The Minister for Resources and Northern Australia, Senator the Hon Matt Canavan, was interviewed on Sky News.

Subject: Australian Domestic Gas Security Mechanism, baseload power, coal-fired power stations.

 

DAVID SPEERS: 

A couple of other very interesting moves that the Prime Minister was talking about: one, is to abolish what's called the limited merits review process, where power companies can set the price they want for each year from July 1 – and we know they're going up by about 20 per cent this year. The Energy Regulator though says, hang on, you can only increase them by this much, then the power companies can appeal that, and on it goes and they get the price increase they want. Abolishing the limited merits review, it's called, will mean they can only increase their prices by as much as the regulator says they can.

That will have some impact, and then there's also the measure previously announced by the Government to control the export of Australian gas, Australian LNG, to keep what's necessary in the domestic market. Now, from July 1 this power will rest in the hands of the Minister for Energy- sorry, the Minister for Resources, Matt Canavan, who joins me now. Thanks for your time.

MINISTER CANAVAN:   

G'day, David. How are you?

DAVID SPEERS: 

So this was previously announced, but it does come into effect in, what, 11 days' time or so. You will have the power under what's called the Australian Domestic Gas Security Mechanism to direct gas from the export market back into the domestic market. What can we expect? Are you going to be pulling a lot of gas back into the domestic market?

MINISTER CANAVAN:

Well, today what we've announced is the final regulation. We've gone through a consultation process, as you said. We'd previously announced we'd be doing this. Well, how much gas we will bring back – or whether we will at all, of course – is a matter to be determined. We'll go through a proper consultation process; we'll make sure we get the right advice from the Australian Energy Market Operator, the ACCC, and other stakeholders about exactly what is or what are the shortages in Australia that we need to respond to.

DAVID SPEERS: 

So the ACCC says to you, we've got this much shortage and that means, what, you then go and seek that much back into the market?

MINISTER CANAVAN:

Basically that's exactly right. Now, we'll seek to recover that from operators that are not contributing to the domestic market – that is that they're buying or extracting gas from markets that used to serve domestic purposes – and that's one of the issues we currently have in gas markets, on top of the bans we've seen at state and territory levels which are exacerbating things, and declining gas production in the Bass Strait.

DAVID SPEERS: 

Well, Santos is deeply worried about this. Its CEO says it has no cheap, surplus gas available, it's all contracted at premium prices, but it is the one that isn't a net contributor to the domestic market.

MINISTER CANAVAN:

Yeah, it's the one with the greatest net deficit, if you like. The Shell-led consortium had a small net deficit last year…

DAVID SPEERS:                 

…So they can expect to be hit?

MINISTER CANAVAN:

Possibly so, but we want to make sure that we have an LNG industry that actually contributes to our domestic energy security.

DAVID SPEERS: 

What if they've contracted the gas already though?

MINISTER CANAVAN:

Well, they cannot, well, our advice is that there is scope for them to reallocate gas, but likewise these provisions are under the Customs Act; we've always had these powers to activate – this is not new legislation…

DAVID SPEERS: 

Is this going to end up in the courts though, Minster?

MINISTER CANAVAN:

… Well, look, that's obviously out of my hands. There have been claims that that might happen. We think we're on very solid ground protecting our own domestic energy security; it's not an unusual policy around the world. I think it's unfortunate that we've got to this stage. We probably, in my view now, if we had our druthers, if we could go back and look again at what was announced or approved under the former Labor Government here federally there would have been more assessment done on the implications for energy security. And, of course, the bans at state and territory levels have had a big impact as well.

DAVID SPEERS:                 

Sure, but what happens here with this power? I mean, everyone, I think, will be sympathetic to getting more gas into the domestic market, but if you're a buyer in Japan or wherever and you've contracted so much Australian gas and then suddenly the Australian Government comes in and says, no, you can't have it even though you signed a deal, is that a sovereign risk issue?

MINISTER CANAVAN:

The key thing here though, David, or the key environmental factor to make sure you put this in context is that gas prices in Asia at the moment are significantly lower than gas prices here. So to the extent that a producer would be reallocating gas from selling overseas to selling here domestically, there's actually money to be made. There's a technical term, arbitrage, right? They can buy low and sell high, and we have had those approaches from a number of buyers in Asia, that they would be happy to return gas to the Australian market at the moment given the price situation. So in Asia at the moment, the price is about $7.30 a gigajoule; here in Australia the price ranges from $8 in Brisbane through to $11 in Melbourne on the spot-markets, and some people are paying higher on the contractual markets.

