Australia: Australia's captial challenge and the role of gas - Draft Energy White Paper highlights

Last Updated: 13 January 2012
Article by Fiona Melville, Clive Cachia, Eric Fethers and Jennifer Mee

"Access to secure, reliable and competitively priced energy underpins almost every facet of life in Australia's modern economy. Without energy, our society cannot function."

On 13 December 2011 the Federal Government released the Draft Energy White Paper – Strengthening the Foundations for Australia's Energy Future (Draft White Paper).

The Draft White Paper attempts the herculean task of setting the framework for enhancing Australia's domestic and export growth potential in, as the above extract indicates, this most vital of industries.

This article addresses only two of the many inter-related aspects of the energy supply chain developments that need to occur for that goal to be realised:

  • the emphasis on retaining and attracting domestic and foreign capital
  • the increasingly important role of gas in Australia's energy mix and the need to improve the upstream regulatory environment in order to expand gas exploration and production.

There are of course many other aspects which are addressed by the Draft White Paper outside the scope of this article.

Capital markets

The Draft White Paper recognises that the capital requirements to enhance Australia's energy resource base will mean that our debt and equity markets will be tested like never before.

The Draft White Paper notes the following key drivers for such capital requirements:

  • size – the level of investment required in our energy supply sectors is huge and reflects the scale of transformation that is required. By way of example, the Draft White Paper notes that only around A$12 billion has been invested in new electricity generation since 1998 compared to approximately A$80 billion that will be required over the next two decades. By contrast since 2007 $140 billion capital expenditure has been committed on major new LNG exports which will put Australia on a par with Qatar as one of the world's largest LNG exporters. Additional investment needs in the broader electricity and gas sectors could exceed A$240 billion by 2030
  • foreign – given the relatively small domestic capital base, much of this capital will need to be sourced from overseas
  • equity – the fact that debt markets are also, at least in the short term, experiencing volatility, uncertainty and a lower risk appetite means that foreign equity investment must take an increasing share of these capital requirements.

The Draft White Paper stresses that the competitive nature of foreign capital means Australia must maintain attractive and stable investment and policy frameworks to ensure the energy markets provide the opportunity for sufficient commercial returns.

While short on detail, the Draft White Paper notes a range of broad policy implications of these drivers including:

  • privatisation – of government-owned energy infrastructure on the basis that continued government ownership of energy businesses impedes greater competition and efficiency and reduces market confidence by creating uncertainty and risk for private sector investors
  • deregulation – of retail energy prices where effective competition exists. This will support an appropriate return on equity investment. With the introduction of carbon pricing legislation, the Draft White Paper notes there is an opportunity for "no further market-distorting non-complementary interventions" such as state-based feed-in tariffs. In this context, the Commonwealth Government has also announced it will no longer proceed with emission standards or carbon capture and storage requirements for new coal fired power stations.
  • regulatory reform–of upstream gas markets and in particular:
    • those elements within the Commonwealth Government's immediate influence (ie offshore gas exploration and production)
    • those aspects which are currently politically sensitive (coal seam gas exploration and production).
These aspects are explored in greater detail below.

There are of course many other broader, non-energy market specific policy implications of such investment requirements which will need to be explored but which are outside the scope of the Draft White Paper. These include improving transparency in foreign investment regulation and reform of fundraising laws (although recent initiatives in promoting the corporate debt market are welcome).

The importance of gas

The Draft White Paper notes that "gas is expected to experience a golden age with growth increasing by 50% over the period to 2035 and equalling global demand for coal." This projected growth is attributed to its attractiveness in terms of lower prices and environmental benefits relative to some other non-renewable energy sources. It means that gas will increasingly replace liquid fuels in domestic and international electricity generation, transportation and fuel or feedstock for downstream industries. The need to develop Australia's significant gas reserves and to reverse Australia's declining share of international resource exploration expenditure has lead to a couple of headline regulatory initiatives by the Commonwealth Government.

1. Offshore petroleum regulatory reform

While onshore resource related activities are generally the responsibility of state and territory jurisdictions through relevant government departments, offshore petroleum activities in Australia are regulated by Commonwealth, State and Northern Territory Governments. Like the onshore petroleum regulatory regime, this offshore legislative framework aims to provide an orderly exploration and production of petroleum resources and sets out the rights, entitlements and responsibilities of government and industry. The legislation provides for a system of petroleum exploration, retention and production licence arrangements as well as core environmental, operation and safety regulation.

