Referral and conduct of the inquiry
1.1
On 19 September 2019, the Senate referred an inquiry into maximising the benefit of Australia's oil and gas reserves to the Senate Economics References Committee (the committee) for inquiry and report by the first sitting day in March 2020.
1.2
On 6 February 2020, the reporting date was extended to 16 September 2020 and on 15 June 2020, the committee successfully lodged an extension of time notification to extend the reporting date to 16 December 2020.
1.3
On 12 November 2020, pursuant to the temporary order agreed on 23 March 2020, the committee agreed that the inquiry be extended from 16 December 2020 to 30 June 2021. On 11 May 2021, a further extension was agreed, with the final report to be tabled on 2 December 2021, and on 1 December 2021 the Senate once more granted an extension to 10 February 2022.
Inquiry terms of reference
1.4
Under its terms of reference, the committee was tasked to inquire into Australia's oil and gas reserves, with particular reference to:
(a)
arrangements used by other countries to maximise the benefit to the public of national oil and gas reserves;
(b)
arrangement that could be considered to maximise benefit to the public of Australia's national oil and gas resources, cognisant of:
(ii)
existing property rights, and
(iii)
federal and state jurisdictions; and
Conduct of the inquiry
1.5
In October 2019 the committee advertised the inquiry on its website and wrote to stakeholders and interested parties inviting submissions. The committee also wrote to a range of overseas jurisdictions with oil and gas reserves and industry. Submissions closed on 1 November 2019, with the committee receiving 39 submissions.
1.6
In August 2021, the committee noted that considerable time had passed since submissions closed and that a number of new industry reviews had been undertaken by government. This included policy announcements and consultation on the offshore oil and gas safety review, a review of the Australian Domestic Gas Security Mechanism (ADGSM), the release of the enhanced offshore infrastructure decommissioning framework, and the development of the Beetaloo Strategic Basin Plan were both released.
1.7
As such, the committee agreed to reopen submissions, receiving a further 16 submissions. The total number of submissions received was 55. A list of submissions received is at Appendix 1.
Public hearings
1.8
Public hearings were held as follows:
28 February 2020—Canberra by teleconference;
20 August 2021—Canberra by videoconference and teleconference
27 August 2021—Canberra and by videoconference and teleconference; and
10 November 2021— Canberra by videoconference and teleconference.
1.9
The names of witnesses who appeared at the hearings are listed at Appendix 2.
1.10
The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and participated in the public hearings.
Scope of the inquiry
1.11
The evidence received by the committee allowed it to investigate the following issues, as they related to maximising the benefit to the public and sovereign risks to Australia, with a primary focus on gas:
benefits from oil and gas;
oil and gas tax, excise, royalties and subsidies;
domestic gas supply and pricing;
maximising oil and gas extraction and efficiency;
emerging risks to the oil and gas industry;
data transparency and reporting; and
decommissioning of oil and gas infrastructure.
Structure of the report
1.12
This first chapter outlines the administrative details of the committee's inquiry and the process that it has undertaken in addressing the scope of inquiry. The chapter describes Australia's oil and gas sector, its reserves, its place in the international market, the sector's economic contributions, the regulatory framework, and the supporting strategies and initiatives that relate directly to the sector. It also outlines other relevant inquiries. The remainder of the report is structured as follows:
Chapter 2 discusses the nature of benefit and how other countries have derived benefit from their oil and gas reserves.
Chapter 3 examines the current supply and pricing of domestic gas.
Chapter 4 looks at current oil and gas industry reporting and accountability mechanisms.
Chapter 5 outlines the forthcoming issues relating to the future decommissioning of oil and gas infrastructure and the management of end-of-life facilities.
Chapter 6 addresses some of the risks, including climate, in deriving benefit from Australia's oil and gas reserves.
Chapter 7 discusses suggestions for improving Australia's economic returns from its natural resources.
Chapter 8 sets out the committee's views on the evidence provided to the inquiry, makes a series of recommendations for improving public benefits from Australia's oil and gas reserves.
About Australia's oil and gas reserves
1.13
Australia's conventional liquid hydrocarbon resources include crude oil, and the condensate and liquefied petroleum gas (LPG) resources associated with gas accumulations (as phases of natural gas liquids).
