08 Nov 2022

Interview: APPEA Chief Executive Samantha McCulloch with Rebecca Levingston, ABC Radio Brisbane Mornings

7 November 2022 

Interview with Rebecca Levingston  

ABC Radio Brisbane Mornings Show 

Topics: Power prices, gas windfall tax, economic contribution of the oil and gas industry, 

Rebecca Levingston: If gas companies are making bigger profits, do they have an opportunity or an obligation to make your power bills smaller. The Federal Government is accusing gas companies of being greedy.

That was Industry Minister Ed Husic. Those comments were not welcomed by the oil and gas industry, a group represented by APPEA, the Australian Petroleum Production & Exploration Association.

Essentially, they are the voice of oil and gas in Australia and Samantha McCulloch is the Chief Executive of APPEA. Samantha, good morning. 

Samantha McCulloch: Good morning, Rebecca, thanks for having me. 

Levingston: Can big gas companies help Australians to afford their power bills? 

McCulloch: Rebecca, when we are looking actually at the role of gas in the power sector, it is important to note that while gas is critically important because it’s the fuel that is able to step in for example when coal-fired generators are not operating or when renewables are not able to feed into the grid at full capacity it is gas that fills that void.  

And we are seeing this increasing role for gas in the power mix. But down the east coast of Australia gas only supplies about 7% of power and it sets the price of power less than 20% of the time.

So, we just need to appreciate that when we’re looking at elevated power prices, and of course this is a concern for consumers and industry. We need to be looking at all the fuels across the power system for solutions. While gas plays that important role, it’s of course not the only fuel in the mix. 

Levingston: Well, let me broaden it out then, since you’ve brought in other fossil fuels. Is there an opportunity here for other fossil fuel companies to help Aussies out with their power bills? 

Because everyone’s stressed at the moment about the idea of paying 50%, a 56% rise in their power bills over the next one or two years? 

McCulloch: Yeah, what we’re seeing is of course elevated energy prices around the globe.

That’s due to Russia’s invasion of Ukraine and Australia has not been immune from those higher prices.  

So there’s been very strong demand for gas and for coal, also oil, as a result of the geopolitical context. And I think the key thing that particularly gas producers can do in terms of supporting, putting downward pressure on prices is really bringing on that new supply. This is going to be the key to ensuring that those prices can dome down for industrial users, for households, over the medium and long term. 

Levingston: But haven’t we got enough supply? I didn’t think that supply was the issue? 

McCulloch: Australia has abundant gas resources and Queensland in particular has an excellent history in terms of developing its gas resources and creating its LNG export industry. So, there is enough gas to supply the domestic market and of course the domestic market has always been a priority and has been well supplied.

But what we’re seeing increasingly – and this goes back to the power mix – is that there’s more and more call on gas for power generation, and that’s particularly in the southern states. And here we’re not seeing the investment in new supply.

So increasingly Queensland is actually doing the heavy lifting for the southern states in terms of sending gas south during those periods. For example, as we saw last winter when coal-fired generation wasn’t available and when renewables were operating at limited capacity. 

Levingston: But a lot of our gas is exported and it’s a good time to be in gas right now, isn’t it, profit-wise? 

McCulloch: Well, Australia and Queensland have done very well through their LNG investments. 

The gas industry has actually invested around $300 billion in LNG facilities in the last decade and Queenslanders, in particular, are now reaping the economic benefits of that. There are… 

Levingston: Samantha, though, sorry to jump in, because it just gets a bit confusing once we start talking about the sort of big picture, over long periods. At the moment, people are looking at their power bills and their gas bills specifically and going, “it’s going up”.

They are hearing about big gas companies making bigger profits. Is there any opportunity, is there any obligation on those gas companies to help Australians out? 

McCulloch: So, what the strong demand for our gas resources is delivering is more and more revenue for governments. So, we assess that the direct payments by the industry to governments this year will triple. So, that’s going to be an extra 9 billion or so dollars that’s available to state and federal governments to invest in schools and roads. 

