National Harmonised Regulatory Framework for Natural Gas from Coal Seams

National Harmonised Regulatory Framework for Natural Gas from Coal Seams

State and Territory third Annual Implementation Update on the National Harmonised Regulatory Framework for Natural Gas from Coal Seams

December 2015

background

At the 31 May 2013 meeting, the COAG Energy Council’s predecessor, the Standing Council on Energy and Resources (SCER) endorsed the National Harmonised Regulatory Framework for Natural Gas from Coal Seams (the Framework). SCER agreed that the Framework should not be a static document and noted that it will be updated on a continuing basis by jurisdictions. Accordingly, states and territories (States) report to the COAG Energy Council on their implementation of the Framework on an annual basis.

To ensure that the Framework is current with leading practice across Australia, the Stateswere asked to make suggestions on how the Framework could be improved. These suggestions are included in the update. The States have also been asked to provide updates on achievements and challenges in harmonising their regulations over the previous 12 months and plans for harmonising legislation related to coal seam gas (CSG) and other unconventional gas sources in the year ahead.

The Framework delivers on a commitment by Australian governments to put in place a suite of leading practice principles, provide guidance to regulators in managing development of CSG and ensure regulatory regimes are robust, consistent and transparent across all Australian jurisdictions. The Framework focuses on four key operational areas of CSG, which cover the lifecycle of development: well integrity, water management and monitoring, hydraulic fracturing and chemical use.

The Framework acknowledges that CSG is, and will continue to be into the future, an important component of eastern Australia's domestic gas supply. It also acknowledges that as the Queensland liquefied natural gas (LNG) projects commence production and exports in 2015 the industry will contribute substantial export income to Australia's economy and is already creating jobs and business opportunities in rural and regional areas.

introuction

The 2015 annual State and Territory report on the implementation of the Framework provides updates from each jurisdiction. It highlights major achievements and challenges of the previous 12 months.

The major developments related to coal seam and other unconventional gas include:

1. Legislation passed by the NSW Parliament in October 2015 enables the implementation of many of the actions of the NSW Gas Plan, which was released on 13 November 2014. The NSW Gas Planintroduces a new framework for the gas industry in NSW and responds to recommendations in a number of reviews, including the Independent Review of Coal Seam Gas Activities in New South Wales by the NSW Chief Scientist and Engineer, released on 30 September 2014;
2. Queensland Gas Supply and Demand Action Plan announced on 7 July 2015;
3. Victorianparliamentary Inquiry into onshore unconventional gas in Victoria announced on 26 May 2015;
4. Independent Inquiry into Hydraulic Fracturing in the Northern Territory (the Hawke Inquiry) completed in November 2014 and published in February 2015.
5. South Australian parliamentary Inquiry into Unconventional Gas (Fracking)in the State’s South East, which is ongoing;
6. Western Australia’s parliamentary Inquiry into the Implications for Western Australia of Hydraulic Fracturing for Unconventional Gas, which is ongoing; and
7. COAG Gas Supply Strategy agreed by COAG Energy Council at its December 2014 meeting.

new south wales

Legislation passed by the NSW Parliament in October 2015builds on the NSW Gas Plan reforms to better regulate the state’s resources sector. The Legislation harmonises titles administration across mineral and petroleum titles and provides both industry and the community with greater clarity about the rights and obligations that come with operating in the NSW resources sector.

Specifically the approved legislative amendments create:

1. a new system for the granting of various mining and petroleum prospecting titles involving designation of areas of the State as "controlled release areas" for particular minerals and CSG,
2. a move towards greater consistency between mining and petroleum legislation, particularly in the administration of titles and compliance and enforcement,
3. an adjustment of the balance between mining and petroleum exploration titleholders and landholders,
4. giving the NSW EPA statutory responsibility for enforcement of "petroleum offences" under petroleum, planning and water legislation, and
5. generally aligning work health and safety laws at CSG sites with existing laws for mine sites.

On 26 March 2014, the NSW Government announced a freeze on the processing of new Petroleum Licence Applications and this freeze was later extended until 31December 2015.

In September 2014, the NSW Chief Scientist and Engineer released the final report of the independent review of CSG activities in New South Wales.The report found that many of the technical challenges and risks posed by the CSG industry can be managed. It also made recommendations about where governance improvements could be made.

In November 2014, the Government announced its NSW Gas Planand committed to implementing all of the NSW Chief Scientist’s recommendations.A number of actions in the NSW Gas Plan have either been completed or significantly advanced.

The NSW Government Petroleum Exploration Licence (PEL) Buyback Scheme commenced on 11 December 2014 and closed on 30 September 2015.The Scheme provided an opportunity for holders of PELs to surrender their titles and receive a payment for each title surrendered. By 1 November 2015, seventeen PELs were bought back and cancelled, reducing the footprint of CSG titles and applications from more than 60 per cent of NSW to around8 per cent. A further three PELs and 1 Petroleum Production Lease Application are due to be bought back, subject to the titleholder shareholders’ approval. If approved, this will further reduce the area of the NSW covered by PELs to around 7 per cent.