Australian oil reserves
1.14
Australia's oil reserves are small as shown in Figure 1.1. Geoscience Australia (GA) estimates that:
Australia has about 0.3 per cent of the world oil reserves. Most of Australia's known remaining oil resources are condensate and liquefied petroleum gas (LPG) associated with giant offshore gas fields in the Browse, Carnarvon and Bonaparte basins. In addition, oil resources are identified in the Perth, Canning, Amadeus, Cooper/Eromanga, Bowen/Surat, Otway, Bass and Gippsland basins.
1.15
In 2019, total reserves of crude oil were estimated at 5 661 petajoules (PJ), with a life of 22 years. Australia's LPG reserves were an estimated 1 421 PJ, with a life of around 32 years. Condensate is more plentiful with 15 951 PJ and a life of 35 years. Exploration of unconventional oil resources is immature, and reserves are largely undeveloped but include significant oil shale resources of 84 436 PJ and associated minor condensate of 335 PJ.
Australian gas reserves
1.16
Australia has substantial conventional gas reserves, with 93 per cent of reserves located on the North West Shelf off Western Australia, and significant onshore unconventional (coal seam gas, shale gas, tight gas) reserves, predominantly in east coast basins (such as Bowen, Surat, Galilee, and Clarence-Moreton) as shown in Figure 1.2.
1.17
In 2019, total reserves were estimated at 269 206 PJ, with an estimated life of 42 years for conventional gas and 36 years for unconventional gas.
Economic value of oil and gas
1.18
Australia has been in a petroleum trade deficit for the last 20 years. Presently, Australia imports the bulk of its refined petroleum products and in 2020–21 imported around 70 per cent, or 655 kilo barrels per day (kb/d), of the refined products it consumed, predominately for use in transport. Imports are expected to continue to increase through to at least 2023, when they are expected to comprise close to 85 per cent of consumption.
1.19
Conversely, Australia exports around 80 per cent of the crude oil and condensate it produces. In 2021, it also imported nearly as much as it exported. Australian basins typically produce light, sweet oil, which needs to be blended with other heavier crude oils to produce refined fuel products.
1.20
As the majority of Australia's oil is produced on the North West Shelf (significant distances from Eastern Australian refineries), it has been more effective for Australia's crude to be exported to the larger Asian refineries, and to import feedstock and refined fuel products into Australia.
Export earnings
LNG exports
1.21
In 2019, Australia became the world's largest exporter of liquified natural gas (LNG), narrowly overtaking Qatar. As shown in Figure 1.3, Australia and Qatar virtually tied as the world's largest LNG exporters in 2020, with Australia, Qatar and the United States (US) forecast to be the top exporters over the next three years.
1.22
In 2019, natural gas ranked third of all Australia's exports by trade value at $34.1 billion (or 12 per cent of exports) behind iron ore (valued at $67.5 billion or 23.8 per cent of exports) and coal briquettes ($51.5 billion or 18.1 per cent). Crude petroleum exports were valued at $4.6 billion in export value (or 1.62 per cent).
1.23
Gas contributes around three per cent to Australia's gross domestic product (GDP)—in 2018-19, the value of Australian oil and gas exports was just over $62 billion. The vast majority of this—$48 billion—was LNG. Export earnings in 2020–21 dipped largely due to the impacts of COVID-19, with LNG contributing $30 billion in exports. Earnings for LNG are expected to rebound to $56 billion in 2021–22, before again potentially falling slightly to $50 billion in 2022–23, as shown in Figure 1.4.
1.24
Almost three-quarters of Australian LNG is sold via long term forward contracts to Asian markets including Japan, China, and South Korea.
Crude exports
1.25
In 2019–20 export earnings from crude and condensate were $9.1 billion, dropping to $7.4 billion in 2020–21 (see Figure 1.5), with production and consumption affected by COVID-19 (see Figure 1.6). Earnings are expected to increase to over $11 billion in 2021–22, with condensate from new LNG projects forming a growing proportion of production.
Oil and gas production and demand
1.26
Gas production has increased substantially since the rapid expansion of the east and west coast LNG markets. In 2018–19, LNG production increased by 16 per cent; see Figure 1.6 for growth trends since 1978–79.
1.27
Gas supply and pricing is covered in detail in Chapter 3.
Crude oil
1.28
Submissions to this inquiry largely focussed on Australia's gas reserves. However, the other major exploited resource in gas extraction is oil. In this context, the term oil encompasses the range of liquid hydrocarbons and includes crude oil and condensate.
1.29
Australia has produced oil commercially since the 1960s, with domestic production in general decline since 2009.
