In the 1950s, the Australian government decided that we had to reduce our reliance on imported oil because the cost was making it difficult to keep the Australian dollar fixed to the pound. So the Menzies government passed the Petroleum Search Subsidy Act 1957 and encouraged the major resource companies to look for oil in Australia.
In 1960, Sir Ian McLennan, general manager of BHP at the time, had lunch with a renowned US geologist, Lewis Weeks. McLennan asked Weeks where in Australia should BHP search for oil. Without hesitation, Weeks responded: Bass Strait. BHP secured the leases over Bass Strait, partnered with Esso, took the government subsidies, and developed the greatest oil and gas field in Australia at the time.
Bass Strait has been a boon to the Australian economy ever since. It provided cheaper oil to Australia through the oil crises of the 1970s. Gas was originally a by-product, so it was sold cheaply and that helped spur a heavy manufacturing industry in Victoria and South Australia. More recently, it has become Australia’s most important domestic gas source.
But Bass Strait is declining as a supplier of cheap and affordable gas. We have been fortunate that gas production has increased in other parts of Australia, like the coal-seam gas fields of Queensland. These fields are the only reason that we can respond to the falling production in Bass Strait.
This time last year, gas prices shot through the roof. Prices for large commercial and industrial consumers peaked at around $16 per gigajoule in early 2017, more than three times their historic levels. These prices put at risk thousands of jobs so the government acted to ensure that sufficient gas would remain in Australia at a reasonable price. We introduced the Australian Domestic Gas Security Mechanism so that the government had the legislative ability to restrict gas exports in the national interest.
Fortunately, the government has not had to resort to formal gas export restrictions. We have instead reached agreement with the gas industry that sufficient gas would be made available at reasonable prices. Since signing the heads of agreement in October, LNG exporters have announced contracts to provide substantial volumes of additional gas to domestic buyers in 2018.
No amount of export controls can force the price down below the cost of production. To get further reductions in gas prices, we need to discover more productive gasfields, just as we did in the 1960s. That is why the government has established the gas acceleration program, which opened for applications in January. It will provide matched grants for gas producers to drill in new areas. The government is also funding new geological and bioregional assessments in the Cooper Basin and Isa Super-Basin areas.
There are prospects right around Australia. Recently, the Victorian government released a “working estimate” of 110 petajoules for onshore conventional gas resources around Port Campbell. In the Northern Territory, there is great excitement about shale gas resources that could deliver affordable oil and gas.
In both of these areas, however, state and territory governments restrict the development of these resources. In the NT, the government has placed a moratorium while it conducts the fifth review of gas in just seven years — all of the previous reviews found gas could be developed with appropriate regulations. In Victoria, a ban has been put in place without any scientific justification.
These actions risk keeping gas prices higher and put at risk thousands of jobs. The government will continue to fight to protect these jobs.
Matt Canavan is the Minister for Resources and Northern Australia