Vote of Thanks - CEDA Energy Market Outlook

~Check against delivery~

Good afternoon.

I would like to offer my thanks to the panel – Nino (Ficca, Managing Director, AusNet Services) and Audrey (Zibelman, Chief Executive Officer, Australian Energy Market Operator (AEMO)). It’s so refreshing to hear a balanced and deep conversation on these important and indeed complex issues as we all try to work through the migration that we are seeing in these markets.

Audrey, less than 100 days in the job – I have got to say that I for one am delighted that you have made the move from the US down here to the great southern land. It’s pretty impressive to hear the depth that you’ve accumulated, the knowledge of this market and the knowledge of the factors that are going to be important as we forge our way ahead.

One of the things that came particularly clearly through your talk was the call to action – we need to be decisive, we need to break through indecision and move forward. We can’t do that in isolation. We need very much to do that together as all participants in the market.

I will offer a couple of comments in addition. In my area of particular focus in the energy market is in the gas side of the energy market, the transition we are going through and the outlook that we have.

As Audrey pointed to in her remarks, gas, in addition to electricity, is going through a really fundamental change, really a once in 50 year change. As we have seen in a very short order, demand in eastern Australia more than tripled. We have moved from a situation where we’ve had abundant and low cost supply feeding a fairly well understood demand outlook and demand centres across eastern Australia to something which is now different, far more dynamic and indeed more uncertain.

My company Esso has been operating the Bass Strait business for almost 50 years and has really been one of the mainstays of gas supply into eastern Australia, along with some others such as the Cooper Basin in Central Australia.

If we look back more than 50 years, I must say a little before my time to directly remember, the gas that was available tended to be cold ring gasification gas that was relatively small volumes, relatively expensive. Then we had these low cost, abundant supplies come on from Gippsland and a few years after from the Cooper Basin. That has predominantly come from three very large, high quality fields in Gippsland by the names of Barracouta, Snapper and Marlin.

And the great paradox as I tend to describe it is that as a time where the demand side of the equation is so dramatically changing, the supply side of the equation is also changing. We are looking down towards the decline of these great old three sisters as we call them and looking for what are the future sources of gas, not only in our operations but what are the future sources of gas that are going to provide the sort of reliable, secure and affordable supplies for consumers into the future in eastern Australia.

So the balance we have had over the last 40 to 50 years has been the abundance of this gas. It has been by all world measures some of the cheapest gas available in the world. It’s been an exceptionally low cost gas and without doubt it’s created a strong basis and environment for significant economic growth.

Now we’re all, as participants within this energy market, looking at how we manage through a shock or disruptive change such as we’re seeing and manage that transition in a way that provides a security that maintains to the degree that can be maintained, the affordability and the equilibrium within the market. 

Our part of that, at this point, is that we are producing Longford gas plant in Gippsland at record levels. We’ve never pushed our operation as hard as we’re pushing it last year and this year. Our objective is to not only provide those volumes but provide them in the most reliable way we can, recognising that we’re pushing the operation relative to what we’ve done in the past.

We’ve just brought online in the last few months, the largest, most expensive domestic gas infrastructure project ever undertaken in eastern Australia. It’s called the Kipper Tuna Turrum project. We have spent about five and a half billion dollars to bring a couple of important new fields on and associated infrastructure to process that gas.

We have teams of our engineers and geoscientists working hard now and looking ahead at what are the next opportunities to develop resources that we know about in Gippsland but are clearly tougher to develop. But also looking carefully at what more might be out there, what might be areas we can explore for and hopefully find some additional resources we can in future bring online.

So all of this adds up to particularly exciting and challenging times for the energy markets generally. All of the discussions that we have had of the day-to-day challenges within the power system market, certainly, we very much drew from many of the challenges of supply and the gas side of the equation. I really do look forward Audrey to your role, along with your counterparts at the Australian Energy Regulator (AER) and the Australian Energy Market Commission (AEMC), to help steer a course, to help work through bringing clarity to what needs to be done and a conscious and consistent order as we migrate through these challenges. So thank you once again.

Finally, a word of thanks also to CEDA. I think an open and a technically-focused conversation like we have had today is extremely important to focus knowledge and focus attention on what we can do and what we need to do. I really appreciate CEDA for providing the opportunity to do so.