Levingston: That may be the case, but I’m still bringing it back down to what people are paying for gas and they are seeing those profits of the companies that you represent. And actually, Samantha, if you don’t mind, just as chief executive of APPEA, like who do you actually represent? Because I called you the voice of oil and gas. Who are we talking about?  

McCulloch: So APPEA represents upstream oil and gas. And what that means is the producers of oil and gas and for your listeners, the gas industry also comprises you know, we produce the gas and that’s my membership.

And then we are of course, the pipelines and the transport of the gas and then there’s the retail markets. So APPEA doesn’t represent the retail end of that supply chain. The retail end is where many of your listeners would be used to interacting, for example, with their local electricity providers or their local gas suppliers.  

Levingston: Yeah, I understand that. So, what are the names of some of the groups you represent? 

McCulloch: So we have 60 members and they range in size. But the large ones that many would be familiar with would include companies like Woodside, like Santos, for example.  

Levingston: Yeah, because I guess I’m trying to, some extent, demystify a system that for most people is removed or opaque.

But at the moment, you know, when we have people like Ed Husic saying we’ve got a ‘glut of greed’, then people imagine there is someone sitting in boardrooms somewhere for Woodside or Santos – I mean, we’ve got a big building in the heart of the Brisbane CBD that says Santos – and the reporting is that there are billions of dollars’ worth of income being raked in, very little tax being paid.  

And then there is the consumer, the person in Brisbane who is walking past that Santos building who is worried about affording their bill. I guess, essentially what I’m asking is there a conscience within the industry where you guys are worried about Australians being able to afford their power bills?  

McCulloch: Look, we’re on the same page as everyone who wants to see power bills come down, who wants to see energy prices come down. The solution to that is really ensuring that there’s more supply in the market. This is a supply/demand issue to a large extent.  

But if I can just make a comment in terms of the revenues, of course, we don’t tax companies or individuals on revenues, we tax on profits.

And firstly, the industry has invested, as I mentioned, $300 billion in LNG facilities. Now these are very long-term, very high-risk investments and these investments, billions and billions of dollars are spent before any revenue is raised. And so, what we’re seeing now is you know, increasing returns to government, increasing tax payments because of the strong demand for LNG, and those benefits are flowing directly back into governments.

And in Queensland, the Queensland Government is forecasting around $6 billion in royalty revenue in the forward estimates period. Now that’s $6 billion for new schools, for hospitals, for roads, and this is essentially from an industry that virtually didn’t exist in Queensland sort of 10 to 15 years ago.  

Levingston: You’re listening to Samantha McCulloch, who’s the chief executive of APPEA. That’s the Australian Petroleum Production and Exploration Association  the voice of Australia’s oil and gas. This is ABC Radio Brisbane. And my name’s Rebecca Levingston. So how much have profits increased in the sector since the Ukraine-Russian conflict has broken out? 

McCulloch: Well, there’s no question that there’s been very strong demand for energy across the world, and that includes coal, it includes gas, it includes oil. We are receiving higher prices for our LNG exports.

But I would make the point that most of our LNG exports are sold under long-term contracts, deals that were struck many years ago.

That’s only around 10% of our LNG exports that are sold on the spot market that are receiving those kinds of currently higher prices that you see reported in the press predominantly… 

Levingston: So how much have profits increased? 

McCulloch: I can’t give you a figure. It would depend on the various companies. It’s important to recognise this is a commodity and a commodity cycle means there are high points and low points. Certainly, this is a high point but a few years ago many companies were making no money at all – you might recall oil prices dipping below zero for a period there a few years ago.

When it comes to the prices, though, what the industry is willing to do, and what the industry is committed to doing, is investing in that new supply which will be that key to really putting sustained downward pressure on prices for Australian industry and Australian households.

This has been acknowledged as a key solution by the Prime Minister, by the Leader of the Opposition, by the CEO of the Business Council of Australia.

We know we need to bring on that new supply and what the industry is really looking for is that clear runway where we can undertake the investment and bring on that new supply. 