Under the NSW Gas Plan, the Government is establishing a State-wide Strategic Release Framework for petroleum titles. The Strategic Release Framework will ensure that any future gas exploration will only be permitted in areas of the State released for exploration, based on an assessment of environmental, economic and social factors. The freeze on new petroleum licence applications remains in place until the Strategic Release Framework comes into effect.

Under the Strategic Release Framework, only operators that meet the highest standards of financial and technical capacity will be able to obtain petroleum titles.

The NSW Government expunged16 Petroleum Exploration Licence Applications (PELAs) and Petroleum Special Prospecting Authority Applications (PSPAPPs) as part of the NSW Gas Plan implementation. Those current applicants, whose applications have been expunged will have the first right to apply should the area they had under application be released under the new Strategic Release Framework, for a proposed future title.

A new Minimum Standards and Merit Assessment Procedure (the Standards) came into effect on 1 July 2015. The Standards apply to applications, transfers and renewals of PELs.The Standards require petroleum explorers to meet minimum standards by demonstrating sound work programs and proven technical and financial capability. Petroleum explorers must now also commit to developing the State’s resources or risk cancellation of their titles.

Exploration work programs must include genuine community consultation, and sufficient technical and financial capability to ensure that approved work programs occur in an environmentally responsible manner. Additionally, explorers must demonstrate they have the financial capability to ensure the use of the best available science and engineering practices.

Petroleum explorers that do not comply with work programs or demonstrate non-performance in work areas, risk having their title cancelled or rejected for renewal. Titles may only be granted or renewed if the applicant has a satisfactory compliance record.

The Standards also incorporate the Government’s “Use it or Lose It” Policy. That is, the Government is seeking a serious commitment from petroleum title holders to invest in the state. If such a commitment to invest cannot be demonstrated, companies may face cancellation of their titles.

From 1 July 2015 the NSW Environment Protection Authority (EPA) became the lead regulator for compliance and enforcement of conditions of approval for gas activities in NSW, excluding work health and safety.Empowering the EPA to lead compliance and enforcement gives individuals and communities one place to go should they believe violations of title, regulations or law are occurring. It also means that one agency is able to focus its energies on undertaking compliance and enforcement work.

The EPA is not an approval body to the planning process, but continues to provide expert advice to the planning process, and will be consulted regarding proposed conditions to ensure they are enforceable, practical and reasonable.

In recognition of the fact that communities can be impacted by gas development, the NSW Gas Plan included a commitment to establish the Community Benefits Fund to fund local projects in communities where gas exploration and production occurs.Gas explorers and producers will be able to contribute to the Fund voluntarily. The Government will reduce $1 from a company’s gas royalty liability for every $2 paid into the Fund, capped at 10 per cent of the royalty take for each gas project in each production year.

The aim of the Fund is to ensure that local communities share in the benefits of gas development; and encourage the development of lasting and mutually beneficial relationships between gas companies and the communities in which they operate.On 21 May 2015, the Government publically released a discussion paper seeking industry and community views on how the Community Benefits Fund should be designed. Submissions are now being considered.

The Government amended the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 so that all gas exploration is assessed and determined by the Minister for Resources and Energy and all gas production is assessed and determined by the Minister for Planning or the independent Planning Assessment Commission. All gas activities continue to be subject to rigorous environmental assessment.

As part of the NSW Gas Plan, the NSW Government requested the Independent Pricing and Regulatory Tribunal (IPART) to recommend benchmark compensation rates for landholders in NSW who are hosting coal seam gas developments. These benchmarks are to guide landholders in negotiating compensation agreements with industry. The IPART Final Report is due late 2015.

Major reforms to NSW’s exploration regulations began to be phased in from 1 July 2015. Improved Management of Exploration Regulation (IMER) is a new framework for exploration licences and assessment leases that applies to all grant, renewal and transfer applications lodged after 1 July 2015, as well as the renewal of any petroleum exploration licences and petroleum assessment leases from that date.The reforms promote stronger accountability for industry, as well as the use of innovation and best practice to meet risk-based requirements. Most importantly, they offer the community greater clarity and confidence in the regulation of the sector.

The adoption of a risk-based regulatory framework is part of the NSW Government's Quality Regulatory Services initiative and brings NSW into line with governments in other states and overseas that have shifted to risk-based frameworks, particularly in the areas of exploration, mining and environmental protection.

New codes of practice developed as part of the IMER framework include:

• Exploration Code of Practice: Environmental Management
• Exploration Code of Practice: Produced Water Management, Storage and Transfer
• Exploration Code of Practice: Rehabilitation

Existing CSG Codes of Practice on Well Integrity and Fracture Stimulation are also under review.