DAVID SPEERS: 

Now, you'll have this power from July 1, but it won't affect any gas production until January 1 next year, is that right?

MINISTER CANAVAN:

So we're going to establish the licensing system on a calendar year basis that aligns with the gas export industry's planning they do on a calendar year basis. So that minimises any potential impacts you were talking about. And we, of course, have to go through a process to make sure we're very careful about establishing what the shortfall number is, and we'll do that over the next few months.

DAVID SPEERS: 

It also means we're not going to have much of an impact on the gas price here in Australia for the next six to …

MINISTER CANAVAN:

We have already heard reports that gas has come back onto the market since we, back in March, originally called in the LNG industry to ask them to return more to the market, and we believe some are doing that. Later this year …

DAVID SPEERS: 

Obviously not enough if the price is what you just quoted to me.

MINISTER CANAVAN:

That's right. Although we have had some relief, we've heard, in some industrial markets – those are the spot-markets I quoted. We've also, later this year, one of the trains in Gladstone will come off provisioning tests, which is currently using a fair amount of gas while they need to run it at full capacity.

DAVID SPEERS: 

But right now, you've got consumers facing a 20 per cent increase in electricity prices, something like a 17 per cent increase in gas prices from July 1. Are you doing anything to stop that happening?

MINISTER CANAVAN:

Well, this will have downward pressure over time. Now, the principal cause of those wholesale electricity price increases – and you can see it quite clearly when you look at when they occurred – is the closure of two large coal-fired power stations over the past year – Northern early last year and Hazelwood early this year. They both specifically led to those increases. And people need to be very clear that we have never, as you would know, never had a jihad or a ban on coal-fired power.  Whereas the Labor Party took to the last federal election, in their federal election policy, they said they wanted to kick-start he closure of coal-fired power stations. It's exactly what they said. Alright, and they got their wish and the outcome has been higher prices.

DAVID SPEERS: 

Well, they're not in government, you are. The prices are about to go up, and all these things that have been announced today, none of it's going to stop those price increases.

MINISTER CANAVAN:

But, David, it's also, I know everybody wants to sheet everything home to the Federal Government ultimately …

DAVID SPEERS:                 

You've got to take some responsibility.

MINISTER CANAVAN:

… but those coal-fired power stations in both Victoria and South Australia were previously owned by the South Australian Government …

DAVID SPEERS: 

What about the gas price?

MINISTER CANAVAN:

Well, you asked about electricity prices.

DAVID SPEERS: 

No, the gas price is going up something like 17 per cent. What's going to change that happening?

MATTHEW CANAVAN: 

Well, it's a basic iron law of economics that if we bring more supply onto the market we will bring prices down, and that's exactly what we're doing. This is very significant action for a Commonwealth Government to take, we have …

DAVID SPEERS: 

So maybe in 12 months.

MINISTER CANAVAN:

Well, we believe it already has started to have an impact. Prices have started to come down a little.

DAVID SPEERS: 

Not for the households who are facing a 17 per cent increase.

MINISTER CANAVAN:

Well, it's also important to note for household gas prices that the wholesale gas price that I was quoting and we've been talking about is only a component of their bill, obviously. The distribution and retail costs are the majority of the…

DAVID SPEERS: 

Yeah, most households look at the bill. It's going up.

MINISTER CANAVAN:

Yeah, exactly, and that takes time. It takes time for wholesale price increases to flow through to retail prices.

DAVID SPEERS: 

So how long? 12 months?

MINISTER CANAVAN:

Well we expect- there already has been an impact…

DAVID SPEERS: 

Not on the households at the retail level.

MINISTER CANAVAN:

Well, those prices are reflecting what happened 12 months ago which was before we …

DAVID SPEERS: 

So it will be 12 months before we see any of this wash through?

MINISTER CANAVAN:

Well, we have taken action as quickly as we, I think, could reasonably have been asked to do. We had a report …

DAVID SPEERS: 

You've been in Government for four years.

MINISTER CANAVAN:

… in March from the Australian Energy Market Operator which identified that these shortfalls were emerging. If we had State Governments develop their own resources, like Narrabri in New South Wales, we wouldn't be in this situation. We wouldn't be …

DAVID SPEERS: 

But for your part, for the Federal Government's part, do you wish you'd done this three or four years ago?

