Australia: New Greenhouse Gas Injection And Storage Permits For Offshore Petroleum

Key Point

• The Australian Government has released draft legislation for consultation which will establish the world's first framework for carbon dioxide capture and geological storage.

In an international breakthrough, the Australian Government, through the Offshore Petroleum (Greenhouse Gas Storage) Amendment Bill proposes to amend the Offshore Petroleum Act 2006 (OPA) by implementing an exciting new range of offshore titles for the transportation by pipeline and injection and storage in geological formations of carbon dioxide and (potentially) other greenhouse gases. The Bill will also make consequential changes to the offshore petroleum titles for which the OPA already provides. These changes to petroleum titles will apply only to petroleum exploration permits initially granted after the amendments come into force, and to subsequent titles in the same series. If successful, this Bill will create the world's first framework for carbon dioxide capture and geological store.

The OPA, as amended by the Bill, will continue to apply only in the Commonwealth offshore jurisdiction. The new titles will therefore be located in the area between the outer limits of the State and Northern Territory (three nautical mile) coastal waters and the outer limits of the Australian continental shelf. The new titles will not authorise activities that extend beyond the Commonwealth jurisdictional area.

A greenhouse gas injection licence will authorise the injection and storage of a "greenhouse gas substance". For practical purposes, when the amendments commence, "greenhouse gas substance" will mean carbon dioxide, together with any substances incidentally derived from the capture or injection and storage processes, with the permitted/required addition of chemical detection agents to assist the tracing of the injected greenhouse gas substance.

There is a power by regulation to extend the meaning of "greenhouse gas substance" to include other greenhouse gases. This regulation-making power is not expected to be used until the Protocol to the London Dumping Convention is amended to permit geological storage of those other greenhouse gases. In accordance with that Protocol, it will be an offence to add a waste substance or other matter to a greenhouse gas substance for the purposes of disposal.

The new kinds of titles established by the Bill correspond generally to the existing OPA petroleum titles. Briefly, the new titles are:

• a greenhouse gas assessment permit (similar to a petroleum exploration permit) which authorises the permittee to explore for a greenhouse gas storage formation and injection site(s);

• a greenhouse gas holding lease (similar to a petroleum retention lease) which enables the lessee to retain tenure over the acreage, if necessary, while a commercial source of greenhouse gas for injection is obtained;

• an injection licence (corresponds to a petroleum production licence) which authorises injection and storage of greenhouse gas;

• a greenhouse gas search authority (similar to a special prospecting authority);

• a greenhouse gas special authority (similar to an access authority); and

• a greenhouse gas infrastructure licence.

The pipeline licensing provisions will be expanded to provide for pipelines for greenhouse gas.

The Bill establishes three categories of "storage formation", with increasingly specific descriptors that correspond to the title-holder's improving level of knowledge about the formation. These categories of formation, and their place in the legislative scheme, are:

• A "potential greenhouse gas storage formation" is a part of a geological formation that is suitable, with or without engineering enhancements, for the permanent storage of a greenhouse gas substance. The Bill requires a greenhouse gas title-holder to notify the responsible Commonwealth Minister if the title-holder reasonably suspects that the title area contains a "potential greenhouse gas storage formation".

• An "eligible greenhouse gas storage formation" is a part of a geological formation that is suitable, with or without engineering enhancements, for the permanent storage of a particular amount of a particular greenhouse gas substance injected at a particular point or points over a particular period. A greenhouse gas title-holder who reasonably believes that the title area contains an "eligible greenhouse gas storage formation" may apply for a declaration that it is an "identified greenhouse gas storage formation" (see below).

• An "identified greenhouse gas storage formation" is an eligible greenhouse gas storage formation that is declared by the responsible Commonwealth Minister to be an "identified greenhouse gas storage formation". An injection licence authorises the injection and storage of a greenhouse gas substance in an "identified greenhouse gas storage formation".

The House of Representatives Primary Industries and Resources Committee commenced its investigation of the draft Bill on 19 May 2008 and is due to report by mid August 2008. Stay tuned to Insights for further information.

Implications for industry

The creation of specific purpose titles for carbon capture and storage opens up new opportunities for industry in this area. If the market responds positively to these titles (and if the economics can be sustained), a new industry will emerge dealing solely with carbon capture and storage.

There are several implications for the existing offshore oil and gas industry. One issue is that there could be increased competition for resources, eg. seismic survey operators, boats and drilling equipment, to explore for and operate new geological structures in the offshore environment. Another issue is that if the geological structures for carbon capture and storage exist in the same space as oil and gas fields, there may be competition for these locations for respective titles. Resolution of competing claims will need to be addressed.

There are also implications for onshore industries that generate carbon dioxide or other greenhouse gases in their operations. A viable carbon capture and storage legislative regime and industry creates an opportunity for the sequestration of their emissions. This could, upon the creation of an emissions trading scheme, provide a mechanism for industries to reduce their emissions.

The creation of these new titles forms part of the larger framework that is gradually emerging in Australia for dealing with the anticipated effects of climate change.

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