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Hydraulic Fracturing in Australia

Glen

Short Paper to which Glen spoke in a panel session at the International Bar Association (IBA) Conference in Dublin, October 2012. Glen serves as Senior Vice Chair of the Environmental Health and Safety Committee of the IBA. A discussion on unconventional hydrocarbons in Australia should centre on Coal Seam Gas (CSG) and Shale Gas for at least 2 reasons:

  1. The size and potential importance of the reserves. It can be reasonably presumed that future demand for energy and the laws of Economics will drive greater production of on shore gas.
  2. The exploration for and production of CSG is already underway and further projects are currently planned.

This is a socially, politically and legally complex subject in Australia.

In the limited time available today I will explain the complexity a little further.

Australia has huge quantities of underground water but low rainfall in many areas. Water is therefore a precious resource.

Vast areas of the Country are farmed, yet Australia per capita is the most urbanised society in the world. These features: coal, water, farming and urbanisation are all relevant to Coal Seam, shale and tight gas realising their potential as energy sources.

The coal industry is big. Australia is the largest exporter of coal in the world. 75% of domestic generation of electricity is coal fired. Australia is the 4th largest producer of coal in the world and has the 4th largest reserves. Leading Government advisory bodies such as Geoscience Australia and the Australian Bureau of Agricultural Resource Economics (ABARE) consider the industry is underdeveloped. CSG exploration and production has grown significantly since 1994, and we now have 3261 wells in production in Queensland and 249 in NSW. The producers include Santos, British Gas and Australia Pacific.

Water is the central issue. In particular, there is competition for it, which creates a 2-3 way tension between the mining companies, farmers, and the green interest groups who, now counter intuitively, find themselves on the same side as the farmers in the fracking debate. Underground water is also seen as an important resource in Perth for the urban population.  However W.A. is on the periphery of the debate for now because of its distance from the East, its different geology and aqueous systems, and that its resources of shale and tight gas have not been tapped in any serious way.

In the East there is a major water system that is significant in 4 states, called the Murray Darling System. It is probably bigger than many countries. It has its own federal legislation and under that legislation, management, monitoring and regulation.

If you consider the complexity of water management in the East and take into account the production coal and the potential for CSG, you can understand why the debate in Australia is mostly about the East for now. However, that may change. You have probably heard of the off-shore gas industry in W.A. The reserves of on-shore light and shale gas are bigger. According to the U.S. Energy Advisory Agency, WA’s on-shore reserves of shale and light gas are the 7th largest in the world. They lie deeper than the Eastern reserves of CSG and remain largely untouched, as does much of W.A.’s deeper aquifer water reserves.

Turning more specifically to environmental law, I doubt anyone here is not aware of the environmental issues arising from fracking. They have their expressions in state and federal environmental law in Australia.

By and large the states have traditionally regulated mining, including land access, tenure, health and safety, water and the environment. Originally the Commonwealth had little power in these areas but in recent times its power has increased through the application of its constitutional responsibility for international law and in some cases, by agreement with the States.

Environmental Law started in the Australian States in the 1970s but was relatively innocuous until the early 1980s, when it developed rapidly into a separate and increasingly effectual area law. Federal intervention in the environmental arena again started off modestly but has increased steadily since the enactment of the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act). In all the states and territories, projects which may have a significant environmental impact must undergo an Environmental Impact Assessment under State Law. Operations must also be licensed under state environmental and water laws.

The right to access resources is covered by a combination of State mining laws, indigenous land rights and cultural heritage laws. The system of mining tenure approvals also contain their own environmental conditions.

In addition to the state approvals, federal environmental approval may be necessary where the activity in question is likely to have a significant effect of matters of national environmental significance.

The controversial nature of fracking and the unusual alignment of conservative rural based political forces with green interest groups has led the Federal Labor Government to prepare an amendment, aimed at fracking, to federal environment law.

The proposed new law - effectively a draft law which we refer to as a ‘bill’ -  was introduced into the lower house of federal parliament, the House of Representatives, on 22 March 2012. I will tell you more about it shortly.

You have to understand something about the political context here. The Labor Government is a minority Government which depends mainly upon rural independents and the Greens for its survival. In this political context, the  resources industry may appear to be under-represented. However, within the Labor party, which is a complex centre left party, there is a pro development stream which includes the Federal Resources Minister, The Hon. Martin Ferguson. There will be more about him later.

Turning to the Bill, it seeks to establish in furtherance of an agreement between the major Eastern States and the Commonwealth, made in February 2012, an independent expert scientific committee on coal seam gas and large coal mining developments.

I shall refer to it as the Committee. A form of the Committee already exists under an agreement between the major Eastern States, the Northern Territory and the Commonwealth, which took effect in February 2012. Its purpose is to advise these governments on CSG and large coal projects, which have or are likely to have, a significant effect on water. The advice would be given in approvals processes in those jurisdictions.

The Federal Environment Minister is responsible for supporting the committee administratively. The committee can also be requested by the Minister to provide advice on:

  1. how bioregional assessments should be conducted in areas of existing or proposed assessments;  [cumulative impacts]
  2. priorities for research projects;
  3. various matters relating to research methodology.

Although the Committee will be advisory and it is not an approval authority, precedents elsewhere, for example in W.A., would suggest that the Committee’s recommendations, which will eventually be public, will carry a lot of weight and effectively be difficult to ignore or amend.

Unsurprisingly, industry objects to another layer of federal legislation. On the other hand, the farming/green lobby is worried the Committee will be a toothless tiger. My view is that it will be a significant body and add to the power of the Federal Environmental Department, the Department of Sustainability Environment, Water, Population and Conservation (SEWPAC)and its Minister. In practice this powerful bureaucracy, which has a mixed track record, will support the Committee administratively and supply its own advice to the Minister.

This is a concern to me for some quite fundamental reasons. In particular there are no merits appeals against decisions and recommendations of SEWPAC. I believe this gives rise to fundamental rule of law and sovereign risk issues, which we can’t go into today.

At a practical level, the lack of merit appeals may lead to unaccountable, opaque and poor decision making. We can’t go into it now but that is the case, particularly from the standpoint of W.A.

Finally, the bill has yet to pass through Parliament because the two federal houses are not in agreement on important details.

Interestingly also, the Hon. Martin Ferguson MP, the Federal Minister for Resources and Assistant Treasurer, who I mentioned earlier, has announced another inquiry relevant to Mining, this time by the Productivity Commission. Its job is to:

‘…examine exploration approvals systems and processes, within and across jurisdictions, to assess their effectiveness and efficiency…. It will look at duplication of regulations across state, territory and commonwealth jurisdictions, costs of government processes and broader costs. ‘

Also, the minority Federal Government has an uncertain future, with elections looming next year. The opposition Liberal Party, which seems destined for government in coalition with the National Party has indicated that it would cut back SEWPAC to its core functions. How that will work is not clear, but it must be remembered that a future Liberal Government will need the support of its rural-based coalition partner.

The picture is therefore complex and unclear. I can’t tell whether there is a reasonable possibility that the bill will pass both houses before the term of the current government ends in late 2013.

In conclusion, while there is enormous potential for CSG and shale gas in Australia, the political system and the concomitant environmental law could make regulatory risk a major issue for some years to come. Hopefully some at least of these issues will be clarified after the next federal election.