Australia: NSW opens the door to more CSG projects, but more details to come

Last Updated: 18 November 2014

More coal seam gas (CSG) projects are likely to be on the way, following the release of the NSW Government's new Gas Policy, but the freeze on new petroleum exploration licences will continue until the full framework is in place, which will be mid-2015. In addition, any current applications for licences will be extinguished by legislation.

The O'Kane report recommendations accepted

All 16 recommendations by the NSW Chief Scientist, Professor O'Kane, in her September 2014 report on CSG projects, have been accepted, including:

  • new data-gathering processes, and a comprehensive, publicly available information portal;
  • development of centralised risk management and impact prediction resources, to improve the quality and consistency of project environmental assessments;
  • creation of an expert scientific and engineering advisory body, to advise the Government on matters such as CSG industry impacts, science and technology developments, and the assessment of NSW sedimentary basins;
  • full cost recovery for the regulation and support of the CSG industry;
  • a plan to manage legacy matters (such as abandoned CSG wells and incomplete compliance checking);
  • a single regulatory regime for all onshore subsurface resources (excluding water) in the State; and
  • separation of the process for allocating rights to exploit subsurface resources (excluding water) from the regulation of the activities required to give effect to that exploitation (ie. exploration and production activities), but with a single independent regulator.

Petroleum exploration licences and applications

There will be a one-off buy-back offer of existing issued petroleum exploration licences for "limited compensation" offered by the Government. All current applications for licences will be extinguished by legislation (with the only compensation for applications being a refund of application fees). New licences will not be issued until the new framework is in place, which is expected to be mid-2015. These will be subject to new licence conditions and codes.

Petroleum exploration titles will be removed from National Parks, and other titleholders will be subject to a very strict "use it or lose it" policy.

Determining where CSG exploration can take place

A new Strategic Release Framework will control the release of areas of NSW for gas exploration from 1 July 2015. This will involve an assessment of economic, environmental and social factors, similar to the approach to coal exploration recommended by ICAC.

Petroleum licences will be put out for public expressions of interest, so that the Government can identify the most suitable and capable proponents.

All applications for gas exploration licences will be assessed and determined by the Minister for Resources and Energy, while either the Minister for Planning or the independent Planning Assessment Commission will assess and determine all applications for gas production leases.

Projects which provide substantive amounts of gas into the NSW market will be designated as Strategic Energy Projects and get a case manager to provide whole of government coordination for approval processes, but must still meet environmental standards and the community consultation requirements.

The current hold on exploration and extraction of natural gas from coal seams in the "Special Areas" zone in Sydney's drinking water catchment will continue while the Government does more research.

New royalties, gas pipelines and a public benefit test

A secure gas supply to NSW is a priority for the Government, but at present NSW currently imports about 95 percent of its gas from interstate. To increase fuel security for NSW:

  • the Government will work with other State and Territory Governments and the private sector to explore the possibilities for gas pipelines to NSW;
  • gas companies will be asked to demonstrate how projects that develop NSW gas reserves will benefit NSW gas consumers; and
  • royalties will be reviewed.

To this end, the NSW Government has also recently announced a Memorandum of Understanding with the Northern Territory Government concerning the development of a pipeline connection from the Northern Territory to the eastern gas markets.

The EPA to be the new regulator

The Environment Protection Authority will be the lead regulator for gas exploration and production.

As a consequence, it seems likely that requirements for EPA licences will be broadened to cover more gas projects.

Landholder and community compensation

Landholders will have a mandated right for compensation, and the Independent Pricing and Regulatory Tribunal will advise landholders on benchmark compensation rates for gas exploration and production.

Gas companies and the NSW Government will make contributions to a new Community Benefits Fund, which will fund local projects in communities where gas exploration and production occurs. The Government has said that it will consult specifically on its approach to the Fund, but has signalled already that up-front contributions to the Fund might generate credits against future royalty payments.

Next steps for gas in NSW

The Government introduced legislation to extinguish petroleum exploration licences on the day of announcing its Gas Policy, and that legislation is moving quickly through Parliament. It's also planning to start consultation on the proposed approach to licence conditions and codes this year.

Other legislation and policy documents are proposed, including changes to State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 to allocate responsibility for assessing and approving CSG projects, but the timeframe for these initiatives hasn't been publicly announced yet.

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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.

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