1.30
In 2020-21 crude and condensate production decreased by 11 per cent from the previous year due to technical issues on the Prelude floating liquefied natural gas (FLNG) and Gorgon projects and delayed financial investment decisions (FIDs) for several gas projects. As such, the Office of the Chief Economist speculates that production will continue to fall through to 2023.
1.31
With the shift from oil towards gas development, oil's share has moved from 67 per cent of production in 1983 to 4.5 per cent of production in 2021. Australia is currently able to only supply around 25 per cent of its refinery feedstock, and, as shown in Figure 1.7, increasingly imports the refined products it uses. China is an important supplier of oil products to Australia, supplying 14 per cent of all oil imports in 2020–21, including 18 per cent of diesel imports.
Figure 1.7: Australian gross imports of refined petroleum oils
1.32
The Australian Industrial Transformation Institute (AITI) concluded that Australia's energy and resources policies have worked in direct opposition to its interests and resilience in relation to fuel security:
For energy and resources, the policy has been the mirror opposite of the stated policy goals in defence. Here low productive capability directly reduces operational capability and sovereign capability. It has reduced our energy self-sufficiency … in the event of major supply chain disruption.
1.33
The 2021–22 Budget included measures aimed at improving fuel security, building on the 2020–21 Fuel Security Package. It included support for refineries and a fuel security framework, enabled by the Fuel Security Act 2021. The financial impact of this measure is 'not for publication'.
1.34
The fuel security budget is $50 million in 2021–22, with a further $90 million in 2022–23 and $60 million in 2023–24; plus support for refineries.
1.35
The Australian Workers' Union (AWU) highlighted the crucial role of oil for industry and consumers including across most sectors of the economy and in particular defence, transportation and freight and manufacturing. It suggested that Australia's economic dependency on oil is greater than any other country in the world and questioned its attitudes to fuel security, particularly given geo-political tensions in the Asia-Pacific.
1.36
The AWU advocated for a stronger policy program to expand naval or infrastructure capacity to hold enough oil in reserve to comply with International Energy Agency (IEA) requirements and increase its storage and refining capacities.
1.37
Under the Agreement on an International Energy Program, the IEA expects member countries to hold at least 90-days' worth of fuel in reserve. Australia has not met those levels since 2012, but is committed to returning to full compliance by 2026.
1.38
More recently, Australia has taken steps to improve its fuel security. In February 2020, Australia had 56 days' worth of oil reserves, however it took advantage of relatively low oil prices to build up strategic reserves and currently has 77 days' worth of fuel stocks, with 3 days of those stocks held abroad.
1.39
During 2020, Australia signed a $94 million lease agreement with the US to secure four to five days' worth of stocks. Under this arrangement crude oil is stored in the US and can be accessed in an emergency. This supply would take two to three weeks to arrive in Australia if required, with the potential for supply to be cut off or for the US to be given priority access to the reserve.
1.40
The fuel security package will also see the construction of additional diesel storage facilities around the country, increasing capacity by 40 per cent. The storage will be reserved for companies fulfilling the announced minimum stockholding obligation (replacing the current voluntary obligations), effective from 1 July 2022.
1.41
Other witnesses, including the AWU and Mr Kevin Morrison supported technological advancement and transition to alternative transport such as electric vehicles to address fuel security issues.
Oil refining
1.42
Mr Morrison told the committee that 'as domestic crude oil production has fallen so has the domestic capacity to refine crude oil into petroleum products'. Twenty years ago Australia had eight refineries which met nearly all the domestic demand for refined product. That number has now dwindled to two, with the Kwinana and Altona refineries closing in 2021.
1.43
Refinery throughput continued to decline in 2020–21, with low transport demand affecting the profitability of Australian refineries. The IEA expects all but one of Australia's refineries to close permanently, causing a surge in refined product imports.
1.44
The 2021–22 Budget provided for a temporary refinery production payment program will provide $41 million in 2021–22. The package was due to commence on 1 July but was brought forward to soften the impacts of COVID-19, with a longer-term mechanism to be implemented later in the year.
1.45
The budget measures are expected to secure Australian refining capability until at least 2027, with the option to extend to 2030. They will also enable operators to bring forwards major infrastructure upgrades at refineries to improve fuel quality and air quality.
1.46
Ampol and Viva Energy are reviewing the ongoing viability of their plants in Lytton and Geelong, with both companies announcing they would continue to operate until mid–2027 on the condition of government support.