With the objective to remove the duplication and inconsistent administration of offshore and onshore petroleum activities, the following new agencies have commenced operations from 1 January 2012:

  • National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) – which regulates occupational health and safety and the day-to-day operational and structural integrity of facilities and wells in Commonwealth waters
  • the National Offshore Petroleum Titles Administrator (NOPTA) – which has responsibility for the administration of all offshore petroleum titles.

Offshore retention leases serve a critical function to encourage explorers to work in commercially challenging areas by providing a longer window of tenure security in which to bring discoveries into development. However, the Draft White Paper recognises that reform is needed to promote greenfields exploration in an environment of volatile and rising energy prices, game-changing technologies such as deep-water drilling and floating LNG and highly capital-intensive and long-term LNG developments. While noting that retention leases should not lead to warehousing of petroleum resources, the Draft White Paper clearly recognises that tenure certainty and security will be increasingly important to attract investment.

It is expected that the establishment of NOPTA will:

  • increase certainty on approval timeframes, parameters for ministerial decisions, commerciality tests (for the grant and renewal of retention leases) and triggers for review
  • provide consistent work programmes and monitoring to ensure barriers to commercialising resources are addressed
  • enhance transparency of the retention lease system and provide access to non-confidential information to better facilitate third party comments on applications and the promotion of alternative development options if projects are not progressed in a timely manner.

Further, the Draft White Paper flags the Commonwealth Government's willingness to explore a "project title" concept to provide reserve certainty for highly capital-intensive projects over long time-frames (30 years plus).

2. Upcoming reform of coal seam gas

The emphasis on gas development is likely to focus on the opportunity afforded by significant coal seam gas deposits in New South Wales and Queensland. In this context, the Commonwealth Government is currently working with those states (and others) to harmonise the coal seam gas regulatory regime nationally.

It is well known that there are significant community concerns regarding coal seam gas which largely centre on exploration and extraction access rights and the actual or potential adverse effects on agricultural production and water resources including subterranean aquifers.

The Commonwealth Government has initiated a programme to harmonise coal seam gas regulations through the Standing Council of Energy and Resources (SCER). The SCER is a body of Australian state and territory energy and resources ministers who, on 9 December 2011, released a work programme for such national harmonisation. The harmonisation is focused on six key criteria:

  • early advice to, and consultation with, all stakeholders
  • transparency of process, information and standards to all stakeholders
  • most efficient use of collected information within and between jurisdictions
  • the equitable representation of the rights and interests of all parties
  • incorporating appropriate review mechanisms for decisions
  • communication, explanation and education on the leading practice that arises from the application of these criteria to all stakeholders, including industry.

The work programme for this harmonisation process can be summarised as follows:

  • in consultation with state and territory governments, develop and agree on the proposed policy statement, work programme, summary of activities in place or being progressed by such governments and the community engagement and communications strategy
  • a stock take of existing Australian regulatory regimes of coal seam gas wells in each jurisdiction and a stock take of current Australian Government and industry practices, procedures and reporting requirements to determine common ground and where gaps may exist within and between jurisdictions
  • use this baseline approach to address each of the six criteria noted above
  • actual drafting of the harmonised framework (expected to conclude by June 2012) to address:
    • engineering and design issues (including commissioning, operational practices, decommissioning, hydraulic fracturing
    • water use, production, re-use and discharge including treatment, analysis and testing, storage and containment, discharge, run-off, salinity, reinjection and waste management.
  • evaluation and consultation with various stakeholders and prepare final paper and recommendations to the SCER to address any gaps in existing arrangements. This is expected to occur by September 2012.

The Draft White Paper invites public submissions on its contents before 16 March 2012 and open information sessions will be held in state and territory capital cities.

We will keep you informed of regulatory developments throughout 2012. Finalisation of the Draft White Paper, the SCER harmonisation of coal seam gas regulation and the upcoming Productivity Commission review into non-financial barriers faced by exploration companies, all point to 2012 being a year which promises significant change in the functioning of our energy markets.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions