5.3.1 Promoting more efficient and effective business regulation
5.3.2 Promoting the safe and sustainable development of our energy resources
5.3.3 Enhancing Australia's energy resources prospectivity
5.3.4 Addressing capacity constraints
5.3.5 Capturing opportunities for local industry and communities
Few countries can compete with Australia’s attractiveness for energy resource development. In addition to available and potential resources, we offer energy investors a stable and efficient regulatory environment, a highly skilled and diverse workforce, a culture of innovation, a stable economy with low inflation, and world-class industry capabilities–all positioned at the doorstep of the Asia-Pacific region.
The dramatic growth in energy demand across our region means that we potentially have a once-in-a-generation window of opportunity to lock in investments that will generate a long-lived stream of income and other benefits if we can capitalise on our strengths.
Central to this is our ability to attract foreign investment and promote and develop a stream of new projects into the future. This will depend on factors such as prospectivity; an attractive business environment with stable and efficient policy and regulatory settings; access to supporting infrastructure and skilled workforces; efficient commercial markets; and supportive fiscal regimes.
Australia is well placed on many resource development indicators, such as the 2011 World Risk Survey, in which we were ranked seventh overall. However, in the 2004 survey Australia was ranked first, which shows that investment attractiveness can change quickly. As global energy supply-demand balances change and prices adjust, or political and economic circumstances alter, the risk-reward ratio starts to shift and countries once considered less appealing can become attractive investment destinations.
High global energy prices have stimulated supply responses and we face growing competition as an increasing number of countries develop their energy resources. Many competitors have lower costs of production and, as they are relatively underexplored for energy resources, are perceived as more prospective than Australia. In the next few years, Indonesia is likely to overtake Australia as a thermal coal producer, and new LNG capacity will emerge in the Middle East, the Caribbean, North America and possibly East Africa. Improving our industrial productivity and providing a business-friendly investment environment will be major factors in maintaining our competitiveness.
In this context, there are challenges we must overcome to gain the maximum return on our national energy assets and build on our attractiveness as an investment destination. They include:
- promoting more efficient and effective business regulation
- promoting the safe and sustainable development of our energy resources
- enhancing our energy resource prospectivity
- addressing capacity constraints
- capturing opportunities for local industries and communities.
5.3.1 Promoting more efficient and effective business regulation
Australia is becoming a high-cost producer compared to some potential energy suppliers, so maintaining efficient and effective regulatory frameworks to continue to attract new investment is important. The Australian Government, in conjunction with states and territories, is undertaking several key reforms in this area to reduce the costs of regulation, increase productivity and improve offshore oil and gas regulation, including development approval reforms.
Reducing the costs of regulation and enhancing productivity
In April 2012, following discussions at the Business Advisory Forum, the Council of Australian Governments (COAG) agreed to reforms in six priority areas to strengthen Australia’s competitiveness and productivity:
- addressing duplicative and cumbersome environmental regulation
- streamlining the process for approvals of major projects
- rationalising carbon reduction and energy efficiency schemes
- delivering energy market reforms to reduce costs
- improving assessment processes for low-risk, low-impact developments
- lifting regulatory performance by implementing best-practice approaches.
To advance this work, COAG has established an interjurisdictional taskforce chaired by the Secretary of the Australian Department of Finance and Deregulation and consisting of officials from First Ministers and Treasury portfolios. The taskforce will report to the next meeting of the Business Advisory Forum and COAG in late 2012.
Improving offshore oil and gas regulation
The government has undertaken reforms to offshore oil and gas regulation to improve the effectiveness and consistency of health, safety and environmental regulation and thereby reduce business costs. Further reforms are in train to promote greater transparency in offshore oil and gas development approvals.
In April 2009, the Productivity Commission’s Review of Regulatory Burden on the Upstream Petroleum (Oil&Gas) Sector identified significant unnecessary costs from delays and uncertainties in obtaining approvals, duplication of compliance requirements, and inconsistent administration of regulatory processes (PC 2009). It found that these burdens could be reduced through new institutional arrangements—principally the establishment of a national offshore regulator—and the implementation of best-practice regulatory principles in all jurisdictions.
