Australia: WA Parliamentary Inquiry into fracking could mean changes to the regulatory regime

Key Points:

Both current and future proponents need to be prepared for further changes to the regulatory regime for fracking, and could see increases to their compliance costs, as a result of the new WA Parliamentary Inquiry.

The Western Australian Parliament recently commissioned the Standing Committee on Environment and Public Affairs to undertake an inquiry into the implications of using hydraulic fracturing, or "fracking", for recovering unconventional gas from accumulations located in Western Australian deposits.

This is the first parliamentary inquiry in Australia to consider such implications and the results are expected to inform future policy decisions regulating the practice.

Why is fracking an issue in Western Australia?

What differentiates unconventional from conventional gas resources is the low permeability of the source rocks in which it is found. Specifically, unconventional gas does not readily migrate from the source rock to the well without artificial stimulation techniques. The most common of these is fracking.

Shale and coal formations have been known prospective natural gas targets for many years, but have remained undeveloped due to technical challenges and the relatively high cost of recovering gas from such formations. New technologies, combined with fracking have, however, unlocked vast natural gas deposits from shale and coal formations previously thought to be unrecoverable. These resources stand to radically transform the global energy industry. Recent investment in the sector, particularly in North America, has been substantial.

With an abundance of unconventional gas resources identified in both the Canning and Perth Basins, its development presents an unheralded opportunity for the State to establish security in energy supply for the domestic market, together with a potential source of cheap feedstock gas for export LNG projects.

The fracking process

Fracking involves isolating sections of a well and pumping fluid (ie. water and fracturing chemicals) and a proppant (generally sand, glass beads, epoxy or silica sand) through perforations in the well-casing and into the resource itself. Fluid is pumped into the resource at a high pressure, sufficient to fracture the formation, while the proppant is used to keep the fracture open. Fracking thereby liberates the gas present in the formation and enables it to be effectively recovered.

Public concern about fracking

Concerns about the fracking process have been in the public spotlight for some time. Much of the concern has centred on the use of harmful chemicals in the fracturing fluids and the risk of groundwater contamination. The massive water requirements for fracking also involves serious environmental challenges, including aquifer depletion and issues associated with the storing, transporting, treating, and disposal of wastewater.

In2011, the WA Department of Mines and Petroleum (DMP) commissioned an independent report, "Regulation of Shale, Coal Seam and Tight Gas Activities in Western Australia", to examine the existing regulatory framework for the extraction of unconventional gas within the State. It assessed the capacity of the Petroleum and Geothermal Energy Resources Act 1967 (WA) and associated regulations to regulate unconventional gas activities, as well as other issues that the DMP may consider when managing extraction.

The Report followed widespread community concern over a number of reported incidents in the coal seam gas industry in Queensland. Added to these incidents is a growing perception that fracking chemicals pose an unacceptable risk to the wellbeing of humans and the environment.

The Report found that while DMP processes were, in the most part, adequate to ensure the management of risk across environment, workforce safety and resource management, the regulatory regime lacked legal enforceability. It recommended a number of regulatory enhancements to the industry including improved transparency through the public release of approved Environment Management Plans (EMPs), chemical disclosures and compliance measures.

The DMP's response was released in October 2011.

The report catalysed significant regulatory change, in the form of the Petroleum and Geothermal Energy Resources (Environment) Regulations 2012 (WA). The Regulations now require all onshore petroleum activities in WA (including fracking) to have an approved EMP. Further, the EMP must detail all chemicals and substances used in treatment fluids for drilling or fracking, or otherwise introduced into a well, reservoir or subsurface formation, in the course of the activity. Public disclosure of such information was not required before the Regulations came into operation in August 2012.

Terms of reference of the Inquiry

While the Report dealt with a number of regulatory shortcomings, the Committee appears more focused on environmental sustainability, and have identified the following draft terms of reference for the Inquiry:

• how hydraulic fracturing may impact on current and future uses of land;
• the regulation of chemicals used in the hydraulic fracturing process;
• the use of ground water in the hydraulic fracturing process and the potential for recycling of ground water; and
• the reclamation (rehabilitation) of land that has been hydraulically fractured.

Public submissions on these are invited from interested parties until 20 September 2013.

Consequences of the Inquiry

The Inquiry puts a spotlight on past, present and future fracking activities and raises uncertainty about regulatory practices in Western Australia. In light of the impact that the Report has had on regulatory practices, proponents should be aware that that similar changes could result from the Inquiry. Consequently, some projects may be delayed until the Inquiry is further progressed.

Either way, both current and future proponents need to be prepared for further changes to the regulatory regime which could see increases to their compliance costs.

The Inquiry is expected to take approximately two years to complete. We will continue to monitor its progress.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.