17 Nov 2022

Speech: Outgoing APPEA Chair Ian Davies address to the APPEA AGM

Ladies and Gentlemen,

I begin by acknowledging the Traditional Owners of the land on which we meet today, the Whadjuk people of the Noongar nation and pay my respects to their Elders – past, present and emerging.

I also acknowledge my fellow Board members, our CEO Samantha McCulloch and her team at the APPEA Secretariat.

And most importantly, all of our members who in one way or another, contribute to oil and gas exploration and development in this country.

Each and every one of our members should be proud of the work we do to deliver reliable, affordable energy for Australia’s households, businesses, electricity generators and manufacturers.

We are also part of Australia’s proud history – and future – as an energy-producing nation for the Asian region.

Our resources have underpinned the economies and rising living standards of our neighbours, friends and allies in Asia for over half a century.

In turn we have benefited from their investment in the capital-intensive development of our resources and access to the enormous scale of their markets – generating jobs, business opportunities, regional development, export income and government revenue for Australians.

Very importantly, the economic and social security that has come with access to reliable, affordable energy for our Asian neighbours is the foundation of our own national security and a long period of stability in our region.

However, this is not a future we can take for granted.

The last year has been yet another characterized by incredible challenges for our industry.

A shortage of gas and rising prices reached crisis point globally and flowed through to our domestic markets here in Australia.

Underinvestment in supply since 2015 followed by the demand cliff that occurred in 2020 – the first year of the COVID-19 pandemic – was further exacerbated this year by sanctions against Russia’s invasion of Ukraine and Russia’s retaliation by holding Europe’s energy security to ransom.

The resulting global energy crisis comes at a time when the 2050 deadline for net-zero emissions is edging ever closer, yet the world is headed in the wrong direction.

Greenhouse gas emissions were their highest ever in 2021 as global electricity markets switched back to coal.

Even though renewables were added at record levels in 2021 and their contribution to the global energy mix has never been greater, 80 per cent of the world’s energy still comes from fossil fuels, the same as 45 years ago.

And in Australia, 92 per cent of our energy mix still comes from fossil fuels.

So, if the world is serious about net zero, then it has to be serious about decarbonizing these existing energy sources through technologies like carbon capture, use and storage (CCUS).

There is no IEA or IPCC scenario that does not rely on CCUS to achieve net zero by 2050.

And there is no industry better placed than ours and no country better placed than Australia to deploy this critical technology.

I am pleased to say that ALL of our APPEA members have committed to net zero by 2050.

Some have even more ambitious targets.

Yet, despite three decades of striving to replace fossil fuels with cleaner energy technologies, there is still an enormous way to go.

That’s because the technologies are not yet there, economically or at scale, for us to simply walk away from fossil fuels today – we have to have something to transition to.

The alternative is energy shortages and the very high prices that come when supply cannot keep up with demand.

It’s also because gas is used for much more than electricity generation – it makes things.

Let’s consider for a moment what a world without fossil fuels would look like.

Without fossil fuels – and that includes natural gas – the world could not produce the:

• 4.5 billion tons of cement
• 1.8 billion tons of steel
• nearly 400 million tons of plastics
• and 180 million tons of ammonia we currently produce each year.

Whist they may not be fashionable, these are the products that underpin our modern way of life.

While the war in Ukraine is part of the problem, energy prices have been rising for half a decade because of underinvestment in new supply as the world:

• has underestimated the ongoing strength of demand for fossil fuels through the energy transition,
• has undervalued supply diversity outside of OPEC+,
• and overestimated the capability and timeframes for renewables and other technologies to replace fossil fuels.

Australia should be at the top of the queue to develop new supply, having signed up to the Paris Agreement, with among the highest environmental standards in the world, a commitment to free trade and open, competitive markets – and with more than 200 years of resources at current production levels.

But this is not the view of some in our society who are not only calling for bans on new oil and gas development, but are mounting sophisticated, well-funded legal challenges and campaigns against our industry.

One of the most concerning developments of the past year has been the successful challenge of a NOPSEMA-approved Environment Plan after drilling had already commenced.

Our industry is absolutely committed to open, transparent and genuine consultation with Traditional Owners and community stakeholders about our activities.

Despite media reports that this was a case about inadequate consultation with Traditional Owners, make no mistake that this was a case squarely aimed at taking advantage of lack of clarity in the law to attempt to shut down our industry.

As a result, right now, sanctioned offshore projects in WA and the NT have vessels and equipment on standby at a cost of millions of dollars per day, investors are questioning the safety of their investments and a total of 35 Environment Plans are in limbo while the regulator and proponents assess how they can achieve certainty of project approvals going forward.

