Report of the Victorian Gas Market Taskforce released

The Victorian Gas Market Taskforce, which was led by former Howard Government Minister Peter Reith, has released its final report.

The Taskforce was commissioned by the former Victorian Premier, Ted Baillieu, in December 2012 to consider ways to improve the operation and efficiency of the east coast gas market, and increase gas supply.

The recommendations in the report support the development of the onshore gas industry in Victoria to increase gas production, in the context of the depletion of offshore gas reserves and projected increases in the price of gas.

Key recommendations

The report’s key recommendations include the lifting of the current ban on hydraulic fracking and the issue of further CSG exploration licences.

The report also recommends that a Gas Commissioner be appointed to promote community consultation and the dissemination of credible information about CSG, with a view to increasing community confidence in the CSG industry.

Further consultation

In releasing the report , Premier Denis Napthine said that this was the ‘first step in a consultative process to seek Victorians’ views on issues of concern in regard to onshore gas in Victoria’.

Feedback on the report is being sought until the end of March 2014, prior to a 12 month community consultation process to be facilitated by the Minister for Energy and Resources, Nicholas Kotsiras.

A report on the findings of this 2-stage consultation process is planned to be released in July 2015.

Ban on fracking to remain

Dr Napthine also announced that the ban on hydraulic fracking would remain in place until at least July 2015 while the consultation process was ongoing.

According to Dr Napthine, a key factor to be considered by the Victorian Government in relation to the development of the onshore gas industry is the impact to the water table and aquifers, and the Victorian Government would not support onshore gas production until there is scientific evidence showing that the industry would not risk Victoria’s assets.

The bottom line

While the Taskforce’s recommendations clearly support the development of the onshore gas industry in Victoria,  it is unlikely that there will be any movement towards the industry’s development until at least the second half of 2015.

For further information, please contact Myra Stirling, Senior Associate, Brad Popple, Solicitor, Melbourne or your usual Herbert Smith Freehills contact.

Victoria to raise the bar for mining exemptions

The Victorian Minister for Energy and Resources recently introduced the Mineral Resources (Sustainable Development) Amendment Bill 2013 (Vic) (the Amendment Bill) into the Victorian Parliament.

The Amendment Bill, if passed, will likely make it more difficult for land to be declared exempt from exploration and mining licences. The Minister will now be required to consider the value of mineral resources (including coal seam gas) before an exemption is granted.

Under the existing Mineral Resources (Sustainable Development) Act 1990 (Vic) (the Act), the Minister has the power to exempt any land from being subject to a licence granted under the Act (i.e., exploration licence, mining licence, prospecting licence or retention licence). Currently, when deciding whether to grant an exemption, the Minister must take into account ‘the social and economic implications of the decision’.

What will change?
The Amendment Bill would amend the Act so that the Minister would be obliged to take into account ‘the known or potential value of mineral resources on the land and the impact that the proposed exemption may have on that value’ when deciding whether to exempt land from being subject to a licence.

Why?
The amendment has been proposed following recommendations made by the Victorian Parliament’s Economic Development and Infrastructure Committee in its inquiry into greenfields mineral exploration and project development in Victoria (22 May 2013).

In particular, the Committee had recommended that the Victorian Government develops a land use policy framework to better manage competing land uses in Victoria.

Who will be impacted?
The impact of the proposed amendment is likely to make the Victorian mining legislation more conducive to the development of the mineral and extractive resources industries. In doing so, the changes will be of concern to community groups seeking to apply for mining exemptions to prevent exploration and mining (including in respect of coal seam gas) in their local areas.

The Amendment Bill also contains other proposed amendments to the Act which are aimed at reducing the administrative and regulatory burden on industry, including the introduction of statutory time frames for the processing of licence applications and the streamlining of work plan requirements.

For further information, please contact Myra Stirling, Senior Associate, Liam Hickey, Solicitor or your usual Herbert Smith Freehills contact.

Victoria declares ban on fraccing

The Victorian Government has declared bans on:

• approvals to undertake hydraulic fracturing or “fraccing” as part of onshore gas exploration; and
• the issue of new exploration licences for coal seam gas (CSG).

