Interviewer: David Speers Subjects: BP, oil and gas drilling, Great Australian Bight, coal prices
DAVID SPEERS:
Alright, some news in the resources sector now. Yesterday in fact we reported this news, the global giant BP has decided not to go ahead with some major exploration in the Great Australian Bight. Environmental groups are cheering this. The South Australian Government’s most upset about it. Also today in the resources sector, we see coal prices really starting to take off particularly over the next few months for coking coal in particular. What does that mean for the Budget bottom line? Good news. And does it also make some coal mines that weren’t looking terribly viable, some that had closed, potentially reopening? With me now the Resources Minister Matt Canavan. Thanks for joining us this afternoon.
MINISTER CANAVAN:
Thanks for having me on David.
DAVID SPEERS:
Let’s talk about BP firstly. So, $1.4 billion they were going to spend on these – exploration drilling in the Bight, the Great Australian Bight. There was a sustained campaign from environmental groups about this. What’s your reaction to them pulling the pin on this?
MINISTER CANAVAN:
Well, look it’s very disappointing, it’s disappointing in particular for South Australia. South Australia’s a great place, I spent a lot of time in Adelaide in my career – but it desperately needs some economic activity. We’re doing our best as a government in terms of our defence spend there in South Australia but we’ve had projects like Olympic Dam and now BP on the cusp and fall over at the last hurdle. This is a commercial …
DAVID SPEERS:
[Interrupts] Why do you think it’s fallen over?
MINISTER CANAVAN:
Well, BP have put out their reasons for it …
DAVID SPEERS:
They’re saying the oil price.
MINISTER CANAVAN:
It’s their money, it’s not my money. They’re saying the economic environment generally and their decision to …
DAVID SPEERS:
[Interrupts] Do you reckon the environmental campaign had something to do with this?
MINISTER CANAVAN:
Well look, I can’t speak for BP. I do not know …
DAVID SPEERS:
It wouldn’t have made it easy for them.
MINISTER CANAVAN:
… I do think it’s important for Senators, and all politicians that purport to, want to support a strong South Australian economy, not to put up unnecessary barriers and blocks here. We always know the Greens are going to oppose everything, they ideologically oppose these kind of developments, but, you know, Senator Nick Xenophon who at times wants to support jobs in South Australia, has been playing footsie with the likes of the Sea Shepherd and others and I think he has to be held to account here that if you’re hauling in BP executives to the Senate, are we really sending the right messages there to overseas investors who want to spend billions in our country?
DAVID SPEERS:
Yeah, but it’s fair enough to look very, very carefully at this one. Isn’t it …
MINISTER CANAVAN:
Absolutely …
DAVID SPEERS:
… I mean, BP’s own track record, six years ago, the Deepwater Horizon disaster in the Gulf of Mexico, 800 million litres of oil spilt over 87 days there. Drilling in the Great Australian Bight would actually be more difficult than that.
MINISTER CANAVAN:
Well, that’s why we’ve got very stringent regulations in this country, that’s why we’ve got an independent, arm’s length regulator. It’s right and proper for questions to be asked of them about how they’re assessing that. They appear before Senate Estimates three times a year. I, of course, remain in close contact with them as a responsible minister. They were going through a very rigorous process. They’d actually knocked back BP’s plans twice to get more information and have more rigorous plans from BP. But we do need to decide as a country, do we want to attract investment like this? I mean, I do want this investment here. It’s not just for South Australia.
The information I have is that this region could potentially – it’s only potential – could be another North Sea. When the North Sea was discovered decades ago, that unlocked huge amounts of economic growth. The Netherlands still holds the record for the longest period of economic growth which followed the discovery of the North Sea oil fields. Now, that could be an opportunity on our doorstep. I think it would irresponsible of me not to do my best as the Resources Minister to properly uncover whether that is true, it may not be true, while also protecting our environment and delivering strong economic gains for the country.
DAVID SPEERS:
So you’re satisfied based on the independent regulator that it would be safe enough?
MINISTER CANAVAN:
Well no, hang on, because they hadn’t given approval yet …
DAVID SPEERS:
Right.
MINISTER CANAVAN:
… I’m satisfied that we have a robust and safe regulatory environment, we’ve had more than …
DAVID SPEERS:
So why should anyone else like Nick Xenophon be saying go ahead and drill?
MINISTER CANAVAN:
Well, it’s not about saying go ahead and drill, it’s about being reasonable and responsible here. I mean, is it appropriate to politicise these decisions in such a way, which is simply to try and curry favour with certain groups, not to get to the bottom of is this going to be the right project …
DAVID SPEERS:
[Interrupts] Well, you might say that but it’s also in trying to get an answer here.
MINISTER CANAVAN:
Well, I question sometimes the motives here. Sorry I’m cynical and sceptical, maybe more than yourself …
DAVID SPEERS:
[Interrupts] You’re a politician, you know the brief …
MINISTER CANAVAN:
… David, but I – so I kind of know how it works.
DAVID SPEERS:
Okay.
MINISTER CANAVAN:
But we have had more than 3000 wells drilled in our offshore territory …
DAVID SPEERS:
Yep, that’s true, that’s true.