1.47
However Global Access Partners and Institute for Integrated Economic Research—Australia observed that longer term fuel security risks remain:
Sadly, the Minister's announcement was too little, too late, and too short-sighted as only two of the four refineries agreed to accept the Government's support plan and to be contracted to remain open until 2027 … however, there is no public plan for what will happen with respect to our fuel security after 2027.
1.48
The AWU raised ownership of the Lytton oil refinery in its submission. It is currently owned and operated by Caltex Australia, although there have been moves by Alimentation Couche-Tard, a French-Canadian multinational, to acquire the refinery. While the deal did not proceed, the AMU was concerned that purchase by a multinational may see the refinery close—against Australia's national interest and affecting competition and increasing Australia's reliance on imported oil. It recommended that the government reject any prospective acquisition of Caltex Australia by a foreign buyer.
1.49
AITI agreed that foreign is as an issue for fuel security and national resilience stating that:
… it is the issue of ongoing fuel security which severely impacts Australia's national resilience … It is unclear whether or not the Australian government would be able to force foreign-owned companies to refine crude oil during times of crisis if it were against their best interest to do so.
Global oil and gas
1.50
Australia cannot be classified as a big player in the global petroleum, with Russia, Iran and Qatar holding the largest shares of global gas reserves, and the world's largest oil producers being US, Russia and Iran. As shown in Figure 1.8, Australia has succeeded in becoming one of the largest exporters of LNG.
Figure 1.8: Outlook for global LNG exports, 2020–2023
1.51
The pandemic caused a decline in global oil demand and prices (see Figure 1.9). The market is now in recovery but not expected, for OECD countries at least, to rebound to 2019 levels. Carbon pricing, increases in in electric vehicle usage, fuel transition, efficiency improvements, and permanent changes to business travel patterns, with the take up of working from home and online meetings, are all expected to have a dampening effect on demand.
1.52
During 2020, global trade in LNG increased by a mere 1.5 per cent and markets were characterised by weak LNG and oil prices—in contrast to strong growth in previous years. Demand and production are expected to have increased during 2021, with the Asia Pacific, and China and India in particular, expected to drive global LNG demand in the 2020s.
Management and regulation of Australia's oil and gas reserves
1.53
Australia's offshore oil and gas reserves are owned by the Australian Government, while onshore reserves are owned by the state or territory government in which the resource is found.
1.54
'Offshore' is defined as areas beyond three nautical miles from the territorial sea baseline and within Australia's Exclusive Economic Zone (Commonwealth waters). The Commonwealth jointly administers each offshore area with the affected state or Northern Territory government (the Joint Authorities).
1.55
State and territory governments are responsible for ensuring the exploration and development of resources onshore and out to three nautical miles in accordance with the relevant state or territory legislation. Whilst there are some differences, the legislation is broadly similar in content and administration to Commonwealth legislation.
1.56
DISER is largely responsible for policy oversight and regulation of Australia's offshore oil and gas resources. The Department notes the Commonwealth responsibility for petroleum exploration:
In these areas, the Commonwealth provides a petroleum resource management framework to support development of Australia's offshore oil and gas resources. This framework promotes the timely discovery and development of petroleum resources for the economic benefit of the Australian community, while also ensuring that activities are undertaken safely and in an environmentally responsible way and in accordance with good oil field practice principles. It includes a range of policy and regulatory measures across the exploration-discovery-development-decommissioning lifecycle.
National Resources Statement
1.57
The National Resources Statement (NRS) overseen by the DISER, is Australia's resources policy framework. It contains five key goals and four policy principles. The first two goals are to:
deliver the most globally attractive and competitive investment destination for resources projects; and
develop new resources, industries, and markets.
1.58
The statement aims to ensure that policy, regulatory and business settings make Australia a globally competitive and attractive investment option. The statement also makes broad statements about the delivery of 'sustained prosperity and social development for all Australians' and has creating jobs and supporting communities as key goals.
Regulatory framework
1.59
Together, the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act), the Offshore Petroleum and Greenhouse Gas Storage (Resource Management and Administration) Regulations 2011 (RMA Regulations) and maritime boundary treaties set the legal framework for petroleum resource management.
|
1.60
The OPGGS Act establishes a range of roles and responsibilities for government and industry in relation to petroleum exploration and recovery, injection and storage of greenhouse gasses, and the establishment of Joint Authorities, the National Offshore Petroleum Titles Administrator (NOPTA); and the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA).