This move follows the ban on fraccing by the New South Wales Government, which has been in place since July 2011.

The measures taken by the Victorian Government do not affect exploration activity approved under current CSG exploration licences that do not involve fraccing, such as surveying and drilling for core samples.

It appears that the bans are a response by the Victorian Government to the pressure exerted by regional community groups, as described in our blog entry of 13 June 2012.

According to the Victorian Government, the bans will remain in place until a national harmonised framework for CSG has been developed. The work program to deliver this framework was announced in December 2011 by Energy and Resources Ministers from across Australia, and results of that work are expected in December this year.

The Minerals Council of Australia has said the Victorian Government’s measures in relation to CSG are ‘profoundly disappointing’. In particular, it states that the decision to rely on the development of a national framework for CSG is ‘concerning’ as the framework may be delayed for years, meaning that Victoria would miss the opportunity to develop an industry that could generate jobs and significant revenue for the state.

Similarly, the Australian Petroleum Production & Exploration Association (APPEA) has said that the Victorian Government’s decision to put the bans in place ‘sends the wrong message to investors and will see the state fall further behind Australia’s rapidly growing resource-rich states’.

There is currently no CSG production in Victoria, and exploration for CSG is in an embryonic stage. Fraccing does not currently occur in Victoria.

CSG: The state of play in Victoria

In recent weeks, the approach to coal seam gas (CSG) mining in Victoria has been explored and debated both in the Victorian Parliament and out in the farming lands of the State.

Recent Developments

In moves to understand how better to develop and regulate Victoria’s CSG potential the Victorian Parliament’s Economic Development and Infrastructure Committee released a report entitled ‘Inquiry into greenfields mineral exploration and project development in Victoria’ (Report) on 22 May. The Victorian Government also recently became a signatory to the National Partnership Agreement on Coal Seam Gas and Large Coal Mining Development (Partnership Agreement) with the Commonwealth, Queensland, New South Wales and South Australia.

The Report recommends the Victorian Government establish an appropriate process to enable open consultation with stakeholders, including local communities, for issues regarding future coal seam gas exploration and development.

If adopted, increased communication between different stakeholders may lead to more balanced and informed views. The risk, however, is that increased communication may not be sufficient to stymie the conjecture and angst surrounding unconventional gas extraction, with the result being that any potential mutual benefit for farmers and miners is buried beneath the noise.

The Partnership Agreement advocates a strengthening of the science underpinning the regulation of these industries by establishing the Independent Expert Scientific Committee on CSG and Large Coal Mining (IESC). The IESC aims to address public concerns about the actual and potential impacts of CSG and coal mining activities on water resources by increasing public access to information as the IESC will make public its advice and findings from any research it oversees.

Community Murmurs

Community groups in Toongabbie, Forrest, Colac and Wonthaggi are all calling for a ban on CSG and at minimum, a full scale public inquiry.

The concerns of the community groups campaigning against CSG are echoed by Mark Wakeham, Campaign Director at Environment Victoria (EV). In his presentation to the Committee, Mark raised a number of concerns, in particular the imbalances between:

• the assumption that exploration will be beneficial for the State and the continued environmental unknowns; and 
• the levels of strategic assessment of conflicting land uses, namely mining and agriculture.

In support for those community groups calling for a ban on CSG, EV has recommended a moratorium on CSG, as adopted by the NSW Government until:

• quantified measures indicate CSG operations actually operate at a lower emission level than coal fired energy generation; and 
• the full environmental impact of hydraulic fracturing is known. 

The Environment Protection Authority (EPA) has already identified a number of environmental impacts associated with coal seam gas extraction, including impacts on groundwater and also wastewater generation. It has been argued that the EPA could take a more active role in the exploration process to aid conservation. Of course this would add to the already increasing costs and pressures on mining companies.

What happens next

There is currently no CSG production in Victoria, or any applications to begin CSG production in the State. However ExxonMobil recently showed appetite to investigate CSG potential in Victoria when it entered into a farm-in agreement with Ignite Energy Resources to evaluate the scope for commercial production of CSG in the Gippsland Basin. It remains to be seen how the impacts of the Report, the Partnership Agreement and campaigning by the growing number of community groups will play out.