15 April, 2020
The Victorian parliament has introduced two new bills:
- The Petroleum Legislation Amendment Bill 2020, which will allow for onshore conventional gas exploration from 1 July 2021.
- The Constitution Amendment (Fracking Ban) Bill 2020, which will entrench existing bans on fracking and coal seam gas in the Victorian constitution.
What you need to know
- On 17 March 2020, the Victorian parliament introduced two new bills significantly affecting the oil and gas industry in Victoria. Both bills have been moved to the second reading stage of the Legislative Assembly, awaiting the results of member votes.
- The Constitution Amendment (Fracking Ban) Bill 2020 (Fracking Ban Bill) will enshrine existing legislated bans on fracking in petroleum and mining activities, and coal seam gas exploration and mining in the Victorian Constitution.
- The Petroleum Legislation Amendment Bill 2020 (Petroleum Amendment Bill) will extend the existing moratorium on any petroleum exploration and production by one year, proposing for it to be lifted on 1 July 2021. It also imposes additional conditions on offshore petroleum licensees that ensures domestic customers will have the first opportunity to purchase petroleum recovered under the license.
What you need to do
- Interested stakeholders should be aware of the possibility that the moratorium on the onshore conventional gas industry will be lifted a year later than originally anticipated on 1 July 2021.
- Operators of petroleum operations, will need to submit new or varied risk based operations plans, and will need to have greater regard to the expectations of landowners and municipal councils if they are to obtain the return of their rehabilitation bonds at closure.
- Holders of offshore petroleum licensees in Victorian waters granted under the Offshore Petroleum and Greenhouse Gas Storage Act 2010 (Vic) on or after 1 May 2018 should be aware of the potential new conditions on their licences which will require them to allow domestic customers to have first offer rights.
Background
On 18 March 2020, the Victorian parliament moved the second reading of two bills (first introduced on 17 March 2020) that could significantly affect the oil and gas industry in Victoria.
The current Victorian government advocates that the Constitution Amendment (Fracking Ban) Bill 2020 (Vic) (Fracking Ban Bill) will fulfil the its 2018 election commitment to enshrine legislated bans on fracking in the Constitution of Victoria.
On 16 March 2017, the Victorian parliament placed a moratorium on any petroleum exploration and production until 30 June 2020 and implemented the Victorian Gas Program. The Victorian Gas Program was implemented to undertake a program of scientific research to assess the potential for future discovery of both onshore conventional gas and offshore gas in the state of Victoria. The Victoria Gas Program assessment results, identified between 128 and 830 petajoules of onshore gas reserves cross Victoria, which would amount to an additional 0.1 to 0.3 per cent to Victoria’s greenhouse gas emissions, if the gas were to be extracted.
The Petroleum Legislation Amendment Bill 2020 (Vic) (Petroleum Amendment Bill) extends the moratorium period to 30 June 2021, lifting it on 1 July 2021.
Fracking Ban Bill
Effect of the Fracking Ban Bill
The Fracking Ban Bill entrenches existing legislated bans on hydraulic fracturing, and coal seam gas exploration and mining into s 18(2) the Constitution Act 1975 (Vic) (Constitution Act). These prohibitions are currently located under the Mineral Resources (Sustainable Development Act 1990) (Vic) and the Petroleum Act 1998 (Vic), as a result of amendments made in 2017.
The effect of the Fracking Ban Bill is that any future bill attempting to repeal, alter or vary the prohibitions will be void unless the third reading of the bill is passed by a special majority. A special majority means that 3/5ths of the whole number of the members of the Legislative Assembly and of the Legislative Council respectively must agree to the bill.
Status of the Fracking Ban Bill
The Fracking Ban Bill passed the first reading in the Legislative Assembly on 17 March 2020 and was moved for the second reading on 18 March 2020. We await the results of the second reading vote. If the Bill passes, it must then be voted on again at the third reading. The process is then repeated in the Legislative Council.