Inquiries into the 2008 Varanus Island pipeline explosion and the 2009 Montara well blowout also highlighted some inadequacies in petroleum regulatory oversight and gaps arising from overlapping safety regulations. The government has moved to implement the actions outlined in its final response to the Offshore Petroleum Safety Regulation Inquiry and the report of the Montara Commission of Inquiry.
In response to the recommendations of those reviews and inquiries, the government established new regulatory arrangements for petroleum activities in Commonwealth waters. The National Offshore Petroleum Safety and Environmental Management Authority now regulates petroleum activities in Commonwealth waters, and the National Offshore Petroleum Titles Administrator provides advice to the joint authorities, administers titles and manages data for Commonwealth waters.
Offshore development approval reforms
While the introduction of the retention lease framework has served the offshore sector well, the Australian Government believes that its implementation can be improved. Consultation undertaken as part of the review of the retention lease framework supported the continuation of the system, with broad support for the commerciality test, greater transparency, and reviews of work programs in advance of formal notification of intent to offer the grant or renewal of a retention lease.
Improving transparency will benefit titleholders and assist third parties to comment on retention lease awards or renewals and offer alternative development options. However, legitimate commercial data and information will remain protected.
Large, highly capital-intensive and long-term LNG developments require resource certainty. The retention lease framework must balance the need for certainty and legitimate commercial interests with the national interest. To better reflect the realities of LNG development and the need to provide certainty of gas supply over long project timeframes (30 years or more), the government will consult industry on potential changes involving a ‘project title’ concept, balancing the need for certainty with other pressures, including promoting commercial domestic gas supply.
These changes will ensure that policy settings and the administration of retention leases are appropriate in the light of future energy needs. The new arrangements will also ensure that petroleum resources are brought into development in a timely fashion. In addition, the government will have greater regard for the potential of projects to supply the domestic market, where that is commercially feasible, when considering the granting of a production licence.
The establishment of NOPTA has provided greater certainty about approval timeframes, parameters for ministerial decisions, commerciality tests and triggers for reviews.
5.3.2 Promoting the safe and sustainable development of our energy resources
It is important that the development of Australia’s energy resources occurs in ways that are environmentally, economically and socially sustainable. This responsibility is shared between industry and all levels of government. In recent times, the importance of sustainability and community engagement has been highlighted during the development of various energy-related activities, including CSG, LNG, wind and coal resource projects.
The Australian Government maintains a comprehensive environmental protection and management framework that covers energy resource projects for which the government is responsible. Those responsibilities and key policy frameworks are described in more detail in Chapter 12: Sustainability, workforce and Indigenous opportunities, along with reforms underway to streamline their operation and improve their effectiveness.
In addition, Australia’s offshore petroleum regulatory framework provides for the safe and environmentally responsible development and operation of oil and gas projects in Commonwealth waters, including the geological storage of carbon dioxide.
Safely developing our gas resources
The development of new unconventional gas resources in Australia and in other countries has sometimes been controversial, generating highly visible and passionate debate. Currently, attention is focused on the development of new CSG deposits, particularly the use of chemical agents in underground seam fracturing, and on water extraction and the potential for contamination. Concerns have also been expressed about the loss of productive farmland and reduced local amenity (from noise, dust and traffic), greenhouse gas emissions, land subsidence, and induced seismicity (earth tremors). The government takes these concerns seriously.
Because CSG is an onshore energy resource, the primary responsibility for its regulation lies with the state and territory governments. By itself, the extraction of CSG or other forms of gas does not provide a trigger for Commonwealth regulation except where it is likely to have significant impacts on matters of national environmental significance, as defined by the Environment Protection and Biodiversity Conservation Act.