MINISTER CANAVAN:
… in the past few decades …
DAVID SPEERS:
[Interrupts] So, what happens now do you think? BP – do they walk away entirely? Is there another player that might come in?
MINISTER CANAVAN:
So there is an issue here. BP has made commitments to do work in this area. They were less than the $1.4 billion. That was their longer term plans but …
DAVID SPEERS:
[Interrupts] In other parts of South Australia?
MINISTER CANAVAN:
No, in these tenement or permit areas, but they made commitments of over $500 million upon being granted these permits. They will default on a large chunk of those commitments and I will now discuss with BP how they can make good or how they enter into a good standing agreement there to do other work elsewhere given that they are breaching commitments they have made to us in getting these areas. Now that work obviously won’t be in these permit areas that they are seeking to surrender. They may be elsewhere in our offshore acreage, it may be other projects in South Australia. That’ll be a discussion I’ll enter into with BP along with the South Australian Government who has some involvement here as well.
DAVID SPEERS:
Now the other one I wanted to talk to you about is the coal price. Particularly for – well both thermal coal and coking coal but coking coal prices, as The Financial Review reports today, the industry here has secured contracts with the Japanese who are big buyers of our coal for the next three months. It’s going to see the price jump from, what is it, US$81 to …
MINISTER CANAVAN:
To about $200.
DAVID SPEERS:
… $200. That’s a big jump.
MINISTER CANAVAN:
Well, it’s good news for the country David, it’s good news for our Budget, good news for our economy. I mean, spot prices for coking coal have been elevated now for some months and everybody has been watching when this may deflate. It was also a question of whether they would translate into these quarterly contracts at those elevated prices …
DAVID SPEERS:
And it has.
MINISTER CANAVAN:
… as it appears to have done …
DAVID SPEERS:
[Interrupts] Is it going to last though because I see some analysts saying this is as good as it’s going to get.
MINISTER CANAVAN:
Look, there are questions over that. I wish I could predict coal prices David. I wouldn’t be in this game, I’d go off and earn a lot of money somewhere else. But I don’t know …
DAVID SPEERS:
You’re not budgeting on it from a government perspective …
MINISTER CANAVAN:
No, no, this is not our budgeted price. Obviously we’ll take it if we can get it, but most likely some of the reason for the elevated prices has been decisions in China around reforms in their coal mining sector, whether or not they last or production increases …
DAVID SPEERS:
I know you can’t forecast prices in specific resource sectors, but Andrew Forrest today was at the National Press Club and he said we’re probably at the – I think his words were “at the bottom of this cycle,” that “things are going to improve from here”. We’ve seen resources prices come off of course over the last couple of years but he reckons we’ve hit the bottom …
MINISTER CANAVAN:
[Interrupts] About the same time I got appointed the Resources Minister David [laughs].
DAVID SPEERS:
[Laughs]
MINISTER CANAVAN:
Look, I’m not going to be as brave as Andrew and make bold predictions. It’s a volatile global environment. You just have to look at the coking coal price, that it’s a steep cliff there, so whether or not that can be maintained is the question.
DAVID SPEERS:
Will it see some coal mines look more viable?
MINISTER CANAVAN:
Well yesterday we had one reopen, so it certainly will. The spot prices are also evident in thermal coal prices as well. They haven’t quite gone up by as much but they’re up roughly 50 per cent since their lows. That’s a big increase. So the talk only a year ago that somehow coal is on the way out, that all our mines would shut is proven to be completely wrong. I still don’t think that’s true. Yesterday Glencore announced they’d reopen the Collinsville mine which is great news for Central Queensland, 220 jobs …
DAVID SPEERS:
[Interrupts] Will this see the Adani mine finally get up and going?
MINISTER CANAVAN:
Oh look, again I don’t have any special insight except to say that Adani have consistently always said through peaks and troughs that they would like to proceed with this project. Their project is a vertically integrated one. So, they are seeking to secure long-term …
DAVID SPEERS:
Finance.
MINISTER CANAVAN:
Well, finance but also long-term supply of a feedstock for their power station. Adani are not a coal company, they’re not BHP or Glencore …
DAVID SPEERS:
They’re a power company.
MINISTER CANAVAN:
They’re a power company or infrastructure company and they want the certainty of the supply of product. So the individual dips and peaks of prices may not necessarily impact the decision.
DAVID SPEERS:
So, finally, just to wrap that up, that message then – because you’re right, some had said coal is on the way out. Some had even said we’re not going to see any new coal mines open in Australia because of what the coal price was doing, not to mention what’s been happening with global moves towards tackling greenhouse emissions. You’re saying coal ain’t dead yet. It’s got a future, it’s – we’re going to see new mines open.
MINISTER CANAVAN:
I think any reasonable analysis of the growing demand in Asia, the plans to open new coal-fired power stations over the next few decades, both in North Asia, our traditional customers but also in South East Asia and South Asia and India, shows that there is a lot of life in coal, yet, that we are – have some of the best coal resources in the world both in terms of quality and cost and therefore we are likely to supply a big chunk of the seaborne coal trade going forward which will still be very strong.
DAVID SPEERS:
Resources Minister, Matt Canavan. Thanks for joining us this afternoon.
MINISTER CANAVAN:
Thanks David.
