied projects until new legislation and regulations were passed and prepared, keeping the industry frozen until November 2021.

The stagnation in New South Wales and Victoria is also identified by the Australian Petroleum Production and Exploration Association. In a submission to the consultation on this bill, the organisation says it should be up to the market to respond to potential shortfalls. It says:

An alternative to setting up a way for AEMO to intervene in the market, is to increase supply of gas in the East Coast market, particularly in Victoria and NSW. This would alleviate the need to direct gas from Queensland to the south at times when there is a perceived shortage.

They are right, but the situation we were facing with gas prices was an immediate one if the government had not intervened. To develop new supply takes time, and in the meantime we could have lost from this country a whole bunch of manufacturers. Like I said, when I was speaking to GFG about the potential contracted gas prices they were looking at before the intervention, $90 million was added to their operation at the steelworks.

The ACCC says its forecast of the southern states being net importers from the north continues a trend that has been developing in the past few years. The ACCC goes on to say, 'Given that some gas from the southern states flows north to Queensland, especially during summer, the actual amount shipped will very likely be higher than 52PJ.'

Time expired.

Debate adjourned on motion of Mr Odenwalder.


At 17:38 the house adjourned until Thursday 23 February 2023 at 11:00.

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