Where the Act has been triggered, the Australian Government has adopted a conservative approach to approving CSG projects. Conditions that are adaptive have been applied, which means that improvements and changes to the regulatory requirements can be made to take into account changing scientific knowledge and to more fully consider cumulative impacts from multiple projects.
As part of the announcement of new CSG approval arrangements by the Prime Minister in November 2011, the Australian Government has entered into the National Partnership Agreement on Coal Seam Gas and Large Coal Mining Development with the New South Wales, Victorian, Queensland and South Australian governments.
The agreement provides mechanisms for each government to seek and take into account the advice of the Independent Expert Scientific Committee on Coal Seam Gas and Large Coal Mining Developments in relevant environmental assessment and approvals decisions. The committee will be established through an amendment to the Environment Protection and Biodiversity Conservation Act. Its role is to address knowledge gaps and to provide scientific advice on CSG and large coal mining proposals that are likely to have significant water-related impacts.
These arrangements will substantially improve the scientific evidence that informs regulatory decisions, make regulatory processes more transparent and open, and ensure that independent expert advice on all relevant project proposals is available to communities, governments and industry. The Australian Government will invest $200 million over five years to support this work.
The new initiatives complement and support existing research by the Australian Government and its agencies on CSG and other resource extraction activities that may affect groundwater. This includes:
- work by the National Water Commission to examine the local and cumulative effects of mining on groundwater
- work by Geoscience Australia to assess the potential impacts to groundwater resources by providing advice on regional hydrological characterisations (a range of collaborative scientific studies will be undertaken to address knowledge gaps through multidisciplinary data collation and analysis to support the assessment of CSG and coal mine developments)
- work by CSIRO, in collaboration with the CSG industry and other parties, to establish the Gas Industry Social and Environmental Network, which will examine the socioeconomic and environmental impacts of the natural gas industry
- the Namoi Water Study, which determined the potential impacts of CSG and coal mining on water resources in the Namoi catchment
- work by the Queensland Water Commission to develop a regional groundwater model for areas affected by CSG developments.
Governments have also done extensive work to ensure that the regulatory framework for CSG in Australia is robust. The Australian Government is working with the states and territories through the Standing Council on Energy and Resources to develop a nationally harmonised regulatory framework for the CSG industry based on key community concerns and encompassing:
- water management and monitoring
- well integrity and aquifer protection
- monitoring of hydraulic fracturing and chemical use.
The implementation of a harmonised framework will generate greater public confidence in the effective regulation of the industry while supporting the commercial extraction of CSG.
State and territory governments are also independently pursuing initiatives to strengthen their regulation of CSG, improve community engagement and develop strategic land-use policies.
The future development of other unconventional gas resources, such as tight gas and shale gas, may raise similar social and environmental concerns. Although there are some significant differences between CSG and shale and tight gas (which may therefore require different treatments), it is important that governments and the industry ensure that lessons learned from the development of the CSG sector are applied to future shale gas and tight gas developments. The Australian Government will work with other jurisdictions to ensure that these resources are developed sustainably, and with appropriate community consultation.
Managing co-development pressures
While energy and mineral resource developments affect less than 1% of Australia’s landmass (ABARES 2010), the expansion of mining, agricultural and residential activity in some regions is causing tension between overlapping or adjoining activities and communities. This has been particularly evident in the recent development of CSG and coal mining operations in New South Wales and Queensland and in wind energy development in southern states.
While the regulation of these activities is the responsibility of state and territory governments, there is a need to promote nationally consistent approaches that provide for responsible and sensible development and coexistence (where appropriate), based on transparent risk management and the best available science.
Historically, multiple land use has been commonplace in Australia (for example, agriculture and mining have coexisted for generations). However, the development of new energy projects in regions that have had little previous involvement with the resources sector can be challenging for people and businesses in those places.
The extractive industries are not alone in generating community tensions. For example, the growing number of wind farms has become an increasing concern in some rural communities. Some emerging technologies, such as geothermal and carbon capture and storage, have yet to test community views in practice.
