Alan Cransberg addressed the 9th Energy in WA Conference in Perth on 26 August 2009.
In the past few years, world leaders have acknowledged energy security as pivotal to national security and economic sustainability.
How we achieve long-term energy security, in conjunction with the climate change challenge, is one of Australia‘s greatest tests.
I want to share my thoughts on energy security, particulary as it impacts domestic gas supply in WA. I don’t believe the critical nature of this issue has really reached home. So let‘s address that today.
This month – we are celebrating! In August, twenty five years ago, the South West of Western Australia was changed forever with the arrival of natural gas. From Dampier to Kwinana, and a year later to Bunbury - natural gas flowed, bringing with it new economic possibilities. Alcoa’s contracts effectively underwrote this project – working with the State for growth and development. Nearly 1,600km of pipeline, just 66cm wide, snaking down from the Pilbara to Perth and all major regional centres to Bunbury - supplying clean, natural gas to industrial, commercial and residential customers across the South West.
Today Alcoa has a 20 per cent stake in the pipeline and our challenge is remarkably similar to twenty five years ago. How do we secure energy to enable economic growth and prosperity?
The world today is an interesting one. It is a fascinating time, and as a leader in one of the world’s greatest resource companies, and a family man with four of the next generation, I know we – as a country and as individuals - need to make the right decisions now. I want to share with you my concern for energy security and gas availability for the domestic market here in WA.
As I’ve said before, energy security underpins economic prosperity at every level – for the nation; the State; the region; for industry; for businesses; for the householder. Our own Prime Minister acknowledged this when he linked the roles of government, business and the international community, last year, saying:
“energy security is now recognised as a key factor in geopolitics and a major driver of long-term national security strategies.”
And energy security has certainly been grabbing headlines recently.
The Gorgon project has stirred great debate around social, environmental and economic grounds. If approved by the owners and our Governments, this will be a great project for WA and for Australia (and there has been advancement now with Mr Garrett’s environmental approvals).
The associated massive export contract highlights a critical issue on the table – our own domestic energy security. What is Australia’s energy security strategy for the next 50 to 100 years?
I think for too long we have been focused on expanding and maximising energy exports. We must also ensure proper attention is paid to our own domestic needs and the needs of future generations.
Do we have the balance right?
Think of our great state. Natural gas is one of our greatest assets but we understand, anecdotally, that many WA gas users (existing and new) are not able to secure affordable substantial long-term supplies, to meet their business requirements.
And let’s not forget - energy is the lifeblood of Australia’s mining and manufacturing economy. Mining and manufacturing comprise 80 per cent of our exports, and employ more than one million people.
On the issue of climate change and our capacity to meet the greenhouse gas challenge, energy security (and the energy mix), is absolutely critical. We are starting to think about energy differently. Is energy such a strategic resource that it needs to be carefully managed and planned for like water? Or, should we be treating Australia’s energy reserves like any other commodity in our rush to export? I think this is a really important question – one that we, as representatives of industry and as one of the custodians of economic wealth creation in Australia, need to actively address with policy makers. (And of course, yes, this issue is firmly on the Government’s radar).
We now know Australia is going to be challenged in the area of growth. The global economic downturn has belted us all. At Alcoa, the combined impact of the financial crisis and lack of certainty around long-term gas supply forced us to suspend the expansion of our Wagerup Refinery. That impacts growth, jobs, the local economy, and the local community.
The interests of the people of Western Australia, and by extension the interests of the people of Australia, will be sorely affected if local industry cannot attain energy to enable them to grow and prosper.
Think of the aluminium industry. We are Australia’s 4th biggest ‘exporter by value’ after coal, iron ore and petroleum generating $14 billion in exports. Like the other major exporters, 80 per cent of that income is re-invested back in Australia.
The aluminium industry directly employs 20,000 Australians, and another 40,000 indirectly - many of them in regional areas such as the South West of WA.
There is the growing threat from international competition, and many of our foreign rivals are already advantaged by labour and other costs. Here in WA, we have less than 2 per cent of the world’s natural gas reserves, but over the past 20 years we’ve become one of the world’s biggest exporters of liquid natural gas. (It’s similar with coal - we have about 8 per cent of world coal reserves, a relatively small amount yet for more than 20 years we have been the world’s biggest coal exporter!)
Does this fit with our long-term energy strategy? Again, what is our long-term energy strategy?
Here in Western Australia, we are the most energy and gas-dependent economy in Australia. Natural gas supplies more than half of WA’s primary energy requirements. Natural gas also fuels at least 60 per cent of the State’s electricity generation, and WA’s demand for gas continues to grow rapidly. We know Western Australian households and industries currently use 0.3 tcf (that’s ‘trillion cubic feet’) of natural gas per annum. At a modest growth projection of 3 per cent annum, the State will require ~30 tcf of gas through to 2055.
