In brief: The NSW Government has released the NSW Gas Plan which foreshadows more gas development in the State in conjunction with the introduction of 'tough' new legislation to manage future developments. Partner Igor Bogdanich (view CV), Senior Energy & Resources Counsel David Maloney AM (view CV), and Senior Associate Michael Zissis report.

HOW DOES IT AFFECT YOU?

  • The NSW Gas Plan (the Plan) foreshadows significant regulatory reform to manage the growth of the gas sector in NSW.
  • Under the Plan:
    • New gas projects may be supported in areas identified under a new Strategic Release Framework and until the new Strategic Release Framework is developed, the current freeze on new petroleum licences will continue;
    • Existing licence holders may be able to surrender their titles for compensation. Existing licences will be modified to exclude national park areas and may be cancelled where proponents cannot commit to invest by the end of 2015;
    • A project which will provide substantial gas into the local market may be designated as a Strategic Energy Project and become subject to whole-of-government approval coordination;
    • Proponents will be required to negotiate a land access arrangement with landholders at both exploration and production stages. Legislation will mandate compensation as a mandatory component of those negotiations and the Independent Pricing and Regulatory Tribunal will benchmark compensation rates annually;
    • A review of the existing royalty payment regime will occur; and
    • The Environmental Protection Agency will proactively regulate compliance and enforcement of conditions for gas activities. Over time, NSW would move to establish a single Act for all onshore subsurface resources with a single regulator.
  • Proponents ought to keep abreast and engage, where appropriate, with the Government during the consultation about the new regulatory regime foreshadowed in the Plan, in addition to other regulatory and policy changes associated with the implementation of recommendations contained in the Final Report of the Independent Review of Coal Seam Gas Activities in NSW (the CSG Review Report) and Examination of the Land Access Arbitration Framework (the Walker Report).

BACKGROUND

The NSW Government has released the Plan to 'reset' the approach to gas development in the State.

The NSW Government says:

  • there must be growth in viable gas projects in the State to address the predicted supply shortfall in the future; and
  • the Plan represents 'a "line in the sand" for improving the regulatory framework for the onshore gas industry in NSW while delivering gas safely for the benefit of NSW citizens and businesses'.

The Plan confirms the Government's acceptance of all recommendations in the CSG Review Report released by the NSW Chief Scientist and Engineer last month, which concluded that the risks of gas development can be managed with the appropriate regulation, engineering solutions and ongoing monitoring and research.

The Plan also affirms:

  • the Government's commitment to progressively implement the recommendations in the Walker Report, released in June, which examined the land access arbitration framework under the NSW Mining Act 1992 and Petroleum (Onshore) Act 1991; and
  • that the NSW and Northern Territory governments will investigate the feasibility of a gas pipeline linking Alice Springs to the East Coast Gas Market at Moomba, South Australia (see Memorandum of Understanding dated 7 November 2014). This could involve a privately-owned and operated pipeline linking the Northern Territory gas reserves to the East Coast Market.

The regulatory reform foreshadowed in the Plan builds upon other significant changes that have been implemented to date, including the establishment of coal seam gas exclusion zones over Critical Industry Clusters, residential zones, rural villages and future growth areas we have previously reported on.

ACTIONS TO SUPPORT AND MANAGE FUTURE GAS DEVELOPMENT IN NSW

The Plan outlines the actions the Government will implement to 'deliver world’s best practice regulation' for the gas sector in NSW, that is 'Strong and certain' and supports 'Gas exploration on our terms'.

The Plan includes the following key actions:

  • Introduce a Strategic Release Framework to release areas for gas exploration. Once the Framework is in place, new petroleum exploration licences (PELs) can be issued in the 'released' areas after a comprehensive assessment of the economic, environmental and social impacts.
  • Maintain the freeze on issuing new PELs until the Strategic Release Framework is in place (the Government has not issued a new PEL since April 2011) and immediately introduce legislation to extinguish applications received before the freeze(which cover 43 per cent of the areas of NSW).
  • Offer a one-off buy back of PELs to allow existing holders to surrender their titles in exchange for limited compensation.
  • Modify existing PELs to remove areas granted over National Parks.
  • Implement and enforce a ‘use it or lose it’ policy to require titleholders to give commitments to invest in their projects by the end of 2015 or risk cancellation of their titles.
  • Empower the Environmental Protection Agency (EPA) as the lead regulator for compliance and enforcement of conditions of approval for gas activities. The EPA is expected to be 'proactive and fearless' as the regulator.
  • Require all gas activities to hold an Environmental Protection Licence issued by the EPA and introduce new licence conditions in 2015 which will be regularly reviewed and updated to reflect best practice industry standards.
  • Designate projects which will provide substantial amounts of gas into the NSW market as Strategic Energy Projects. Government case managers will be appointed for these projects to provide whole-of-government coordination of key approvals. To qualify as a Strategic Energy Project, companies will need to disclose some information about their gas supply arrangements.
  • Amend the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 to confirm that the Minister for Resources and Energy will assess and determine gas exploration activities, while the Minister for Planning or the Planning Assessment Commission will assess and determine gas production activities.
  • Introduce legislation to mandate that landholders are entitled to receive compensation 'that is at least as good as that received by other landholders in Australia who host gas development'.
  • Commission the Independent Pricing and Regulatory Tribunal (IPART) to benchmark compensation rates annually to act as a guide for landowners in negotiating compensation agreements. IPART will be asked to consider both fixed rate compensation and compensation that takes into account the economic benefits over the expected life of the relevant wells.
  • Establish a community benefits fund to fund local projects in communities where gas activities occur. Consultation on the approach to the fund will begin shortly; however, it is envisaged companies could make upfront payments into the fund and receive credits against future royalty payments.
  • Commission an independent review of the existing royalty payment regime, with the recommendations of the review to be provided to the Government in May 2015.

The Plan (along with the implementation of recommendations in the CSG Review Report and the Walker Report) foreshadows significant regulatory reform in the coming years.

Proponents ought to actively monitor the implementation of the reform agenda and, where appropriate, engage with the consultation process (drawing upon practical issues encountered in other states where possible).