SUMMARY
In December 2010, the first offshore petroleum exploratory well off the
coast of NSW was drilled in Petroleum Exploration Permit 11. This well was
located primarily in Commonwealth waters 61km east of Newcastle. However, at
this point in time, no gas has been found. Facts and figures on gas
exploration, production and consumption in NSW, along with information on
Petroleum Exploration Permit 11, provide the context for an overview of
Commonwealth and NSW regulation of the offshore upstream petroleum sector.
Gas in NSW: exploration
Gas is Australia's third largest energy resource after coal and uranium.
However, as of December 2008, gas resources formed a relatively small component
of NSW's total economic demonstrated energy resources. [2.1]
Total petroleum exploration expenditure in NSW reached almost record levels
in the four quarters between December 2009 and September 2010. Acreage release
also reached record levels in 2009-10. A significant proportion of the State is
now covered by petroleum exploration titles. [2.2]
Gas in NSW: production and consumption
NSW produced 5 petajoules of gas in 2007-08, all of which was coal seam gas.
In comparison, in the same time period, 2,040 petajoules of gas was produced
Australia-wide. [2.3]
NSW consumed 128 petajoules of gas in 2007-08, therefore making it a net
importer of gas from other States. In 2007-08, gas comprised 8.4% of NSW's
total energy consumption. NSW's total primary energy consumption is predicted
to increase at 1.2% per annum over the next 20 years. In addition, over 8,000
MW of gas-fired power generation is soon expected to come online. [2.4]
Petroleum Exploration Permit 11: location, exploration and ownership
Petroleum Exploration Permit 11 (PEP 11) is located primarily in
Commonwealth waters off the NSW coast between Newcastle and Wollongong, and
covers over 8,200 km2. It covers a portion of the offshore part of
the Sydney Basin – a proven hydrocarbon basin in which the Hunter
coalfields are located. Prior to December 2010, no offshore exploratory wells
for petroleum had been drilled in the Sydney Basin. However, over 70 wells had
been drilled in the onshore sector, almost all of which had found gas.
[3.1]
PEP 11 was first surveyed in 1981. The most recent survey involved the
construction of an exploratory well by Advent Energy, which has an 85% share in
the title. The well was drilled in December 2010, 61km east of Newcastle. In
late December, Advent Energy released an independent report which concluded
that PEP 11 may be covering a 'potential Giant Gas province'. However, on 29
December 2010, Advent Energy announced that the exploratory well had failed to
find gas. Advent Energy plans to drill more exploratory wells in the near
future. [3.1 and 3.2]
Petroleum Exploration Permit 11: key issues
For every action undertaken in PEP 11, Advent Energy was required to have an
Environment Plan approved under the Offshore Petroleum and Greenhouse Gas
Storage Act 2006 (Cth) by the NSW Government. Each Environment Plan had to
identify possible environmental impacts and risk management procedures for each
impact identified. The northern part of PEP 11 is located within the Hunter
Area for Further Assessment – an area identified by the Commonwealth
Government for possible inclusion in a nationally representative network of
marine protected areas. The northern part of PEP 11 is also located offshore
from the NSW Great Lakes Marine Park. [3.3]
According to the Environment Plan for the exploratory well, few
socio-economic impacts were expected by Advent Energy. However, most of the
media coverage in newspapers like the Newcastle Herald has identified
community concerns regarding offshore drilling. Objections raised by those
opposed to the drilling include concerns about the potential for environmental
damage. Further concerns cited in media coverage include the lack of community
consultation conducted by Advent Energy. [3.4]
Regulatory regime: history and overview
The regulatory regime employed by the Commonwealth and NSW Governments for
the offshore upstream petroleum sector is a sector-specific legislative system.
In essence, this means that, as established under the Offshore Constitutional
Settlement 1979, Commonwealth and NSW Government offshore petroleum regulation
involves legislatively predetermined conditions under which petroleum titles
are granted for all offshore petroleum activities. The 1979 Settlement
established NSW's rights over all its coastal waters, which generally extend
three nautical miles from the low water mark. The Commonwealth Government
retained the rights for all other Australian waters, known commonly as
'Commonwealth waters'. [4.1 and 4.2]
Offshore petroleum exploration and mining in Commonwealth waters is
regulated solely by Commonwealth legislation. The two most important
Commonwealth Acts are the Offshore Petroleum and Greenhouse Gas Storage Act
2006 and the Environment Protection and Biodiversity Conservation Act
1999. In contrast, both Commonwealth and NSW legislation apply to offshore
petroleum regulation in NSW coastal waters. The most important NSW Act, which
serves as a 'mirror' Act to the Commonwealth offshore petroleum Act, is the
Petroleum (Offshore) Act 1982. The Commonwealth Environment
Protection and Biodiversity Conservation Act 1999 may also apply to
activities in NSW coastal waters. All offshore petroleum activities require
environmental approval under the aforementioned Commonwealth and/or NSW
legislation according to the jurisdiction in which they are located. A raft of
other NSW and Commonwealth statutes may also apply. [4.3 and 4.4]
PEP 11 lies primarily in Commonwealth waters off the NSW coast. As such, it
is regulated and taxed under Commonwealth legislation. However, prior to the
proposed introduction of a Commonwealth national offshore petroleum regulator
by January 2012, the NSW Government has an important role to play in jointly
administering all petroleum activities conducted off the NSW coast under the
Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth).
