Referral of the inquiry
1.1
On 23 June 2021, the Senate referred to the Senate Environment and Communications References Committee (the committee) an inquiry into oil and gas exploration and production in the Beetaloo Basin (the Beetaloo), for interim report by 3 August 2021 and final report by the first sitting Tuesday of March 2022.
1.2
The terms of reference for the inquiry are:
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 for oil and gas corporations.
1.3
On 3 August 2021 the Senate extended the reporting date of the interim report to 24 August 2021.
Conduct of the inquiry
1.4
In accordance with its usual practice, the committee advertised the inquiry on its website and wrote to a number of relevant organisations and individuals, inviting submissions by 7 July 2021. The committee continued to accept submissions received after this date.
1.5
The committee received a large number of submissions, of which 62 are listed at Appendix 1 and available on the committee's website. The committee also received in excess of 1400 campaign submissions from individuals expressing their views on shale gas production in the Beetaloo, and the manner in which that industry is being advanced in the Northern Territory (NT). The committee has published a sample of these submissions on its website and has taken these views into account.
1.6
The committee held public hearings in Canberra and by videoconference on 28 July 2021 and 2 August 2021. A list of witnesses who appeared at these hearings is available at Appendix 2.
1.7
Public submissions, additional information, Committee Hansard transcripts, tabled documents and answers to questions on notice are available on the committee's website at www.aph.gov.au/senate_ec.
Acknowledgement
1.8
The committee thanks all those who made submissions and gave evidence at the public hearings. In particular, the committee thanks Traditional Owners throughout the NT, and especially from the Beetaloo region, who spoke to the committee about oil and gas production and exploration on country, and how these activities would impact their culture, heritage and communities.
Note on references
1.9
In this report, references to the Committee Hansard transcript are to the proof (uncorrected) transcript. Page numbers may vary between the proof and official (corrected) transcripts.
Disclosure
1.10
The committee notes Senator Malarndirri McCarthy's Traditional Owner declaration included in the Register of Senator Interests:
The Northern Land Council records the following traditional interests in land in the Northern Territory held by Senator Malarndirri McCarthy.
Senator McCarthy is a traditional Aboriginal owner, as defined in the Aboriginal Land Rights (Northern Territory) Act 1976, of Vanderlin Island (Wurralibi Aboriginal Land Trust) and holds beneficial interests in the Narwinbi Aboriginal Land Trust ('Borroloola Commons') in the Northern Territory.
Senator McCarthy is second generation jungkayi ('custodian' for mother's country) for Wuyaliya country on Southwest Island (Wurralibi Aboriginal Land Trust).
Senator McCarthy is jungkayi for the emu dreaming and country called ngalamja which is on 7 Emus Station.
Structure of the report
1.11
This report comprises five chapters:
Chapter 1 provides an introduction and context to the inquiry;
Chapter 2 examines the Beetaloo Cooperative Drilling Program (BCD Program) and the Industry Research and Development (Beetaloo Cooperative Drilling Program) Instrument 2021 (the Instrument);
Chapter 3 discusses the economic rationale for developing the shale gas industry in the Beetaloo;
Chapter 4 outlines First Nations people's views of fracking in the Beetaloo; and
Chapter 5 examines issues raised in relation to potential environmental impacts.
1.12
The committee acknowledges that this interim report has not addressed all the matters relevant to the inquiry but notes that with a final report due in March 2022, the committee will be able to examine a range of matters beyond the scope of this report.
1.13
In this context the committee notes that detailed clarifying questions put to the Minister for Resources and Water, the Minister for Energy and Emissions Reduction, the Department of Industry, Science, Energy and Resources and the Treasury were not answered prior to the finalisation of this report. The committee may also examine this information as the inquiry progresses.
Context to the inquiry
1.14
The Beetaloo is a sub-basin in the MacArthur Basin, approximately 500 km south-east of Darwin in the NT (Figure 1.1). The Beetaloo covers approximately 28 000 km² of the 180 000 km² MacArthur Basin.
