The Victorian Government has recently announced a hold on all onshore gas exploration work plans, effectively grinding to a halt coal seam, shale, tight and conventional gas exploration and development in the State of Victoria.

A wider moratorium

The existing ban or moratorium, which was imposed by the Victorian Government in August 2012 (and extended until at least July 2015), applied only to approvals for new coal seam gas (CSG) exploration licences and hydraulic fracturing approvals for all existing mineral and petroleum tenures.  The moratorium is now extended to all onshore gas developments.

Please refer to the March Resources newsletter, ‘Coal Seam Gas in Victoria – open for business?’  which details the background to, and operation of the existing moratorium.

A press release issued by The Hon. Russell Northe MP, Minister for Energy and Resources and Small Business (Victoria) advises that the government has decided to put ‘a hold on work plan approvals for onshore gas exploration until more information is available’ including evidence from a water study (being conducted by Geoscience Australia), community views and industry impacts.1The announcement arose after MP Northe refused approval for exploratory drilling for tight gas to take place by Lakes Oil N.L.near Seaspray in Victoria.2

To recap, the existing moratorium did not affect the following:

  • Exploration activities approved under existing licences that did not involve hydraulic fracturing, such as surveying or drilling of core samples; 
  • Any approval processes required for work programs that did not involve hydraulic fracturing;
  • The approval of new exploration permits (non-CSG related).

The wider moratorium appears to have the effect of placing a hold on the approval of any work and operational plans for onshore gas exploration activities (regardless of whether or not they pertain to hydraulic fracturing).  We can also infer from this announcement that no new gas exploration permits (of any type) will be approved while the ban is in place.

As at the date of writing, the Earth Resources Regulation area of the Victorian Department of State Development, Business and Innovation (DSDBI) is unclear on the implications of the sudden change in policy, referring enquiries to the Minister's office.

The DSDBI could however confirm that there had been no change to the legislative regime governing onshore oil & gas and it is therefore assumed that the DSDBI will continue to assess applications for work plan approvals as they are submitted.

Regulatory uncertainty for gas explorers

The announcement is of concern to all onshore gas explorers in Victoria as it creates considerable regulatory uncertainty for the development of Victoria’s nascent onshore gas industry.

The key concerns voiced by Victorian gas industry members can largely be summarised as follows:

  • Victoria has long relied on cheap and plentiful gas from reserves in the offshore Gippsland Basin. However, Victorian industry’s access to reasonably priced gas may be put in jeopardy within the next two to three years as long term gas contracts expire and Victorian (offshore), South Australian (onshore) and Queensland (CSG onshore) gas supplies are diverted to export as the Queensland LNG projects come online. This culmination of factors means there will be considerable pressure on gas prices going forward so development of Victorian domestic onshore reserves is viewed as critical.
  • It is likely that no decisions on the future of the onshore gas industry will be made until after the November 2014 State election and that the wider moratorium will remain in place until at least mid-2015, preventing the grant of any new permits and delaying existing development in the sector.
  • the announcement creates further regulatory uncertainty and therefore significantly detracts potential investors in the sector, and increases sovereign risk.
  • The wider moratorium works against the recommendations of the government commissioned Victorian Gas Market Taskforce Report 2013 (led by Hon. Peter Reith) (Reith Report) which recommended that the Victorian Government proactively support development of a safe and efficient onshore gas industry.3 Importantly, however it must be noted that while the Reith Report did urge the Government to embrace onshore gas development, it stipulated that this development be underpinned by leading practice regulation and community engagement.

The Reith Report also recommended that the removal of holds on the issuing of new exploration licences for CSG and approvals for fraccing be subject to a package of reforms being adopted, including ‘leading practice regulation, community engagement, information and science to underpin the management of the onshore gas industry’.4

With respect to the recommendations of the Reith Report, it appears the Victorian Government has fully embraced the essence of its recommendations and is intent on carrying out thorough reforms to the legislative regime underpinning onshore gas exploration and production, and pursuing substantive and meaningful community consultation.  Until this process is finalised it is almost certain the wider moratorium will not be lifted.

It is just not clear at this stage how long this reform process will take and what will be the outcome.