[4.0]
Regulatory regime: petroleum royalties and taxation
Petroleum resources in Commonwealth waters are subject to the Commonwealth
Petroleum Resource Rent Tax. Petroleum resources in NSW coastal waters may be
subject to the Commonwealth crude oil excise and NSW royalty provisions. NSW
petroleum royalties are calculated at 10% of the well head value, less
allowable deductions. The Commonwealth Government receives a portion of this
royalty according to a formula set in the Petroleum (Offshore) Act 1982
(NSW). Given that the majority of PEP 11 is located within Commonwealth waters,
any gas recovered from PEP 11 will most likely be taxed under the Commonwealth
Petroleum Resource Rent Tax. [4.5]
Regulatory regime: incident response
The Commonwealth and NSW Governments share responsibility for responding to
offshore petroleum incidents. Should an offshore petroleum incident occur in
PEP 11, the first authority to respond would be the Australian Maritime Safety
Authority. The NSW authorities most likely to be involved in such an event,
were the oil to spread to NSW coastal waters, would be the Newcastle Port
Corporation and the Sydney Ports Corporation. [4.6]
Commonwealth regulatory framework: overview
The Offshore Petroleum and Greenhouse Gas Storage Act 2006 regulates
all petroleum exploration and mining activities and all greenhouse gas storage
activities in Commonwealth waters. Administration of the Act is currently
shared by the Commonwealth and NSW Governments according to a division of
responsibilities between a Joint Authority (the relevant Commonwealth and NSW
Ministers) and a Designated Authority (the relevant NSW Minister). The
Designated Authority is responsible for day-to-day administration of the
OPGGSA. [5.1.1]
The Commonwealth Government administers Commonwealth OH&S laws in
Commonwealth waters through the National Offshore Petroleum Safety Authority.
While the Authority also administers State OH&S laws in several Australian
States, the required provisions for it to do so in NSW do not exist in the NSW
'mirror' Act – the Petroleum (Offshore) Act 1982. [5.1.5]
Commonwealth regulatory framework: petroleum titles
Eight petroleum titles are provided for by the Offshore Petroleum and
Greenhouse Gas Storage Act 2006 (Cth). A typical offshore petroleum project
may require five of these at various stages of the project. Initially, a
petroleum exploration permit is required for any exploration activities. A
petroleum retention lease must be acquired should any discovered petroleum
prove commercially unviable initially, but is likely to become so within 15
years. Where a commercially viable source is found, the operator must acquire a
petroleum production licence, infrastructure licence and pipeline licence prior
to petroleum mining. [5.1.2]
Commonwealth regulatory framework: regulatory requirements
Along with requiring an appropriate title, all petroleum activities also
require either an Environment Plan and/or a Well Operations Management Plan. In
addition, the construction of a pipeline may only take place once a pipeline
management plan is approved by the Designated Authority. The Offshore Petroleum
and Greenhouse Gas Storage (Environment) Regulations 2009 outline the
requirements of every Environment Plan. Each Plan must describe all
environmental risks; specify management strategies for each risk; and identify
suitable environmental performance objectives and standards. Well Operations
Management Plans are currently regulated by the Petroleum (Submerged Lands)
(Management of Well Operations) Regulations 2004. These regulations will soon
be replaced by the Offshore Petroleum and Greenhouse Gas Storage (Resource
Management and Administration) Regulations 2010. [5.1.2, 5.1.6 to 5.1.8]
All offshore petroleum activities may require approval under the
Environment Protection and Biodiversity Act 1999 if the proposed
activity has the potential to impact upon a matter of National Environmental
Significance. [5.2]
NSW regulatory framework
The Petroleum (Offshore) Act 1982 is the 'mirror' Act to the
Commonwealth Offshore Petroleum and Greenhouse Gas Storage Act 2006. As
such, it establishes the jurisdiction of the NSW Designated Authority with
regard to Commonwealth waters, and provides for a series of equivalent
petroleum titles. Each title may be awarded, subject to meeting certain
conditions, by the NSW Minister for Primary Industries. This Act also dictates
that all NSW laws and statutory instruments under those laws apply to NSW
coastal waters. The following Acts may therefore apply in the event that
offshore petroleum activities take place in the coastal waters of the State:
Coastal Protection Act 1979; Environmental Planning & Assessment
Act 1979; Fisheries Management Act 1994; Heritage Act 1977;
Marine Parks Act 1997; Marine Pollution Act 1997; National
Parks and Wildlife Act 1987; and the Protection of the Environment
Operations Act 1997. [6.0]
Recent reviews of the offshore upstream petroleum sector
Two reviews of the offshore upstream petroleum sector have recently been
conducted. The Productivity Commission reviewed the regulatory burden on the
upstream petroleum sector. One of its most significant recommendations was for
the establishment of a national offshore petroleum regulator. The second review
was a Commission of Inquiry into the blowout at the Montara rig off the
north-west coast of Western Australia in 2009. The findings of the Inquiry
reiterated the Productivity Commission's recommendation for the creation of a
national offshore petroleum regulator. At the COAG meeting on 13 February 2011,
in-principle agreement was given to the creation of a national offshore
petroleum regulator. However, the Western Australian Government remains opposed
to the proposal. [7.0]