1.15
The Beetaloo and its borders are sparsely populated, the main communities being Mataranka, Jilkminggan, Larrimah, Daly Waters, Newcastle Waters and Elliott. Other communities in the region include Katherine, Barunga, Beswick, Minyerri, Ngukurr, Dunmarra, Marlinja, Borroloola, Robinson River and Tennant Creek.
1.16
The majority of land in the Beetaloo is used for cattle grazing and Indigenous land practices, with substantial coverage by perpetual pastoral leaseholds and native title.
1.17
The Beetaloo encompasses a number of traditional lands including, the Jawoyn, Alawa, Jingili, Walmanpa, Warumungu, Ngadji and Binbinga. There are also traditional lands directly downstream from the sub-basin.
NT legal framework for petroleum
1.18
Exploration and production activities for NT onshore petroleum reserves are administered and regulated by the NT Department of Industry, Tourism and Trade.
1.19
The key legislation for onshore petroleum reserves is the Petroleum Act 1984 (NT) (the Act). The Act provides for three kinds of petroleum title: exploration permits, retention licences and production licences.
1.20
Exploration permits give title holders the exclusive right to explore for (but not produce) petroleum in a title area; retention licences give title holders time to work towards making a discovered resource commercially viable; and production licences give title holders the right to explore, test for and produce hydrocarbons in a title area.
Prospective gas resources in the Beetaloo
1.21
The Department of Industry, Science, Energy and Resources (DISER) and Geoscience Australia submitted that the Beetaloo has the potential to be a world-class gas province:
The Beetaloo is prospective for unconventional hydrocarbons and is estimated to contain significant technically recoverable unconventional petroleum resources across a number of resource plays. Plays most likely to be developed in the next decade include shale plays in the Kyalla Formation and the Amungee Member of the Velkerri Formation, along with a tight sandstone play in the Hayfield sandstone member of the Hayfield mudstone.
1.22
According to Geoscience Australia, the Beetaloo contains a large proportion of the NT's shale gas (Figure 1.2). Emeritus Professor Ian Lowe put the scale of the resource into context. He submitted that, according to a Memorandum of Understanding (MOU) signed by the Australian and NT Governments (see para 1.32 below), the Beetaloo resource is believed to be 'at least 500 trillion cubic feet, in the old Imperial measures, in just one of the prospective layers'. He then compared the potential resource with a major US shale gas basin:
It has also been claimed that the sub-basin is "geologically analogous to the giant Marcellus Shale in the USA which delivers over 11 trillion cubic feet of gas to market per year". That rate is about ten times total Australian gas consumption, but the scale of the claimed resource is so large that it would allow gas to flow at that rate for about fifty years if its development were to be approved. The sub-basin is only a part of the larger McArthur Basin, in which other resources have been identified. It is clear that approving development of these resources would have a catastrophic impact on Australia's efforts to slow climate change, totally incompatible with our obligations under the Paris agreement.
1.23
DISER noted, however, that estimates of hydrocarbons in place can vary due to factors such as the availability of information and methods of calculation.
Shale gas and its extraction process
1.24
Shale gas comprises mainly methane that is trapped within clay-rich sedimentary rock at depths greater than 1500 metres. The low permeability of the rock means that the gas, either adsorbed or in a free state in the pores of the rock, is unable to flow easily.
1.25
Shale gas is extracted by drilling wells from 1500 to 4000 metres deep, through various layers of rock to access the shale. The wells are lined with cemented steel casings to reduce or eliminate groundwater contamination. To maximise shale gas recovery and minimise surface impacts, a technique called horizontal drilling is used. This technique involves the well changing from a vertical to a horizontal direction deep underground (see Figure 1.3).