New guidelines developed or revised as part of the IMER framework include:

• Exploration Guideline: Petroleum Land Access
• Exploration Guideline: Work Programs for Prospecting Titles
• ESG5: Assessment Requirements for Exploration Activities
• Exploration and Production Guideline: Petroleum Drilling and Well Servicing – Competencies
• Exploration Guideline: Annual Activity Reporting for Prospecting Titles
• ESG2: Guideline for Preparing a Review of Environmental Factors

The Division of Resources and Energy released “Common Ground” in June 2015. Common Ground is a web application that easily allows communities to search all coal, mineral and gas exploration or production titles in their region. The application aims to help communities better understand the mineral and petroleum assets under their feet and how those assets are explored and developed.

Common Ground provides a single access point to data held in numerous government databases, as well as access to information on the NSW regulatory framework, resource types, project boundaries, permitted activities and conditions applied to explorers.

Key features of Common Ground include:

• A free responsive web-based application that adapts for any PC, smart phone or tablet. There is no need to register or subscribe and it is available to anyone at any time
• Common Ground is automatically updated daily
• Map layers can be used to show resource titles in context with other land uses such as National Parks, reserves, Strategic Agricultural Land, Native Title areas and indicative CSG residential exclusion zones. They can also show geological or satellite information and a perspective from street view
• An A-Z company search function that lists all the current titles held by each company
• Clearly explains the role of communities, government and industry during exploration or production.

northern territory

There is currently no CGS exploration activity within the Northern Territory (NT). Coal sequences have been identified at depth in the south-east of the Territory, in the area of the Simpson Desert and there is a likelihood companies will be looking to undertake exploration of CSG in the future.

In early 2014 the NT Government commissioned Dr Allan Hawke to conduct an independent inquiry into the use of hydraulic facturing as a method to extract oil and gas resources in the NT. The Hawke inquiry determined that the NT laws were sufficient for the current level of oil and gas activities in the NT, but they needed to be updated and strengthened as the oil and gas industry grows.

On 26 August 2015 the NT Government released its Guiding Principles, setting out how the oil and gas industry is to operate while the recommendations of the Hawke report are progressed and a comprehensive review of the existing NT regulatory framework is undertaken.

As a result of the Hawke Inquiry findings the Department of Mines and Energy (DME) is undertaking a review of the NTPetroleum Act and drafting new Environment Regulations and Resource Management Regulations that will take into account all unconventional exploration including CSG, the environmental impacts and chemical use.

In addition, the Northern TerritoryWater Act 2011 is due to be reviewed and as such CSG Water Management impacts will also be considered.

queensland

Queensland Department of Environment and Heritage Protection (EHP) has begun work on a review of the current regulatory requirements for hydraulic fracturing and other stimulation activities. In the coming year EHP will develop outcome focused conditions for hydraulic fracturing and also make any other necessary improvements to the regulatory framework.

Queensland as part of the review of the Queensland Water Act 2000 is proposing to bring about a consistent framework for management of groundwater use by the resources sectors (petroleum and gas,and mining) including management of cumulative impacts. Office of Groundwater Impact Assessment (OGIA) is currently undertaking a number of hydrogeological assessments to revise cumulative impact assessment in the Surat Cumulative Management Area in later 2015.

In early 2014 EHP finalised two ‘general beneficial use approvals’ – one for irrigation of associated water and another dealing with various other uses (e.g. stock, stock intensive, research and development, coal washing, dust suppression). These general approvals, and their requirements, apply to those producers and users of water who choose to operate under them - without the need for a specific application to and approval from EHP. Their effect is that, where the water meets relevant standards, it can be used, as a resource, for these purposes. Further information on these approvals is here:

In implementing the purpose of the CSG Water Management Policy 2012, EHP is:

1. amending the definition of regulated waste, so that better quality CSG water can be transported and managed more simply; and
2. better defining standards for the use of CSG water to provide more certainty and clarity – (see comment above and the general beneficial use approvals for certain uses of CSG water).

During 2013 the Queensland government has continued to regulate a large and growing CSG industry. There are now over 7200 CSG wells in Queensland.

There are a number of reforms underway within the Queensland Department of Natural Resources and Mines (DNRM) that will affect CSG explorers and producers in various capacities.

The greatest change for the petroleum industry has been amendments made in the Land and Other Legislation Amendment Act 2014 to allow:

• a two-year extension on all current authority to prospect (ATP) work programs and relinquishment dates; and
• flexible relinquishment and work program arrangements for ATPs through the ability for ATP holders to apply for ‘special amendments’.

The Water Reform and Other Legislation Amendment Bill 2014was introduced into the Queensland Parliament in September 2014. It proposes to change the way that petroleum explorers and producers can access non-associated water, such as for hydraulic fracturing. To date, petroleum tenure holders have had an automatic right to take water forfor petroleum porduction, subject to make good obligations under the Queensland Water Act 2000. It is proposed that following a two year transition period, and five years for Surat Basin tenures, petroleum explorers and producers will require authorisation under the Water Act 2000 to take non-associated water, except where there is an exemption.