Levingston: I appreciate it’s pretty clear you’re not going to talk about how much profits have increased. When your line is, ‘but its pumping in $300 billion of investment’… If you can say what the benefit is to the community, but you can’t say what the profit is, then people start to go hang on a second here have this good news from it.

There is a huge profit margin made here. This gas in our country. We have, as you said, an abundant supply. I’m just wondering where your industry is willing to compromise here? 

McCulloch: The industry invests heavily in this new development, new supply. It’s returning benefits directly to government revenue as I’ve already mentioned. We expect this to triple this year, that’s because of that high demand, for particularly LNG.

Levingston: So can we take it then that profits have tripled? 

McCulloch: Well, not necessarily. It would depend on the companies. It’s not a flat answer in terms of how much profits would have increased. And, of course, many of our companies including the two I have just mentioned before, Santos and Woodside, have overseas operations too, so there is a complexity there in terms of understanding the revenue streams of these companies.  

The point is that the industry is investing and delivering enormous value to Australians including employing more than 80,000 people across the country; it’s keeping the lights along the east coast and increasingly playing an important role in terms of supporting reliable and secure power for Australian households and consumers; and it’s supporting emissions reductions, not just here in Australia, but in overseas regions through those LNG exports. 

Levingston: That also, you would acknowledge, is an area of debate and discussion. And it’s an interesting time isn’t it with COP27 happening. There is a very strong discussion going on about your approach – you are saying you want more gas fields opened up – there’s a big scientific group who are saying we can’t afford to do that from a climate change perspective.  

And in terms of keeping people’s lights on, you would know also there are real alarm bells being sounded in the manufacturing sector, if we move from residential homes. Factories saying, “We’re not going to be able to afford to carry on if gas prices go up to the tune of 50, 56%, it’s just going to be too high”.

What do you say to people or businesses who are worried about affording that gas bill, Samantha? 

McCulloch: In terms of large industrial gas users, similar to the LNG story, most of the gas sold to those users is under long term contracts and 90% of the market is covered by long-term contracts.

According to the latest round of reporting, the price under those contracts is sort of between about $8 and $11-$12/GJ which are very internationally competitive prices. Yes, we want to provide affordable gas for Australian industry

The gas industry has always been an important partner for Australian manufacturing and the key to delivering that is investing in new supply and ensuring that there is more supply where it is being used, including in those southern states to ensure we’ve got sustainable and affordable gas. 

Levingston: How long does it take to get a gas field up and running? 

McCulloch: This is where we need a clear runway for that investment. We have seen unnecessary delays in approvals for new fields such as Narrabri. Narrabri, for example, in New South Wales could be up and running in 24-25. 

Levingston: And in the meantime, is there any crack in the idea of a gas export tax, of a windfall tax? 

McCulloch: These are questions for government, but I would make the point that our tax system as it applies particularly to export gas, or LNG, has been reviewed multiple times, four times since 2017.

It’s designed to recognise those huge capital investments that the industry makes, years and years before it makes any profits. The tax system is delivering for the Australian people.

As I mentioned, we’re expecting the tax take for state and federal governments to triple this year because of those higher prices for LNG exports so the benefits of demand for our resources is feeding directly back into government budgets. 

Levingston: So Samantha can I take it that… OK, you talk about long-term contracts, the opposition to an export tax, you see opening new gas as the only way of bringing down the power of gas in Australia? 

McCulloch: Investing in new supply will be the key for sustained downward pressure on prices. 

Levingston: Alright, we will keep in touch. And I really appreciate you taking the time this morning. It’s hard for most of us to wrap our minds around about how the industry works. The layers, it’s across countries, it’s across borders, it’s across long-term contracts. But I think it is really hitting home with people and their power bills right now. So, I really appreciate your time, Samantha. Thanks so much. 

McCulloch: Thanks, Rebecca.  

Levingston: Samantha McCulloch, chief executive of APPEA, the Australian Petroleum Production and Exploration Association.