Zoe Yujnovich's Melbourne Mining Club Address
Feb. 13, 2019
As delivered 13/02/2019, Shell Australia Chairman, Zoe Yujnovich’s address at the first Melbourne Mining Club luncheon for 2019.
Thank you for the warm welcome and it’s wonderful to be here in Melbourne…
…home of the AFL…
…and where my team, the Eagles came away as victors in last year’s Grand Final.
But right now, September seems a long time ago.
Reflecting on what was achieved that day, I feel there are many lessons that are just as applicable to the corporate environment as they are on the sports ovals.
The sporting clubs that are successful are the ones that are professional, are business-like, holding both their administration and their players to a standard, beyond what might once have been expected of them.
Corporate life is the same.
We work in these complex businesses, with joint venture relationships, over multiple decades, with lots of unexpected things that can happen around us.
The consequences of recent royal commissions help to focus the mind on the importance that business and community leaders play in creating the right culture in their organisations.
In Shell, we often say we need to do the right thing, especially when we think no one is watching, because everybody is always watching.
This is the case in ethics.
This is the case in safety.
This is the case for the environment.
The greatest challenge comes not only in how we act today, but in acting today in a way that society will judge us in decades to come.
This is something we spend a lot of time thinking about to ensure our performance is delivered in a way that protects the reputation and brand of which we are the custodians.
As I turn to my day job, we have these sporting parallels in the Shell Australia portfolio: performance, passion and persistence.
In terms of performance, we have reshaped our business in Australia over the past decade. Indeed, as we have done, since entering Australia 117 years ago.
From 2014 to 2016, we divested our downstream fuels business, selling our 800 service stations, 30 terminals, the Geelong refinery and our aviation fuels business to a consortium headed by Europe’s Vitol group, now a listed company in this country, Viva Energy Australia.
Due to a brand licensing and proprietary technology agreement, these are still the businesses that we’re best known for when people think ‘Shell’ even though we are no longer the operator.
In 2016 we also completed the global acquisition of BG, which brought with it the world’s first coal seam gas to liquified natural gas project, QGC.
In terms of performance, today QGC is a world class operation.
To give you a sense of scale, QGC’s upstream operations cover an area the size of Belgium.
QGC is the largest single contributor of LNG in Shell’s global portfolio.
In another important development, we established the Shell Energy Australia business in 2017 in part to improve competition into the east coast gas market.
As a company that has supplied energy to Australian customers for more than a century, we understand the importance of evolving our business to market changes and adapting to customer needs.
While our business remains focused on producing gas and LNG, Shell Energy is considering how we can supply the products and services Australian customers want.
The energy transition will fundamentally change the energy Australians need and want, and we see great opportunities to bring compelling offers to market.
Our recent establishment of power trading in the Australian market reflects the fact that electrons will play a bigger role in that transition.
In terms of passion, we are enthusiastic about the potential in our portfolio for a new energy project.
On the drawing board are well-advanced plans for our first solar project − a 120-megawatt solar plant consisting of about 400,000 solar panels.
It is slated to be located on the land of our QGC onshore natural gas business near Wandoan in the Darling Downs of Queensland.
The solar project, if we green-light it, would help bring down the emissions footprint of onshore gas production at QGC.
The solar project concept supports our global pledge to reduce greenhouse gas emissions from our own operations.
Really, that’s something we are helping our overseas customers with today, through Shell’s existing relationship with companies such as Sonnen, headquartered in Germany.
Sonnen is a solar energy firm that is making significant inroads into residential intelligent battery systems overseas.
Indeed, Sonnen has already installed more than 3000 battery systems in Australia, and has plans for growing their business here.
And thirdly, in terms of persistence, our most ambitious new project in Australia is Prelude, located off the coast of northern Western Australia.
Prelude is the first-of-its-kind floating LNG facility that extracts natural gas from beneath the sea bed and liquifies it for offloading to LNG carriers that dock alongside it at sea.
As an engineer, I can say Prelude allows us to develop natural gas 450km off the coast of Broome.
In the 1980s the North West Shelf joint venturers popularised the phrase ‘the world’s loneliest gas’.
Well, Prelude makes the North West Shelf seem as remote as Richmond!
The result is a facility that, for the first time on this scale, will float over the gas field – all in the most remote location for any resource project on earth.
It might be simple in concept, but it is complex in execution.
Our Prelude teams are working around the clock in an involved commissioning process.
We have accomplished some critical milestones.
We introduced gas into the pipes in the second quarter of last year. In late December, we opened up a number of the wells to carry the first flows from the sea floor to Prelude floating above.
We’re not rushing the process.
We’re taking the time to do this safely and remaining in control.
Prelude is a multi-decade facility and, while we all find near-term milestones exciting, the success of Prelude will be measured by delivering sustained performance over a much longer time horizon.
And we’ll be keeping you abreast of its achievements.
So, that’s a snapshot of where we are right now.
I have mentioned a few decisions we are due to make. There are plenty of others. And, as I’m sure you will appreciate, these decisions are not made in a vacuum.
Inside Shell, we are guided by an overarching purpose to power progress together by providing more and cleaner energy.
Our three strategies to achieve this are:
- firstly, to be a world-class investment;
- secondly, to thrive through the energy transition as the system heads towards a low-carbon future; and
- thirdly, to maintain a strong social licence to operate.
So these are the factors we consider in making investment decisions; our potential investments must pass these criteria.
But there are significant external factors involved too.
Our big investment decisions are influenced by a multitude of tension points. I will talk about three of them: economic, political and societal.
I would like to spend a few moments exploring these, because they affect not only Shell, but all the investment decisions that will be made by people in this room.
To start, let’s take the economic tensions that affect investment.
In the eyes of visitors, Australia is the Lucky Country where its citizens live a relaxed, carefree existence under the sun. Beaches, barbecues and beating sporting opponents.
You can see where that comes from.
Australia is enjoying benefits of 28 years of consecutive economic growth, thanks to 30 years, or more, of economic reforms by successive governments.
From Whitlam’s tariff cuts in 1973…to the wave of economic reforms under Hawke and Keating…taxation reform under Howard and Costello…to recent free trade deals.
The undeniable fact is that we are a nation built on exports and open markets.
We are a nation that rode the sheep’s back, fed the Empire with our grain and supplied the ore that has been the backbone of the Asian economic miracle.
Removing trade barriers grows the size of the market into which we can sell our products.
Why would we want to limit our horizons to a $1.8 trillion domestic market, when there is a $110 trillion global economy right on our doorstop?
And at every step, Australians have been the real winners.
After all, one in five working Australians – more than 2 million – are employed in trade-related activity.
A bigger economy, more jobs and higher wages generate additional tax revenue, meaning the entire community benefits.
Australia’s economic reforms have delivered unprecedented levels of wealth and material progress to people’s lives: it’s easy to see the big houses, big internet TVs and big cars.
Despite this, not everybody in Australia feels like a winner.
Charities say more people are struggling to make ends meet, even in an economy where unemployment is at historic lows of around 5 per cent, a level that both major parties have described as “full employment”.
Cost of living pressures are mounting while wages stagnate.
People are increasingly worried by casualisation of the workforce, job insecurity and how they will survive in retirement.
The cost of housing has escalated dramatically over the past decade, whether as renters or home owners saddled with huge mortgages.
Easy personal credit over the past two decades has seen personal debt soar.
Combined, these factors leave people under a mountain of debt and straining to make ends meet.
So I can understand that people wince when they see their energy bills.
I have heard and read the demands for government intervention.
I have heard and read the demands to halt gas exports.
But blaming the increase in the price of gas on exports is wrong and cannot go unchallenged.
Yes, it is true that gas in eastern Australia is more expensive today than it was a decade ago.
The facts are that eastern Australia for many years benefited from cheap gas. It was a by-product of oil production in Bass Strait and the onshore oil fields in South Australia’s Cooper basin.
The oil paid for the development costs and underpinned infrastructure overheads.
But today the cheap gas is almost gone. New developments in Bass Strait and the Cooper are deeper and harder to extract – making them more expensive.
And unlike the developments of the 60s and 70s – there is less oil to underpin the development costs.
Take Queensland’s coal seam gas fields. These produce ‘dry’ gas, with no oil
So the gas needs to carry 100 per cent of the costs associated with exploration, development and distribution.
The result is gas that is more expensive to bring to market.
Furthermore, export orders provided the basis for the business case.
Gas exports from Queensland have unlocked the huge resource held within Queensland’s coal seams, a resource that would have stayed in the ground were it not for the economies of scale provided by the export industry.
Without exports, $200 billion worth of investment by gas companies would never have happened.
Without exports, Australia would be relying on imports, despite having huge gas resources in the ground.
Without exports, Australian consumers would be paying far more than they do today to cover the cost of exploration, development and distribution.
The second factor affecting investment decisions is political tension.
Political tensions are reaching a peak again, with a federal election due before long.
Energy and climate policies remain battlegrounds for the hearts and minds of voters.
We’ve all seen how difficult it is for all parties, irrespective of their ideology, to explain and sell these policies to political opponents and disenchanted voters.
In the time since World War II up to the defeat of John Howard in 2007, Australia had 11 prime ministers.
Since 2007 Australia has had six: five lost their tenure one way or another over climate and energy policy.
Across the western world, mainstream political parties are struggling to maintain traction and voter respect.
Majority governments are increasingly hard to form as disenchanted voters opt for micro-parties.
All of us here today should all be concerned about this, as our resources projects span several terms of government, and the last thing this industry needs are policy backflips and turmoil.
The forthcoming election should signal to the legislators and policy makers what Australians want: cross-party agreement on energy and climate policies.
After economics and politics, the third factor affecting investment decisions are the societal tensions.
As I mentioned, our ambition is to maintain a strong social licence to operate.
That public acceptance of what we do, and what we would like to do, is influenced by myriad factors.
Humans tend to act in their self-interest. Things that threaten our economic survival are strongly resisted.
And people who feel economically marginalised naturally look to things to blame for their predicament.
We have all seen what how the Paris yellow-vest movement grew from a protest against an environmental fuel tax into full-on street riots aimed at the French government.
You may recall, in stark contrast, we had placard-waving school children ‘on strike’ across Australia demanding more action on climate change.
It was even more telling that even when the French government backpedalled, the rioting in Paris continued, and threatened to descend further.
At risk is social cohesion.
Social cohesion is something that has always been robust in Australia but now looks more fragile than it has ever been since the Vietnam War moratoriums.
The divide between the haves and the have nots is deepening.
Often that manifests in a suspicion or loathing of government, immigrants and foreigners, as well as opening class resentments and divides along political alignments.
A common sentiment is that policy makers and elites have, in the eyes of these protesters, lost touch with ordinary folk.
Big business is not blameless here, either.
The erosion of public trust in big business mirrors the erosion of trust in political parties and religious institutions and is well documented, not the least of which in findings of Royal Commissions of Inquiry.
The levels of executive remuneration now regularly draw strikes from shareholders at AGMs, especially at a time of flat wages growth for everyone else.
The amount of taxes companies pay has never been more publicly scrutinised.
I’m proud to say the resources and energy industries are better than most when it comes to spreading the prosperity to communities.
I can’t overstate the importance of the industry’s investment to regional and indigenous Australians.
Investment in the Queensland LNG sector, for example, has breathed life into the regional economy – delivering well-paid jobs and a separate investment cycle that acts as a hedge in economies reliant on income from single agricultural commodities.
The Queensland LNG investment created 40,000 jobs during the construction phase and ongoing employment for 13,000 people.
Resource projects bring prosperity to regional Australia.
Resource projects bring training and high-skilled, well-paid jobs.
Resource projects provide a rewarding future for young people in towns.
As these skilled workers contribute to these productive economic areas, their labour will fuel both higher wages and further investment – ultimately leading to more and higher paying jobs.
As we heard in this very room last December, wages in the resources industry are the highest of all Australian industries.