1.61
The Australian Government also regulates activities are likely to significantly impact matters of national environmental significance under the Environment Protection and Biodiversity Conservation Act 1999 (the EPBC Act). This includes world and national heritage properties and places, threatened species and ecological communities, Commonwealth marine parks (including the Great Barrier Reef), and water resources in relation to coal seam gas (CSG).
Joint Authorities
1.62
The Joint Authorities are responsible for the majority of decision making under the OPGGS Act and RMA Regulations, making core decisions about the release of exploration areas, titles and resource management—often based on advice from NOPTA and NOPSEMA.
1.63
Generally, the Joint Authority for each offshore area adjacent to a state and the Northern Territory comprises the responsible Commonwealth Minister (currently the Minister for Resources and Water) and the relevant state or Northern Territory minister.
National Offshore Petroleum Titles Administrator
1.64
NOPTA was established on 1 January 2012 under the OPGGS Act under the then Department of Industry, Innovation and Science (DIIS) following a Productivity Commission (PC) inquiry into Regulatory Burden in Australia's Offshore Petroleum Sector. The PC inquiry was requested by what was then known as the Council of Australian Governments (COAG).
1.65
NOPTA's key functions include providing technical information, advice and recommendations to the Minister and Joint Authorities, facilitating title administration, managing title data, and managing compliance.
1.66
The Minister's Statement of Expectations requires that NOPTA administer the offshore resources titles regime to help ensure:
resources are developed at the earliest commercially viable opportunity, in line with the principles of good oilfield practice and seek to achieve optimal recovery of petroleum for the benefit of the Australian economy; and
industry collaboration and the efficient use of existing and future infrastructure is encouraged.
1.67
The 2020 Review of activities of the National Offshore Petroleum Titles Administrator found that NOPTA needs to be more proactive and influential in supporting the legislative framework and noted emerging capability gaps within NOPTA, particularly in relation to facilities engineering, commercial and financial analysis (especially transaction due diligence) and decommissioning and the need to move to data-driven decision making.
National Offshore Petroleum Safety and Environmental Management Authority
1.68
Oil and gas reserves in Commonwealth waters are regulated by NOPSEMA, as shown in Figure 1.10. Under the OPGGS Act, NOPSEMA's jurisdiction may also include designated coastal waters where a state or the Northern Territory Government has conferred regulatory functions.
1.69
NOPSEMA's principal functions include activities relating to well integrity, environmental management and occupational health and safety (OHS) in offshore petroleum and offshore greenhouse gas storage operations. This includes monitoring, investigations, and compliance of these matters under the OPGGS Act and regulations.
Supporting strategies and initiatives
1.70
The Australian Government has recently put a number of strategies and initiatives in place to support Australia's oil and gas industry.
Gas-fired recovery
1.71
In response to the COVID–19 recession, the Government announced its gas-fired recovery initiative to stimulate economic recovery, make energy more affordable and support job creation through its focus on three key areas: unlocking gas supply, gas transportation, and empowering consumers. The Government announced $52.9 million of funding in the 2021–22 Budget to continue the implementation of the initiative.
1.72
Under the initiative a variety of measures will be delivered including those relating to furthering new gas exploration and development, the release of the National Gas Infrastructure Plan, the development of a long-term Future Gas Infrastructure Investment Framework, critical gas infrastructure projects, development of the Gas Supply Hub at Wallumbilla and reforms that will enable gas-reliant businesses to negotiate competitive supply.
1.73
The Government is also working through the Energy National Cabinet Reform Committee (ENCRC) to consider new transparency measures across the gas market, on prices, reserves and resources.
1.74
Industry also agreed to support the Peak Electricity Demand—Gas Supply Guarantee to ensure that energy needs can be met during peak demand periods and improvements to pipeline access.
Other relevant strategies
1.75
Australia's Global Resources Statement seeks to ensure that Australia is an attractive investment destination, with support for resources and related companies. In the 2021–22 Budget the Government committed $20.1 million over two years to develop and deliver a broader global resources strategy.
1.76
Australia's National Resources Workforce Strategy, released in 2021, supports the oil and gas industry, focussing on planning, local employment, and increased training to provide a skilled workforce, in particular for regional Australia.
Domestic gas market regulation
1.77
Australia has a range of policies and agreements which regulate its domestic gas and energy market—including supply and pricing. Australia's gas markets are considered further in Chapter 3.