Notably, the Fracking Ban Bill itself alters an entrenched section of the Constitution Act. Therefore, it must pass the third reading by a special majority in each house.
Petroleum Amendment Bill
Effect of the Petroleum Amendment Bill
The Petroleum Amendment Bill extends the moratorium period on any petroleum exploration and production from 30 June 2020 to 30 June 2021. The Bill will lift the moratorium period on 1 July 2021 to enable what the Victorian government describes as the 'orderly restart' of Victoria's onshore conventional gas industry.
The Petroleum Amendment Bill amends the Petroleum Act 1998 (Vic) so that prescribed social, environmental and economic factors and submissions from the community are taken into account in making certain decisions under that Act, such as prior to a Minister inviting tender applications for exploration permits.
A new or varied risk based operation plan will need to be submitted before carrying out a petroleum operation under a relevant authority after 1 July 2021. There is also a new power for the Minister to require a variation of an accepted operation plan if there have been significant changes in risks or new risks to the environment, and members of the public, since the plan was accepted.
Additional consultation obligations have been introduced in order to discharge a rehabilitation bond at closure of a petroleum operation on private land. The Minister for Resources (Vic) will consult with the owner of the land and the relevant municipal council before returning any rehabilitation bond. This means that operators will need to do more to engage with and meet the expectations of landowners and municipal councils to ensure return of their rehabilitation bonds.
Notably, the Petroleum Amendment Bill also amends the Offshore Petroleum and Greenhouse Gas Storage Act 2010 (Vic) (Offshore Petroleum Act) to require the holder of an offshore petroleum production licence in Victorian waters to provide domestic consumers with the first opportunity to purchase its petroleum. Specifically, under the proposed s 152A to be inserted in the Offshore Petroleum Act, any petroleum product licence granted on or after 1 May 2018 is subject to the condition that the licensee must not supply petroleum under the licence to an LNG exporter unless:
- The licensee has first taken all reasonable steps to supply the petroleum to a domestic consumer on reasonable terms; and
- There is no domestic consumer willing to buy the petroleum on reasonable terms.
The determination of whether terms are reasonable will be governed by factors prescribed in the Offshore Petroleum and Greenhouse Gas Storage Regulations 2011 (Vic). Those "factors" are yet to be prescribed, however, the intention is for the Governor in Council to have the power to make regulations which will indicate what are "reasonable terms".
How will these obligations be policed?
The licensee must notify the Minister for Resources (Vic) of any proposal to supply petroleum to an LNG exporter. An LNG exporter means any entity which is not consuming the petroleum within Australia or supplying the petroleum to an entity that will consume petroleum within Australia.
Status of the Bill
This remains a watch this space, to see if politically the bills will become law. The Petroleum Amendment Bill passed the first reading in the Legislative Assembly was moved for the second reading on 18 March 2020. We await the results of the second reading vote. If the Bill passes the second reading vote, it must then be voted on again at the third reading. The process is then repeated in the Legislative Council.
Next Steps
The Victorian government predicts that proposed developments to the onshore conventional gas industry would likely commence from 2023-24 if the bills pass into law.
Australia’s federal Energy Minister, Angus Taylor, suggests that an increase in Victoria’s gas production is a vital component of any potential bilateral deal between the federal and Victorian governments on energy investment. A similar deal was reached between the NSW government and federal government in January 2020, where both governments agreed to contribute funds for investment in new renewable energy projects in return for expanding the use of both coal and gas in NSW.
Assuming the bills are passed, the Victorian government intends to engage with industry and other stakeholders to amend the Petroleum Regulations 2011 (Vic) to complement the findings of the Victorian Gas Program. The Victoria Gas Program is a program coordinating scientific research to assess the potential for discoveries of onshore conventional gas and offshore gas in Victoria.
It will be interesting to see if the lifting of the moratorium will have the desired effect of kick-starting investment in oil and gas in Victoria.
