Earlier this year we published an article covering the recently adopted 'National Harmonised Regulatory Framework for Natural Gas from Coal Seams'. Since that time there have been a number of regulatory updates affecting CSG that we have been following, both at a Federal as well as at a State and Territory level. We have prepared a review of these updates below, and intend this article to form the first in a regular series of updates on developments in CSG regulation in Australia.
In late June, an amendment to existing Commonwealth legislation, the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act), came into force, bringing any coal seam gas or large coal mine development that is likely to have a 'significant impact' on a water resource within the scope of Federal oversight. This 'Water Trigger' amendment was both significant and controversial as regulation of water resources traditionally lies within State and Territory, not Commonwealth, jurisdiction.
The EPBC Act is the main legislative tool of the Commonwealth to regulate the environmental aspects of resources activities. This is the first time the Act has been extended to apply to a particular industry sector (namely, coal-related activities). It remains to be seen whether the Commonwealth will also seek to extend the EPBC Act's application to shale or other tight-gas extraction, which involve similar processes to CSG.
Due to the overlap the 'Water Trigger' causes between Federal and existing State and Territory water regulatory regimes, the Commonwealth announced on 16 October that it is seeking to endow State and Territory Governments with authority to assess compliance with the 'Water Trigger' under their existing environmental approval regimes, creating a 'one stop shop' for environmental approvals at a State or Territory level. This proposal should be welcomed by industry, as one would expect it will, hopefully, both simplify and reduce the regulatory burden of complying with the 'Water Trigger' alongside other State and Territory regimes.
The Queensland Government has already signed a Memorandum of Understanding (MoU) with the Commonwealth Government and aims to conclude a bilateral agreement, granting the Queensland Government authority to perform both State and Commonwealth environmental approvals, before the end of this year. The Commonwealth has stated that its aim is to enter into MoUs with all other States and Territories that would like to do so, with conclusion of bilateral agreements within 12 months after signing each MoU with a State or Territory Government.
In July the Queensland Government directed the Queensland Competition Authority (QCA) to conduct 'a comprehensive review of the State's approach to regulating the CSG industry, including options for regulatory reform and options for the Government to recover the costs of regulating the CSG industry based on best practice'.
In its initial 'Request for Comments', the QCA noted the complex regulatory framework faced by the CSG industry in Queensland, governed by seven separate items of legislation overseen by six different State departments. The QCA also noted that current regulation has developed in a piecemeal fashion; as the industry itself has grown from more or less nothing in a relatively short period, existing legislation has been extended and new items of legislation have been enacted to regulate the industry without a clear overall goal or coordinated approach. Therefore, at times it seems like there is very little consistency between applicable regulations, which can lead to duplication and onerous compliance costs for industry participants as well as additional enforcement costs for regulatory bodies.
The QCA are therefore seeking to identify unnecessary duplications within existing regulatory regimes and to recommend replacement regulations that create a consistent and effective regulatory regime. For example, in submissions received from Origin, Santos and Arrow Energy, all three identified water regulation as being overly burdensome and complicated, with 3 State legislative regimes applying alongside the new Commonwealth 'Water Trigger', all overseen and enforced by different agencies at different stages in the life cycle of a CSG project. The QCA seems to believe that greater efficiency could be achieved both in terms of regulatory enforcement and industry compliance if one agency could consistently apply only one set of effective rules,
The QCA also note that there is a shortfall of $11m in regulatory enforcement costs relating to the CSG industry in Queensland. The final report is intended to recommend ways in which this shortfall can be filled, but submissions received to date provide little in the way of suggestions to remedy the shortfall other than industry participants noting that care should be taken in regard to implementing regulatory reforms that incentivise regulatory cost-recovery at the cost of pursuing regulatory enforcement irrespective of cost, which should be a regulatory agency's only guiding benchmark. A concomitant risk is that such an approach may result in an increase in costs to industry, and cause the cost of CSG projects to increase further in order to meet the regulatory budget shortfall.
More will be known as to the potential final recommendations of the QCA after the initial draft report is released on 7 November. The final report is then due on 31 January 2014, after a final round of submissions from industry ending in early December has taken place. Once the final review is released we will be preparing a separate article on its recommendations and their implications for the CSG industry in Queensland.
New South Wales
On 4 October the NSW Government implemented an outright ban on CSG activities within 2 km 'exclusion zones' around residential areas and some 464 vineyards and 297 stud farms across the State. The State Government is also considering extending such 'exclusion zones' to 7 rural residential areas and even pre-emptively imposing such 'exclusion zones' on future growth areas in 56 councils across NSW.
Such restrictions are the first of their kind in Australian and were implemented without the opportunity for submissions from industry or interest groups. Whilst protection of the environment and, in particular, human health are vitally important, in a State that already relies on imported gas for 95% of its requirements, the unilateral imposition of these measures sends out a strong signal to current and potential CSG participants in the State. As at the date of this article we are not aware of any plans in other States or Territories to consider implementing similar measures to these 'exclusion zones' imposed in NSW.
A moratorium on fracking has been in place across Victoria since August 2012, pending finalisation of a report into the gas industry being prepared for the State Government by former cabinet minister Peter Reith. The report has now been finalised and is being delivered to the Victorian Government this week. Whilst it is not confirmed, press reports also suggest that the report will be made available to the public following the Victorian Government's review some time in early November. Once, and if, the report is made available to the public, we will prepare a separate article on its findings and recommendations and the implications for the CSG industry in Victoria.
During the course of the ban, and whilst the report has been being prepared, there have been leaks and insights, including direct quotes from Peter Reith, into the report's content. One such leak has been the reportedly strongly-backed proposal to give landowners a royalty from the gas extracted on their land by miners, rather than limiting landowners to land access and compensation payments for the mining activity, as has traditionally been the case. If such a reform is adopted, the unknown factor, and concern, for operators in the industry is whether State royalty payments (currently 10%) will remain at an unaffected level, and the proposed royalty payments to landowners will erode the margins of CSG operators in Victoria even further in comparison to CSG operations in other States.
One thing that is clear, from interviews with Peter Reith throughout the preparation of the report, is that Mr Reith is an advocate of the CSG industry and for making the industry in Victoria more competitive rather than stifling it.
In June 2013, a Bill was introduced in the South Australian Parliament by Green party member Mark Parnell proposing a 2 year ban on fracking activities in the State. The Bill has not yet passed the second reading state in the South Australian Parliament and, given the time that has passed since the first reading, it appears unlikely to do so.
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