Australia’s resources minister pointed out resource workers earn more than double the average wage.
But we must do a much better job of telling this regional development story.
Failure to do so simply arms the naysayers in capital city cafés.
There are of course a range of loosely to highly organised activists who want to close the fossil fuel industry down…
…irrespective of how strictly it adheres to environmental standards…
…irrespective of the employment it brings to regional Australia, and…
…irrespective of how necessary its products are to everyday life: for transport, heating, building materials, agriculture and manufacturing.
The point is, we need more and cleaner energy solutions developed, not fewer.
The industry needs more investment decisions to ready the supply, reliability and affordability of energy for the future.
More investment, not less.
To do this, we need to do one thing exceptionally well…and this is the challenge I would like to leave you with today.
The industry needs to advocate for pro-investment policies in a united way.
We must be consistent, we must be united, we must fight for the investment climate we know we need.
- We need to garner the support of our politicians so they understand what we need from government.
- We need to explain to our customers we are doing everything we can to ensure continued energy that is reliable and affordable.
- We need to win the public’s support so they understand that we are conducting our businesses ethically and for public good.
As an industry, there are three critical fronts we should be advocating strongly on.
Let’s deal with the thorniest first.
Climate and energy policy.
Yes, it may be a political third rail, yet it still needs to be confronted.
The recent IPCC report provided dire warnings about what a 1.5 degree rise in global temperature does to ecosystems and reefs…and remember, this is within the aims of the Paris agreement to restrict warming to well under 2 degrees.
So as business leaders we must maturely look at what we can do individually and collectively to reduce our greenhouse gas emissions and devise and explain how we are to produce more and cleaner energy that customers are able to pay for.
If we take the lead on suggesting approaches to this complex issue, it will send strong signals to government how to proceed.
As an industry we should encourage the next government − no matter what political persuasion − to introduce policies that encourage business to invest in solutions required.
Part of the role for government will be to encourage consumers and businesses into lower carbon choices.
But we are the ones who will need to advocate in a united way for parties to take a politically durable, bipartisan approach: our united advocacy can send strong signals for policy direction to provide investors with comfort and security.
The second front for industry advocacy is wages growth.
Stagnant wage growth is an issue fundamental to our ongoing national prosperity.
The statistics are compelling. After a period of high growth leading up to 2013, wages have stagnated across the economy.
While there has been much discussion on the best remedy to this stagnation, it strikes me the answer is in theory quite simple.
Wages, like most costs, are a function of supply and demand.
Stagnant wages are the product of easing jobs growth, at a time of similar growth in population.
So if we want to grow wages we must grow the economy and the number of jobs.
Which in turn will increase competition for the most productive workers.
Productivity is about working smarter.
It is about businesses investing in skills training and technology.
And it is about management growing the opportunity for Australian enterprise and Australian workers.
And the third front for pro-investment advocacy should highlight the benefits of free trade and open markets.
We must remind governments and the public that economies that turn inwards miss out on the benefits that come with entry to huge world markets.
We must remind people of the country’s export success story and that much of the goods and resources exported generate prosperity in regional Australia.
We must point out how damaging tit-for-tat tariffs are, and how trade sanctions can escalate.
Let markets function.
I would also add here, too, that artificial restrictions on access to resources for political reasons like we see here in Victoria over onshore gas, ultimately hurt all Victorians by reducing energy security and reducing cost competitiveness.
To summarise, the challenge for industry is to advocate that Australia needs policy that continues to attract investment opportunities.
This will help grow local economies to demonstrate to detractors in capital cities the essential role that the regions play.
To underline the importance of this, it’s useful to ask what would things be like if we don’t do this.
What if we aren’t a world-class investment destination?
What if we don’t help develop regional economies?
What if we don’t invest now for more and cleaner energy solutions?
The answer is we risk the possibility of re-writing the chapter on the past 30 years of Australia.
We absolutely must ensure we are not the first generation since World War II to pass on to our children a lower standard of living than we have enjoyed.
We want our future generations to not only survive − we want them to thrive.