Australian Domestic Gas Supply Mechanism
1.78
Introduced in July 2017, the Australian Domestic Gas Supply Mechanism (ADGSM) enables the federal Resources Minister to restrict LNG exports or find new gas sources in years when there are shortfalls in the domestic market. In 2019, the Government carried out a review of the mechanism and found that it had been largely effective in securing supply, although it had not been invoked to date.
1.79
The Government agreed to retain the ADGSM until its repeal in 2023 and accept the first and third recommendations, retaining the ADGSM, and updating the guidelines to reference the Australian Competition and Consumer Commission's (ACCC) LNG netback price series. However it did not accept changes to the Total Market Security Obligation, instead implementing a new Heads of Agreement.
Heads of Agreement with east coast LNG exporters
1.80
In 2017 east coast LNG exporters established an 'industry-led, voluntary and non-binding agreement' with the Australian Government committing them to first offer uncontracted gas to the domestic market in the event of a shortfall. The agreement has been extended several times, with the current commitment in place until 1 January 2023.
1.81
The ACCC's Gas Inquiry 2017–2025 reported that it had insufficient information to determine compliance with the previous Heads of Agreement, however users have reported that suppliers have been more flexible and willing to negotiate on non-price terms in recent times.
Prospective national gas reservation scheme
1.82
In late 2020 DISER conducted consultation on a prospective national gas reservation scheme aimed at ensuring Australian gas users can access gas at a reasonable price. In considering a prospective scheme DISER said it would:
investigate the effects of a national gas reservation scheme on domestic gas markets, the economy, trade and investment;
examine approaches to gas reservation within Australia and overseas; and
look at market and regulatory frameworks that would support reservation.
1.83
The results of the consultation and any outcomes from the options paper have not been made public.
Relevant inquiries and reviews
1.84
A number of current or recent inquiries and reviews are relevant to this inquiry into Australia's oil and gas industry.
ACCC: Gas inquiry (2017–2025)
1.85
The three-year ACCC inquiry into the supply of and demand for natural gas in Australia commenced in 2017. To date it has published 11 reports as well as regular information about the supply and pricing of gas. The inquiry has been extended until December 2025.
1.86
In its January 2021 report, the inquiry found that COVID-19 has had a minimal effect on gas supply and pricing in Australia. Over the period of the inquiry there have been improvements in market competition, responsiveness and flexibility resulting in lower prices for commercial and industrial users. The inquiry has noted that domestic prices are still above export parity prices and that supply is expected to meet forecast demand in the short term.
1.87
In the medium to longer term, there is ambiguity in market conditions with both supply and demand uncertain. It is forecast that production will be unable to meet domestic demand as early as 2024. The ACCC found that new gas sources will need to be developed, and infrastructure investments made to address uncertainties, including price-effective transportation. Australia's oil and gas supply and demand is discussed further in Chapter 3.
Senate Economics Legislation Committee: Offshore Petroleum and Greenhouse Gas Storage Amendment (Benefit to Australia) Bill 2020 (2021)
1.88
The Senate Economics Legislation Committee twice considered a bill to make the benefit of the Australian community a guiding principle in the interpretation of the OPGGS Act.
1.89
The Legislation Committee considered a range of issues including economic returns from oil and gas companies, whether or not the bill would achieve its objectives, the stifling effect the bill could have, as well as retention leases, domestic gas reservation and decommissioning costs. The committee recommended that the bill not pass, with dissenting reports from Senator Patrick for both inquiries.
Senate Environment and Communications References Committee: Oil and gas exploration and production in the Beetaloo Basin (2021)
1.90
On 23 June 2021, the Senate referred an inquiry into oil and gas exploration and production in the Beetaloo Basin to the Senate Environment and Communications References Committee for final report in March 2022.
1.91
The committee is inquiring into oil and gas exploration and production in the Beetaloo Basin, with particular reference to the Industry Research and Development (Beetaloo Cooperative Drilling Program) Instrument 2021, which provides public money to oil and gas corporations.
1.92
An interim report was tabled in August 2021. It made a number of recommendations including in relation to perceived conflicts of interest, transparency and accountability, repayment of grant funding on successful exploration, improvements to consultations with First Nations peoples, and the expedited development of a bilateral emissions reduction agreement to ensure no net increase in Australia's greenhouse gas emissions.