1.26
Before any gas can be extracted, the shale rock along the horizontal portion of the well must be perforated, a process known as hydraulic fracturing, or more commonly, fracking. Water containing a proppant (a material, often sand, used to keep a fracture open) and chemical additives is pumped in under high pressure to open up existing fractures and create new ones within the shale rock. The proppant is forced into the fractures and holds them open after injection stops, allowing the gas to flow to the well and up to the surface. This process is repeated several times to create multiple hydraulic fractures.
NT Government moratorium on hydraulic fracturing and independent inquiry
1.27
In September 2016 the NT Government honoured an election commitment by announcing an immediate moratorium and independent scientific inquiry into hydraulic fracturing in the territory.
1.28
The Hon Justice Rachel Pepper chaired the Scientific Inquiry into Hydraulic Fracturing in the Northern Territory (the Pepper Inquiry), which presented its final report to the NT Government in March 2018.
1.29
The report made 135 recommendations designed to mitigate the social, environmental, cultural, and economic risks of any onshore gas development. Specific recommendations will be referred to as necessary throughout Chapters 2 to 5.
1.30
In delivering the report, Justice Pepper summarised the overall conclusion of the Pepper Inquiry Panel as follows:
That risk is inherent in all development and that any onshore shale gas industry is no exception. However, if the recommendations made in this Final Report – all 135 of them – are adopted and implemented in full, those risks may be mitigated or reduced – and in some cases eliminated altogether – to acceptable levels having regard to the totality of the evidence before the Panel.
1.31
The NT Government accepted all of the Pepper Inquiry recommendations in April 2018, and a week later, on 23 April 2018, the Australian Government released $260 million of additional Commonwealth funds as a 'GST top-up' for the territory.
Gas-fired recovery plan
1.32
In November 2018, the Australian and NT Governments signed an MOU to work together to develop the territory's gas industry. The MOU aims to realise the potential of the Beetaloo as a new gas province.
1.33
In July 2020, national media outlets reported that the government's handpicked taskforce of the National COVID-19 Coordination Commission—headed by former global chairman and CEO of The Dow Chemical Company, Mr Andrew Liveris—urged the Australian Government 'to underwrite a dramatic expansion of gas supply through tax incentives and financial support for new projects'.
1.34
On 15 September 2020, instead of announcing a vaccination procurement and delivery plan or launching a plan for shielding aged care workers from COVID-19, the Australian Government announced a Gas-fired recovery plan to 'help re-establish a strong economy as part of the Government's JobMaker plan, making energy affordable for families and businesses and supporting jobs as part of Australia's recovery from the COVID-19 recession'.
1.35
As part of this announcement, the Australian Government proposed:
Unlocking five key gas basins starting with the Beetaloo Basin in the NT and the North Bowen and Galilee Basin in Queensland, at a cost of $28.3 million for the plans.
Beetaloo Strategic Basin Plan
1.36
The Beetaloo was chosen by the Australian Government as the location for the first Strategic Basin Plan. The Australian Government then announced the Beetaloo Strategic Basin Plan (the Strategic Plan) on 17 October 2020.
1.37
The Strategic Plan comprised four key actions:
Action 1: Building a clear picture of the Beetaloo;
Action 2: Regulating efficiently and effectively;
Action 3: Enabling infrastructure; and
Action 4: Sharing Regional Benefits.
1.38
The BCD Program forms part of Action 1 and is identified under the Strategic Plan as 'Exploration Support'.
Beetaloo Cooperative Drilling Program
1.39
In 2020, the Australian and NT Governments engaged Deloitte Touche Tohmatsu (Deloitte) to assess the steps needed to develop the Beetaloo's shale gas resources. The first recommendation from the study was to consider government support should delays in development materialise during 2020 and 2021:
The Commonwealth and NT governments should continue to monitor progress and if there appears to be a material delay in exploration and appraisal activities, consider whether intervention or support may be warranted.
