31 October 2022
Interview with Paul Culliver on ABC Capricornia Breakfast
Topics: Energy price caps.
Paul Culliver: Well, the new CEO of the Australian petroleum producers organisation is Samantha McCulloch and joins me on the line this morning. Good morning to you, Samantha.
Samantha McCulloch: Good morning, Paul.
Culliver: Is a price cap something that we're going to need to get prices down in Australia?
McCulloch: Well, look we're seeing high prices for all energy across the board and that is principally as a result of Russia's invasion of Ukraine. And there are not going to be any easy or quick fixes for these current high prices.
You mentioned in the introduction a proposal to cap gas prices but this would be really an unprecedented intervention in the market which would really have lasting and far-reaching consequences for investment.
The best way to put downward pressure on the currently high prices is really investing in that new supply, bringing new supply to market.
Culliver: So presumably, if the federal government did enact a price cap, you would have more reasonable prices for the domestic customers here in Australia and you'd still be able to sell gas overseas at whatever prices the market determines.
Why is that not something you could still invest in and still find a profitable business in?
McCulloch: So, just when we are talking about the domestic gas market, around 85% to 90% of the gas that's being sold is under long-term contracts. And the realised prices for those long-term contracts are still under $10/GJ according to the reports from member companies. So, where we are seeing the higher prices is in that 10% to 15% spot market. That's how that market works.
What our industry is doing is ensuring there's more than adequate supply for the domestic market to ensure that customers are still being serviced and that there's plenty of supply in the domestic market.
Culliver: Ok, and when you say that you worry that a price cap might threaten investment, just talk me through that - what do you think might happen?
McCulloch: Firstly, we don't have any details of how that price cap would be implemented because there are different markets.
There's the wholesale market, where the gas producers supply - that includes the spot market and that includes primarily long-term contracts. There's also the retail market.
So depending on what interventions the government make, we'd have to look at what the consequences of that is. But what we're seeing across the board is more and more intervention in the market that is impacting investor confidence. These are large, capital-intensive investments to bring new gas supply into the market and investors need to be sure that there are stable, consistent policy settings to support that.
So this talk of more intervention, of capping prices, is really impacting that investment in new supply. We need that new supply in the market, not just to support our energy security, but also to support emissions reduction.
Culliver: We know that Madeleine King, the Resources Minister, signed this new Heads of Agreement with the three east coast Gladstone LNG projects. That's all about guaranteeing supply. So if there is enough supply, why isn't the price coming down?
McCulloch: There are a number of factors influencing the pricing. Of course, there's the international element where we are seeing very strong demand for LNG globally. But in the domestic market, what we are also seeing is increasingly a call on gas to support power generation. Gas is playing this fundamentally important role in terms of supporting the shift away from coal-fired power generation and supporting increased deployment of renewables in the market. And even as we saw over the recent winter when we had substantial energy system pressures, the call on gas increased by more than 55% relative to last year. That's primarily because it is stepping in when that coal is not available or when renewables are also not able to feed into the market at sufficient quantities.
This growing demand for gas, particularly in the southern states, is also impacting price outcomes in the domestic market. And here in fact, we are really seeing Queensland doing a lot of the heavy lifting, supporting energy security and keeping the lights on in the southern states because that Queensland gas is being delivered down to New South Wales and Victoria where we are not seeing the same investment in new supply as needed.
Culliver: You are hearing from Samantha McCulloch this morning. She is the CEO of the Australian Petroleum Production & Exploration Association here on ABC Capricornia.
Obviously much of that gas is being turned into LNG and exported from the Port of Gladstone. What is the new gas - what are we talking about here when we are talking about bringing new gas supply online? What is actually available?
McCulloch: Much of the investment that we have seen recently has been in Queensland. The industry has announced more than $20 billion in new supply investment in the last two years. But moratoriums and bans and regulatory uncertainty, particularly in the southern states, is hampering that investment in those states.
I'll just make the point also that, of course, it is not an either-or question when we are talking about exports and the domestic market. The domestic market is well-supplied. As you referenced, we signed a Heads of Agreement between the three east coast LNG exporters and the federal government just last month that ensures any non-contracted gas - gas that hasn't already been committed to long-term contracts for international customers - will be offered to the domestic market first.
Culliver: We also know that the Australian Government is looking at whether the Petroleum Resource Rent Tax should be increased or whether it should be modified in its function. Obviously, that is a tax that gas producers pay. There is also the idea that perhaps some of that could flow through to people on lower incomes as a cost-of-living relief. Do you have a position on that?
McCulloch: The PRRT is just one tax the industry pays. It's actually been reviewed four times since 2017 and it's raised more than $40 billion since it was introduced. And in last week's Budget we saw an expected additional $11 billion to be collected just from the PRRT. This is a profits-based tax primarily for the offshore exporters. But it is only one part of the contribution of the industry to the budget and to the Australian economy.
We estimate that the tax take from the industry will triple this year, with an extra $9 billion collected by governments that can support investment in roads, in hospitals, in schools and other essential infrastructure.
Culliver: Would you support seeing it increased, though, to provide cost of living payments to Australians?
McCulloch: The PRRT is a fit-for-purpose, appropriate taxation regime that reflects the capital-intensive nature of our LNG export facilities.
The industry has invested $300 billion since 2010 in LNG exports and the benefits of that investment are now already flowing directly to the Australian people, directly to government budgets, as I have just outlined. How the government wants to use that revenue that's collected from the industry is a question for government.
But the industry is certainly supporting the Australian economy in very substantial ways and, indeed, we are expecting a record $90 billion of LNG exports this year as a result of that investment that's been made by the industry.
Culliver: Samantha McCulloch, really appreciate your time today. Thank you so much.
McCulloch: Thank you so much.
Culliver: Samantha McCulloch is CEO of the Australian Petroleum Production & Exploration Association, of course representing many of those companies that produce gas and export from Gladstone.