MINISTER CANAVAN:

Well, as I said, I think before we approved these projects there should have been an assessment. Now, that was done in 2012. Once …

DAVID SPEERS: 

But then you came in in 2013.

MINISTER CANAVAN:

Sure, but once they had been approved, it is a significant decision to post an approval and say, look, we need to bring more gas back to domestic markets…

DAVID SPEERS: 

Did the Abbott Government see any of this? Did the Abbott Government do anything about this?

MINISTER CANAVAN:

Well, there has been concerns emerging for some time, but I don't think anybody would have predicted, even at the end of last year …

DAVID SPEERS: 

Even Labor? Labor couldn't have predicted this?

MINISTER CANAVAN:

… even at the end of last year when the Victorian Government seemed to go this path that they would ban the use of, or put a five year moratorium – effectively a ban for five years – on the use of conventional gas techniques.

DAVID SPEERS: 

So hang on …

MINISTER CANAVAN:

Conventional gas techniques that…

DAVID SPEERS: 

You've been hammering Labor for not doing anything in 2012, and yet you've got no criticism for 2013, 2014, 2015, 2016 when you guys have been in Government?

MINISTER CANAVAN:

Well, we have acted, I think, as fast as we could have reasonably been asked to given the information and the advice we got.

DAVID SPEERS: 

Four years is fast?

MINISTER CANAVAN:

Well, it is. Following the report we received only in March, within a matter of months we've introduced licencing controls on exports.

DAVID SPEERS: 

But Labor should've done it in 2012?

MINISTER CANAVAN:

Well, no, I didn't say that. It's unfortunate we've got to this situation. I think what we should've done, and what I've flagged that we need to think about in the future, is a better assessment before we approve projects and not after.

DAVID SPEERS: 

On the issue of coal-fired power, one of your colleagues, George Christensen, is strongly in favour of the Government building coal-fired power plants; what do you think?

MINISTER CANAVAN:

Well, I don't think we've taken any options off the table, David, to solve this issue. We've just gone through, we've taken fairly drastic action on the gas side of things. The issues emerging in electricity markets are similarly significant. I think obviously we have a system in place where we prefer private sector investment into new power builds, but given the risk that is in the marketplace there is likely to be some role for Government for identifying the need at least – and that's what the Prime Minister announced today – and in considering what we might have to do. I think it's important …

DAVID SPEERS: 

Including building one?

MINISTER CANAVAN:

Well, look, I think it's important to look at what other countries are doing with similar issues, very similar issues.

DAVID SPEERS: 

Are others building?

MINISTER CANAVAN:

Well, the United Kingdom, for example, has signed a contracts for difference, effectively a financial derivative product to support the construction of a nuclear power plant. I mean, I'm not religious about coal. I think coal should be an option – logically an option, given we're the world's largest exporter of coal …

DAVID SPEERS: 

Should nuclear be an option?

MINISTER CANAVAN:

… but we should, well, just hear me, I'll come back to nuclear. But we should be looking at all options to solve this, and that includes gas if we can get more affordable gas, it includes eventually renewables, baseload gas or hydro mix – that could serve the purposes. All we need to be focussed on is when you hit a switch in your house a light should be able to come on and you should not have- the businesses should not be at risk of blackouts

DAVID SPEERS: 

Even if that means Government, taxpayers' dollars, building a coal-fired power plant?

MINISTER CANAVAN:

Well, look, I just don't think, given the size of the problem we've got at the moment, let's not start ruling things out. We're certainly not saying that's what we need to do at this stage. Let's just keep our options open, let's keep everything on the table.

DAVID SPEERS: 

Nuclear, is that …

MINISTER CANAVAN:

Nuclear is very expensive, and given the abundant resources of coal and gas we have here I don't think that's the logical …

DAVID SPEERS: 

And a lot of uranium. It would take time though to …

MINISTER CANAVAN:

Yeah, look, it would take a long time in terms of your timeline in actually acting – it would take decades, most likely. When you look at what the United Kingdom are paying for their nuclear power plant, it would be a significant premium on power prices here even today.

DAVID SPEERS: 

And just before I let you, are you happy staying in the Paris Agreement?

MINISTER CANAVAN:

Of course. Our word is important to keep. I think on the international stage we have a great reputation in trade, in environmental agreements for maintaining our word. We kept our commitments on Kyoto and we should do the same on this agreement as well.

DAVID SPEERS: 

Resources Minister Matt Canavan, appreciate your time this afternoon. Thank you very much for that.