The DomGas Alliance commissioned an economic report that shows Western Australia will require additional production of around 1100 terrajoules per day of gas by 2014-15 to meet new and replacement demand.
This demand is equivalent to the total size of the existing market for gas. So, if we have an immediate need to ensure a secure supply in a competitive domestic market - how do we achieve that? (And by the way – this is not about compromising the LNG industry – these two can and must co-exist).
I think three things need to occur to achieve a secure supply in a competitive market:
1. We need to bring new supplies of gas into the market.
We need to find ways to reduce barriers to market entry, to facilitate new players. We need to look at current regulations around exploration. And let me say thank you to Minister Moore who recently approved royalty relief around tight gas exploration and production – this is exactly the sort of thing I am talking about.
2. We need to ensure independence of selling arrangements for future gas projects.
There are multiple buyers in today’s mature market and they need more choice.
On the issue of Gorgon – we’re on the record as saying that we do not support its application for joint marketing. We think this is a great opportunity for some of the world’s largest oil and gas producers to compete for serious business - here in Western Australia – just as they do in countries all around the world. This type of competition is both an indicator and a driver of market maturation.
From an energy users perspective, the more competition in the marketplace - the better.
3. My third criteria for creating a secure supply in a competitive domestic market is for the Government to implement policies to ensure we have sufficient available gas for domestic use.
This is complex and requires careful thought to enable competitive businesses to thrive and grow right here at home, to ensure households are well serviced, and to ensure WA gas is available for LNG. There is no doubt that LNG exports have a wonderful benefit to the WA community, but let’s not forget the community also benefits from other industries that value-add to that gas. And that local industry needs diversity of supply, and to operate in an environment of competitive selling.
Also of course, let’s not forget, gas is a great clean transitional fuel, an important piece in the greenhouse challenge while we pave our way to renewables. We do need to consider Australia’s carbon footprint – and of course we are.
The development of an appropriate Carbon Pollution Reduction Scheme (CPRS) in Australia is a key business issue - for Australia and Alcoa. We have long been deeply involved in the debate, and our position has not changed: Alcoa continues to support the introduction of a CPRS that supports both global reductions in greenhouse emissions and the prosperity of Australian industry and Australian jobs.
Our State’s natural gas advantage, combined with the world class efficiency of our refining operation in WA, means that every tonne of alumina made in WA uses half the energy and produces half the greenhouse emissions than if it was made in China. There are seven refineries in Australia – in China, more than fifty. So, a consequence of potentially inhibiting the growth of our industry, as a result of a poorly designed scheme, could mean an increase in global greenhouse emissions, and a downgrading of Australian industry, Australian jobs and investment in our country.
(The Federal Government has a massive challenge to get the scheme right and I know is working towards that end.)
Scheme or no scheme, Alcoa will continue reducing emissions - it’s something we take very seriously. As a large energy user - it is critical to our business that we find efficiencies for the sake of the environment and for the health of our business. But we are, as I have demonstrated, a major contributor to the economic success of the State (and the State of Victoria I might add). Like other industries - we partner, we build, we innovate, we have our eye on the long-term, and we know we are all in this together.
To illustrate my point: Alcoa has a well documented history in underpinning energy infrastructure, both here in WA and in Victoria. It goes back twenty five years to the pipeline (as I have mentioned).
And Alcoa is today investing heavily in several major frontier projects:
• We are spending $40 million supporting Buru Energy explore the canning basin.
• And up to $100 million in a joint-venture with Latent Petroleum, to evaluate ‘tight gas’ in the Perth basin.
• Plus, we continue to partner with Alinta as the biggest co-generator of electricity in this country, already operating two power stations at our Pinjarra refinery.
Australia’s gas and oil explorers and producers have set growth targets for both domestic and export gas markets in the coming decade. They say they want to quadruple exports while at the same time, double the amount of gas used in resources processing. My industry and I am sure industry as a collective, shares common ground with regard to that domestic objective, and LNG does facilitate domestic gas growth. But let’s make sure the balance is right!
It is the same principle being applied to the management of climate change: To balance global needs with domestic needs. To enhance our growth, our way of life and the environment.
I recently read a story in ‘WA Business News’ that referenced… “the flood of emerging LNG developments”…. I hope that one day soon I am reading of “the flood of emerging domestic gas developments.”
Our aim must be – can only be:
We all have a role to play in the climatic and economic future of this State and this nation.