Productivity Commission: regulation of resources sector (2020)
1.93
In December 2020 the PC completed a research study into regulation of the resources sector, including oil and gas. The study examined the effectiveness and efficiency of current regulatory regimes across jurisdictions and recent developments in the sector.
1.94
It found that there is considerable scope to improve the regulatory framework and processes to reduce unnecessary burdens and encourage investment, while still meeting requirements to protect the environment, heritage, safety, landowners, and the community. The study also found that the transparency and capabilities of regulators could be improved, as could coordination between regulators and engagement with stakeholders.
Department of Industry: Review of the decommissioning framework (2018)
1.95
In October 2018, DISER announced a review of the policy and legislative frameworks regulating offshore oil and gas decommissioning.
1.96
In 2019, the then Minister for Resources and Northern Australia issued a statement of expectations to NOPSEMA which focussed on decommissioning, given the large number of facilities approaching end-of-life.
1.97
The 2020 Review of activities of the National Offshore Petroleum Safety and Environmental Management Authority found it needs a clearer regulatory strategy and has emerging capability gaps, particularly in commercial and financial matters and decommissioning, as well as the regulation of offshore renewables and the use of digital technology.
1.98
In December 2020, as a result of industry and public consultations the department released an enhanced framework for consultation. In April 2021, NOPSEMA published the final framework in the form of a decommissioning strategy and compliance plan. It outlines expectations of industry as to how and when decommissioning activities are carried out, including that proposals for future projects address decommissioning planning from the earliest stages.
1.99
The enhanced framework also puts new measures in place to manage financial and environmental risks associated with mature offshore petroleum assets. It is designed to strengthen trailing liability and call-back provisions, increase oversight of company control and financial assurance, improve planning for decommissioning, ensure early and proactive use of powers by regulators and improve public comment and reporting transparency. Legislation enabling the framework was passed in 2021.
1.100
Most changes come into effect from 2 March 2022, with trailing liability requirements applying to those that have held a title from 1 January 2021.
1.101
Guidelines and factsheets supporting the majority of legislative changes were released for public consultation on 25 October 2021, with consultation closing on 22 November 2021. Guidance to support enhanced trailing liability provisions will be released in 2022.
1.102
Decommissioning is considered further in Chapter 5.
Department of Industry: Review of offshore petroleum resource management framework (2014)
1.103
In mid-2014, the Department of Industry undertook a review of Australia's offshore resource management framework, originally introduced in 2012. The final report, scheduled for release in 2016, has not been published.
1.104
The interim report, released in November 2015, proposed 20 actions across the petroleum lifecycle with regard to policy, regulatory and administrative frameworks to improve effectiveness and transparency, improve flexibility and reduce costs.
1.105
The report's findings and conclusions reflect two of the underlying fundamentals in Australia's approach to resource management:
offshore oil and gas resources are exploited through privately funded commercial development; and
the government has a stewardship mandate through which it encourages operators to act in certain ways towards the goal of optimum long-term recovery, it does not direct the activities of the private sector.
1.106
The review acknowledged that the regulator's understanding of what constitutes 'optimal long-term recovery' is evolving and the ability to achieve it is limited by practicalities.
1.107
The RMA Regulations are due to sunset in 2024 and in preparation for this DISER, in conjunction with consultants ACIL Allen, have reviewed sections relating to the management, submission and release of geoscientific data, including monthly production reports and the classification and release of information. The review was expected to have been completed by the end of 2021, with new regulations in place by 2023. Data transparency is considered further in Chapter 4.
Senate Economics References Committee inquiry into corporate tax avoidance (2014)
1.108
In 2014, an inquiry into corporate tax avoidance was referred to the Senate Economics References Committee. Of relevance to this inquiry, the committee considered debt loading and interest deductions with particular reference to oil and gas companies. This report also included a chapter on corporate tax avoidance in the offshore oil and gas sector.
1.109
The committee observed that outside of the oil and gas industry there was broad consensus that the petroleum resource rent tax (PRRT) is too generous, with the potential for compounding deductions to totally offset potential revenue. The committee also found that the existing tax regime has encouraged large investments in Australia's oil and gas industry over a number of years.
1.110
The committee's report agreed with the conclusions of the Callaghan review into the PRRT and concluded that for future projects uplift rates should be lowered, the ordering of deductions should be rationalised, and the residual pricing method should be scrutinised. It also recommended that the gas transfer pricing method for PRRT eligible projects be made simpler and more transparent to ensure a fair return to the community.