European Union: ECJ Rules On Exploratory Drilling For Natural Gas And Mineral Oil

Facts

In August 2011 the Ministry of Economy authorised the Austrian crude oil exploration company Rohöl-Aufsuchung AG to undertake exploratory drilling for natural gas and mineral oil within the Austrian municipality of Straßwalchen. If exploration was successful, the company had authorisation to produce a total of 1 million cubic metres of natural gas in order to prove that drilling was economically viable.

Before the authorisation, no environmental impact assessment under the Environmental Impact Assessment Act 2000 had been conducted. The municipality challenged the authorisation on the grounds that, among other things, the exploratory drilling was subject to an environmental impact assessment, as the commercial extraction project exceeded the extraction thresholds set out in Annex 1(14) of EU Directive 2011/92/EC and Annex I(29) of the Environmental Impact Assessment Act (ie, 500 tonnes of crude oil per day and 500,000 cubic metres of a natural gas per day).

The Supreme Administrative Court referred the question of whether the exploratory drilling and trial production constituted a commercial purpose (and thus triggered the obligation to conduct an environmental impact assessment) to the European Court of Justice (ECJ) for a preliminary ruling.

Decision

On February 11 2015 the ECJ issued a preliminary ruling,(1) stating that Annex I(14) of the directive did not apply to exploratory drilling. The court held that exploratory drilling is used to determine the presence of hydrocarbons in order to calculate the amount of hydrocarbons that can be extracted per day. Therefore, test drilling precedes the legal qualification requiring extraction facilities to conduct environmental impact assessments under Annex I(14) of the directive.

Further, the thresholds set out in the act and the directive relate to exceeding daily extraction amounts, while the Ministry of Economy's authorisation provided only for a total extraction amount; as such, the ECJ held that the thresholds did not apply. According to the ECJ, the surpassing of daily thresholds also indicates that under Annex I(14) of the directive, large-scale hydrocarbon extraction facilities that operate for a specific period must conduct environmental impact assessments.

However, the ECJ noted that not all exploratory drilling falls outside the scope of the directive. Annex II(2)(d) of the directive provides that EU member states may require environmental impact assessments for deep drilling projects (including exploratory drilling for natural gas and oil). Member states are responsible for determining (through case-by-case examinations or threshold criteria) whether a project has a significant impact on the environment and thus requires an environmental impact assessment. In its assessment, the national authority must examine the project's potential impact jointly with other projects. Further, different types of project must be included in the assessment.

Comment

Although the ECJ proposed a subsidiary environmental impact assessment for trial exploratory drilling by means of a facultative environmental impact assessment, most of the exploratory drilling for, and trial production of, natural gas and petroleum within Austria will remain outside the scope of the act. Although Annex I(28)(b) of the act requires environmental impact assessments to be conducted for the construction of deep-drilling installations (ie, depths of 1,000 metres or more) and Category A protected areas (ie, protected areas under the EU Birds Directive 2009/147/EC, the EU Habitats Directive 92/43/EC, state nature protection laws or protected forests), it explicitly exempts trial and prospective drilling. A supplement(2) to the act reasons that this exemption exists because test drilling has a relatively minor impact on the environment.

Exploratory drilling that does not fulfil the generic tests set out in Annex I of the act may be subject to an environmental impact assessment if it:

  • is spatially related to other projects and together they cause significant harm, disruption or adverse effects on the environment; or
  • is conducted in preparation of the extraction of natural gas or mineral oil from unconventional reservoirs by means of hydraulic fracturing (Annex I, Article 28(a) of the act and its supplements,(3) which explicitly provide that all activities (including test drilling) relating to hydraulic fracturing require environmental impact assessments).

This article was edited by and first appeared on www.internationallawoffice.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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