The regulatory streamlining intended in 2014 by the establishment of NOPSEMA as the sole environment regulator in Commonwealth offshore waters has in practice added complexity, time and uncertainty to approvals processes.

Reform will have to be a priority for the industry in 2022.

One of APPEA’s key roles is advocacy for the crucial role our industry and our products play in society today and their role in the energy transition over coming decades.

The critical importance of gas in the energy mix has continued to be recognised by experts internationally and at home – from the IEA to AEMO.

However, we have much more work to do to ensure the community at large understands how our industry, particularly gas, is such an integral part of our daily lives, our living standards and the transition to net zero.

We are a resource-rich, energy-producing nation.

The Albanese Government wants Australia to be a “renewable energy superpower”.

As Minister Bowen states, the Government has 85 months to reach its 2030 emissions target.

We support the transformation of the energy system.

We have backed targets and welcomed new technology that works at scale to meet our growing energy demands.

But those who oppose us want you to believe that stopping gas projects will speed up the energy transition.

It is not true.

Australia simply CANNOT achieve that, without natural gas.

Given the scale of the challenge before us we need every single lever to be pulled at the same time.

To reach net zero, we need all forms of energy to work together.

In the last month the UK has recognised it needs to act on its energy security and overturned a ban to allow more gas exploration.

It will issue more than 100 licences for new oil and gas exploration.

UK’s Climate Minister Graham Stuart told the BBC that plans to allow oil and gas exploration in the North Sea will be, quote:
“good for the environment” and “entirely compatible” with climate targets.

Here in Australia, the natural gas industry has announced more than $20 billion in the past two years in investment.

We all share a common interest in achieving this energy transformation in an orderly way.

But the demonising of gas and government and regulatory decisions that don’t support the billions of dollars in investment that is needed to support the energy transformation will simply:

• push up energy prices,
• put us at risk of a food crisis – because our food supply chain depends on fertilisers made from natural gas,
• threaten the reliability of our energy system,
• and jeopardise the very emissions reduction targets we are working to achieve.

When I reflect on my year as APPEA Chair, I am proud of the way we have stepped up as an industry to try to work constructively with governments on key policy challenges.

In particular, the east coast energy market:

• Finalising a Voluntary Code of Conduct for gas sales negotiations last December and making it operational last month,
• Renegotiating a Heads of Agreement between Gladstone LNG exporters and the Federal Government in September this year,
• Responding with more supply as gas was called on unexpectedly to replace coal and renewables outages in power generation last winter.

But energy prices – electricity and gas – remain stubbornly high compared to levels only a year ago.

As a result, governments continue to experiment with ways to bring prices down, ignoring the only sustainable, long-term solution to east coast energy issues – which is more investment in more supply.

There is no example anywhere in the world where market interventions such as price caps have worked.

On the contrary, there are many examples where they have had the opposite of their intended effect: killing supply investment, creating supply shortages, reducing competition and ultimately destroying the very industries that they were meant to save.

A healthy oil and gas industry is a healthy Australian economy:

• 80,000 high skilled, secure, well paying jobs
• $20 billion of new investments in supply over the last two years
• More than $70 billion in LNG export income, forecast to rise to $90 billion next year
• $14 billion in revenue for federal, state and territory governments, including nearly $2 billion from PRRT and almost $9 billion from corporate income tax

And, very importantly, Australian customers still enjoy a competitive gas price advantage, paying less than their Asian competitors for Australian gas, with very few exceptions when spot prices that affect 10 per cent of the market have spiked for short periods due to unexpected domestic gas demand spikes caused by volatile electricity markets.

In closing, I want to thank you for the opportunity to have served as APPEA Chair over the last year and as a Director for five years.

One of the Board’s achievements this year has been the appointment of our CEO, Samantha McCulloch, a leader with strong credentials in energy policy and the energy transition, having joined us after six years at the IEA in Paris where she was Head of CCUS.

I encourage all of you to get to know her and give her your full support in what will be a very challenging role over the years ahead.

Following today’s meeting we will have a refreshed APPEA Board and I wish the new Directors and the incoming Chair every success as they serve the best interests of our industry going forward.

I want to acknowledge the contribution of outgoing directors: Hitoshi Okawa of INPEX, Khoa Dao of ConocoPhillips, Matt Kay of Beach Energy, Shiva McMahon of BHP Petroleum and Kathy Wu of BP.

I have enjoyed working with all my fellow Directors and in particular I thank Vice Chair Meg O’Neill and Executive Committee Chair Frank Calabria for their exceptional support and collaboration over the past year.

Finally, without our members and the APPEA Secretariat, our industry would not have the voice it needs in Canberra, in our states and territories, or in communities around Australia.

Thank you for your support.