1.40
On 17 December 2020 the Minister for Water, Resources and Northern Australia, the Hon Keith Pitt MP, announced the BCD Program. Under the program, the Australian Government intended to provide up to $50 million over two years for exploration that occurs before 30 June 2022. Eligible applicants can apply for grants of up to 25 per cent of eligible project expenditure, with a minimum of $750 000 and a maximum of $7.5 million per well. Applicants can submit up to three applications.
Industry Research and Development Act 1986
1.41
The legal power to fund the BCD Program and the associated Instrument is through the Territories Power in section 122 of the Constitution in combination with the Industry Research and Development Act 1986 (IRD Act). The stated purposes of this Act are:
(a)facilitating the provision of independent strategic advice about investment in industry, innovation, science and research; and
(b)supporting and encouraging collaboration in the development and delivery of programs relating to industry, innovation, science and research; and
(c)authorising spending on programs relating to industry, innovation, science and research; and
(d)promoting the development, and improving the efficiency and international competitiveness, of Australian industry by encouraging R&D activities, innovation and science activities and venture capital activities.
1.42
The IRD Act empowers the Minister, by legislative instrument, to prescribe one or more programs in relation to industry, innovation, science or research, including in relation to the expenditure of Commonwealth money under such programs.
1.43
DISER explained that section 33 of the IRD Act provides the Australian Government with flexibility in relation to expenditure associated with industry, innovation, science and research programs:
The statutory framework provided by section 33 of the [IRD] Act enables a level of flexibility to provide authority for Commonwealth spending activities in relation to industry, innovation, science and research programs. This allows the Government to respond quickly and appropriately to the need to implement innovative ideas and pilot programs on an ongoing basis and as opportunities arise. Prescribing programs in legislative instruments provides transparency and parliamentary oversight of Government programs and spending activities, whilst reducing administrative burden on the Commonwealth.
1.44
On 24 May 2021, the Minister tabled the Instrument in the House of Representatives, prescribing the BCD Program for the purposes of section 33 of the IRD Act.
1.45
Senator Larissa Waters subsequently gave notice of a motion to disallow the Instrument on 4 August 2021, which was subsequently extended to the last possible date for disallowance (25 August 2021).
Examination by other bodies
Committee for the Scrutiny of Delegated Legislation
1.46
The Senate Standing Committee for the Scrutiny of Delegated Legislation (DLC) assesses delegated legislation against a set of scrutiny principles that focus on compliance with statutory requirements, the protection of individual rights and liberties, and principles of parliamentary oversight.
1.47
The DLC scrutinised the Instrument and initially raised concerns with the relevant agency about the conferral of discretionary powers and low level of parliamentary oversight. The DLC has subsequently raised concerns directly with the minister and is awaiting a response.
Federal Court of Australia challenge
1.48
At its second public hearing, the committee became aware of a challenge to the validity of the Instrument in the Federal Court of Australia. The Environment Centre NT is seeking judicial review of Minister Pitt's decision to make the Instrument and to approve $21 million in grant funding to Imperial Oil and Gas (a fully owned subsidiary of Empire Energy Group Ltd, see Chapter 2).
1.49
The basis of the action is that the emissions resulting from the opening up of the Beetaloo 'are likely to result in a material increase to the likelihood of Climate Change Risks occurring' and 'such emissions are likely to materially undermine Australia and/or the world's ability to meet its commitment under the Paris Agreement'.
1.50
The Environment Centre NT's Notice of filing and hearing argues:
…the Minister failed to make reasonable inquiries in respect of the Climate Change Risks, the Transition Risks and/or the Paris Agreement Risks.
As a consequence, in making the Instrument and/or the Decision, the Minister failed to comply with s 71 of the [Public Governance, Performance and Accountability Act 2013] and or the [Finance Minister's Commonwealth Grants and Rules Guidelines 2017].
1.51
The matter is listed for a case management hearing on 14 October 2021. The committee will be mindful of the court's proceedings as this inquiry progresses.