AUSTRALIAN Petroleum Production and Exploration Association (APPEA) CEO Malcolm Roberts has weighed into the current debate on whether farmers should gain royalties from gas mining on their land saying it would deliver an “additional incentive” but may not alleviate an “artificial crisis” in the local energy market.
“It’s a hot topic and we actually support what the South Australian government has done,” he said of SA Premier Jay Weatherill’s recent call to give landholders a 10 per cent share of the spoils from gas and oil extraction – a move also backed by Agriculture and Water Resources Minister Barnaby Joyce.
“We think it’s a good initiative that gives an additional incentive for a landowner.”
But with limited gas supply impacting the Australian energy market’s operations, amid a current crisis ignited by rising costs and diminished reliability, moratoriums on mining developments in different states like Victoria are being called into serious question.
Asked whether landholders gaining royalties from gas mining extraction would help to overcome that political freeze on developments, Mr Roberts said “the moratoriums are not in place for any justifiable reasons”.
“They are not based on science and they are not based on economics – they are in place for purely political reasons,” he said.
“So if the only political concern that’s being raised is that landowners want more than what they’re receiving to date then maybe that’ll change things.
“But you have other groups involved that are opposed to fossil fuel development in any form, in any place.
“They may not be honest enough to admit that but that’s the agenda so (giving landholders a share of the royalties) would not necessarily shift their views.”
Mr Roberts said APPEA also wanted to highlight the experience in Queensland where a framework existed that requires land access arrangements to be negotiated between the mining companies and landowners.
He said in that process the mining company bares the obligation for full compensation for any on-farm impacts caused by gas mining developments.
Under those arrangements more than $250 million has been provided to farmers over recent times, he said.
“The idea of an additional share of royalties, to provide an incentive to landowners, is a good one,” he said.
“But it’s up to the governments to decide how to allocate their royalties and the South Australian government thinks there is merit in that.
“In Queensland, we’ve got that framework in place that provides compensation and that figure of $250m that’s been paid to farmers was from June 2015, so it’s much larger now.”
Mr Roberts said the land access negotiation process saw landholders work-out a conduct and compensation agreement with mining companies which paid-out for any impacts on-farm and “additional benefits flow” from having infrastructure in place and other factors.
“In Queensland we have a system that’s working very well and it has injected a lot of money back into regional communities,” he said.
“What the SA government is foreshadowing is future developments where there’s some uncertainty around the industry, being created by activist campaigns and just general misinformation.
“And the SA government is saying, ‘here’s something else’ to attract landowners to get them to think about the issues and see whether it works for them.”
On the current political debate about resolving the national energy crisis, Mr Roberts said it was vitally important more gas supply came onto the local market “because that’s the only thing that’s going to put downward pressure on prices and increase competition”.
“This crisis is an artificial crisis if you like,” he said.
“It’s been created by the fact that major projects have not been able to proceed.
“A very good example is the Santos project in Narrabri.
“If that was in place today, and this is what the Australian Energy Market Operator said recently - there would not be any uncertainty about future supply balance.
“From our point of view, the problem is a tight market which has unfortunately been created in part by restrictions on development and very, very high regulatory costs for developing gas which have been escalating over the past five or 10 years.
“In part the politicians’ response to community concerns is to add more and more layers of regulation and that unfortunately has to flow through to price and it also makes some resources uneconomic to develop.”
Mr Roberts said he understood how the energy crisis was impacting the farm sector and food processing due to steeply rising electricity costs in areas like dairy and he believed a practical solution was increased transparency, of the east coast gas market.
“For a very long time it was a bilateral contract market and buyers and sellers were happy with that – it gave everyone certainty and security,” he said.
“But now a lot is being said about the market that’s not necessarily supported by clear independent evidence so we think more transparency and market data and information on supply and contracts, in a form that doesn’t put businesses at risk, should be out there so people can see very clearly what’s happening in the market.
“Many stories are being told but when you go searching for the hard evidence, it’s not always there.”
Mr Roberts also conceded it was ironic politics had caused many of the current problems in the energy market - like limiting supply - but Canberra was now being lobbied heavily to take action and resolve it.
“We have to solve the problem at its source perhaps,” he said.
