26 Oct 2022

Interview: APPEA CEO Samantha McCulloch speaks about the Federal Budget to Sky News Chief News Anchor Kieran Gilbert on Afternoon Agenda

Interview with Kieran Gilbert on Sky News PM Agenda

Parliament House, Canberra

Topics: Federal Budget, Government intervention in the gas market, need for positive policy settings to encourage investment in new supply

Kieran Gilbert: Joining me live in the studio is Samantha McCulloch. She is Chief Executive of the gas industry representative group, APPEA. Samantha McCulloch, thanks for your time. What do you say to the suggestion by the Treasurer that he’s looking at a broader than normal potential intervention by the government into your industry?

Samantha McCulloch: Thanks, Kieran, for having me. What we are seeing is really unprecedented intervention in markets currently. This is a concern for the industry, of course, because, as we have been saying for many years now, the key to bringing down current high prices is really investing in new supply and to do that we need the policy certainty and to encourage that new investment. And what the Budget delivered last night was actually increased regulation, increased intervention and that is potentially acting as a dampener for that new supply investment that’s needed.

Gilbert: And there’s very much likely to be more to come in terms of a potential price cap. How would the industry respond to that?

McCulloch: I think interventions of that nature are again going to hamper the investment that’s actually needed in new supply. And we saw even the Prime Minister today acknowledged that bringing on new supply is going to be the key to bringing down prices. It was acknowledged by the Leader of the Opposition. It was acknowledged by the CEO of the Business Council of Australia. Our industry has announced more than $20 billion in new supply in the last two years. We’re ready to bring on new supply to help to bring down those costs. But we need the policy settings and certainty to encourage that investment.

Gilbert: Can the producers do more to reduce domestic prices because we’re hearing from the industry Minister, from the unions and even from industry groups Innes Willox at Australian Industry Group saying manufacturers are about to fall over because of these gas prices?

McCulloch: The industry is very much committed to the domestic market. We have seen that the domestic market has always been supplied and just last month the three major LNG producers on the east coast signed a new Heads of Agreement with the Federal Government that ensures more than adequate supply into the market and also enshrines a commitment that domestic customers will be paying competitive market prices and certainly less than international consumers.

Gilbert: Can producers do more to put downward pressure on the prices?

McCulloch: Producers are supplying into the market. During the recent energy pressures over winter we saw more and more supply being directed into the domestic market to help alleviate those pressures but what…

Gilbert: That’s supply. What about the price component?

McCulloch: What we really need to see is more of that supply being brought on where the demand is and closer to where that gas is being used and that is particularly in the southern states because what’s driving much of the increased demand for gas is really gas-fired power generation and this increasingly role for gas in the power system.

Gilbert: Given the profits, though, that are being made by gas companies and energy companies right now, isn’t it appropriate as part of their social licence to be selling, extracting Australian resources to ensure that they put as much downward pressure as possible on price?

McCulloch: I’ll just say that I think we saw in last night’s Budget that the current high global prices and demand for gas, which is of course a result of Russia’s invasion of Ukraine, we are seeing record demand for our exports. We have ensured that the domestic market is still supplied. But the benefits and the economic value of those exports are flowing directly into the government Budget. For example, the PRRT will be raising more than $11 billion over the forward estimates period.

Gilbert: The problem is manufacturers are hurting. We know consumers, everyday households are going to be hurting with 20% increases in the next two years. Is there more that the companies can do to put downward pressure on prices?

McCulloch: I think again the key is there is more than adequate supply in the domestic market. Producers are ensuring there is supply there. We need to build up the supply where it is needed. But If I can just make a point on the prices. We talk about currently the high prices. Most of that is actually in the spot market and only around 10% of gas is actually supplied in that spot market. So 90% of gas, domestically, is sold under long term contracts so many industrial users, many households, have been insulated from those high costs for some time because they have been under those long-term contracts.

Gilbert: But you’d accept that a lot of industry aren’t, a lot of manufacturers aren’t?

McCulloch: Again we’d like to see more supply, the investment certainty to allow more supply to come online. Many APPEA members are dedicated to supplying the domestic market, they are purely domestic producers and what we need to see more of that domestic supply being developed.

Gilbert: Do you accept the Petroleum Resource Rent Tax is not fit for purpose when it comes to gas?

McCulloch: No – the PRRT is designed specifically to ensure very, very significant capital investments that need to be undertaken in the gas industry – our industry has invested more than $300 billion in LNG facilities in the last 10 years or so…

Gilbert: But it’s not keeping up with profits, is it in terms of getting the appropriate level of tax?

McCulloch: The fact that’s there’s $11 billion being raised in the forward estimates in the Budget shows that the PRRT is absolutely raising revenue for governments. It is working as it was designed. This is of course only just part of the economic contribution that the industry makes.

Gilbert: But it’s a fraction of the profits, isn’t it?

McCulloch: Over the life of a project the PRRT collects around 40% of the profits of the project so it’s actually quite an effective tax collection mechanism in that regard. We estimate that the contribution directly from the industry to government revenues through royalties, through taxes, will triple this year.

Gilbert: Samantha McCulloch, Chief Executive of APPEA, the gas industry representative group. Thanks so much for your time. I appreciate it.

McCulloch: Thanks Kieran.