“If one of the major parts of the problem is restrictions on development, or excessive regulatory costs that have made development uneconomic, the businesses try and manage that.
“They try and operate in that environment but after a certain point, if you’re essentially banned even from even exploration, as is the case in Victoria, then you’ve got to change that.
“The political system needs to recognise there’s a very tangible and direct cost to industry and households if we can’t supply the gas that this country needs.”
Grain producer and Victorian Farmers Federation vice-president Brett Hosking said issues with the local energy market were of “great concern” to growers because the cost of electricity was “rising above the costs of any other business input”.
Mr Hosking sad that cost-pressure was especially hard on an orchardist running a cold storage facility, a dairy farmer operating a dairy, irrigators that pump water for other food crops and other agricultural industries that depend upon electricity and gas for energy.
“We’re seeing those costs continue to go up and up,” he said.
“We’re gathering more energy from areas like solar power which is effectively free so a fair minded and logical person would say ‘why aren’t the costs going the other way and coming down when we’re getting some energy sources for free?’
“But still the costs are rising and managing the costs of production is critical to the profitability of every farmer.”
Mr Hosking said a closer look at how the Renewable Energy Target was operating, and the potential to issue energy certificates to agricultural industries in an overhaul of the scheme, to help achieve emissions reduction targets, was a big part of the potential solution.
“Farmers obviously want cheaper power – that’s a no brainer,” he said.
Mr Hosking said the federal government’s recent announcement of plans to spend $2 billion on upgrades to the Snowy Hydro scheme, to deliver more electricity supply to the east coast market, had given “confidence there’s a will to change and steps to change”.
But he said it would take time before the project started and the new market supply then filtered through to the farm and helped to alleviate cost-pressures that are immediate.
“During the lag time the costs will continue to rise,” he said.
“Maybe you’ll get a correction when things eventually come on line but in the mean time you build up extra costs.
“If you want people to live in rural communities and if we value them and our producers and the $64 billion contribution they make to our national economy at the moment, we need to ensure farm businesses are sustainable now and into the future, by easing costs and energy is a big one.”
But market analyst Bruce Robertson from the Institute for Energy Economics and Financial Analysis – who recently visited Canberra with anti-mining group Lock The Gate to push their message – said limited gas supply wasn’t the energy market’s biggest problem.
He said Australians were paying more than double the global price for gas which would lead to “mass industry closures”.
“The solutions that are being proposed, to produce more high cost gas, is no solution to bringing down the price,” he said.
“If we’re opening up more lands for fracking, coal seam gas is high cost gas, it’s not low cost gas, and you can’t bring down the price of a product by producing high cost supply.”
Mr Robertson said the Australian Office of the Chief Economist had forecast a glut in the global gas market or in other words, more supply than demand, out to 2030.
“This is not a short term problem – it’s a long term problem – and what it will mean is that glut probably won’t actually last that long because in the meantime production would have been shut and closed,” he said.
“And it’s the high cost producers in any market that go out of business first and on the east coast of Australia on-shore gas is the highest cost gas in the world that’s exported.
“So it’s very simple, that gas supply is the most likely to go out of production in the next few years.
“It’s a crisis for Australia within the gas industry but also more broadly within the manufacturing and agricultural industries because they rely on intensive processing.
“And some of those businesses will also go out of business and the time frame is very short.”
Mr Robertson said Australian Competition and Consumer Commission Chair Rod Sims had stated contract gas was being offered at about $20 per gigajoule in the local market but that same gas was being sold in in Japan for just over $10 a gigajoule.
But he said Japan was the most expensive gas market in the world “bar none” and yet the Australian market was twice the price.
“That makes our industry totally uncompetitive and our agricultural processing industries totally uncompetitive and will result in industry closures, mass unemployment and it’s really not a good scene we’re looking at, unless the government does something about it,” he said.
“The politicians are deeply concerned because they can see the writing on the wall and they’re being told this will happen and that’s not an idle threat.
“Everyone in Australia has to pay an electricity bill and gas sets the marginal price of electricity in Australia and at the moment we’re seeing perfectly good gas fired power stations shut down because they can’t access gas at a reasonable price which is an absurd situation and it shouldn’t be happening.”