Multiple land use—working towards a solution
Multiple land use involves using land for different purposes simultaneously or sequentially, and accommodating those different uses efficiently and sustainably to retain the widest options for current and future use. The aim is to maximise the net benefits to present and future generations.
Multiple and sequential land use are considered the two key components of the Multiple Land Use Framework currently under development by the National Land Access Working Group of the Standing Council on Energy and Resources. The intention is to develop a world-class multiple land-use framework which will ensure that coexistence rather than exclusion is the key driver in land-use policy. Critical for this is a deeper understanding of community engagement and better leadership of it.
In some cases, resource development may not be appropriate in or near residential or culturally and environmentally sensitive areas. On the other hand, locking up areas for specific purposes to the exclusion of sensible co-development could result in higher future costs for the nation. It would also limit the earning potential of rural landowners from cooperative access arrangements with resource companies.
Individual states and territories are also moving to improve land access arrangements. For example, the Queensland Government has developed a policy framework for land access. Resource companies must comply with a single land access code developed in conjunction with the resources and agricultural sectors. Under the code, one of the mandatory conditions for resource companies using private land is that they must minimise disturbance to people, livestock and property.
A nationally consistent approach to mine health and safety
The Australian Government, the states and territories, businesses and unions are working towards a more nationally consistent approach to mine health and safety through the National Mine Safety Framework. This aims to deliver greater consistency in legislative duties and responsibilities, more consistent approaches to risk identification and hazard management, greater worker mobility and the development of a national mine safety database to record and report incident data.
This will be encapsulated in nationally consistent mine safety legislation to commence during late 2012, in either model Work Health and Safety (Mines) Regulations or separate industry-specific mine safety legislation. The national mine safety database will be available for use from December 2012.
5.3.3 Enhancing Australia’s energy resources prospectivity
Although demand for our energy resources is expected to be long-lasting, our share of global mineral exploration expenditure (within which uranium and coal are the energy commodities) is not increasing. Australia was the world leader in mineral exploration investment in the mid-1990s with a share of 20%, but this declined to 13% in 2011 (ABS 2012b).
Factors that may be contributing to this decline include perceptions of Australia as a mature exploration destination where there are fewer opportunities for discovery; intense global competition for exploration; the high cost of exploration in Australia, due to the high Australian dollar and labour costs; insufficient pre-competitive information; and the difficulty in exploring for deposits buried under the overlying sand, soil and sediment that cover much of Australia.
To sustain the contribution of Australia’s mineral and energy resources to the national economy in the longer term, additional high-quality resources need to be discovered and developed. In particular, Australia needs world-class discoveries in new greenfield areas. The challenge is to make our greenfield areas some of the world’s most attractive investment destinations.
Support for world-class pre-competitive geoscience
The value of pre-competitive geoscience in attracting exploration investment has been well documented (Australian Government 2011b). Australia’s geological surveys both acquire pre-competitive geoscience information and attract industry interest. Given the high cost and risk of greenfield exploration and development, there is little incentive for exploration companies to acquire their own regional-scale technical data. The information must also be detailed enough to enable companies to assess whether investment in exploration in specific geographical areas can be justified on the basis of technical risk and the prospect of commercial returns.
Governments’ continuing commitment to geological surveys and pre-competitive geoscience sends a clear message that investment in the high-risk energy resource exploration and development industry is welcome.
A national mineral exploration strategy
Establishing frameworks and policies that are conducive to exploration and will develop the next generation of Australia’s energy and mineral resources is critical. The Australian Government believes that a national mineral exploration strategy is required, including:
- a national geoscience research initiative
- a renewed commitment to pre-competitive geoscience in all jurisdictions
- the promotion of Australia as a centre of excellence in exploration, geological surveys, resources services and research.
This initiative will be undertaken in cooperation with all states and territories through the Standing Council on Energy and Resources (SCER).
While the National Exploration Strategy is focused mainly on mineral resources (including uranium), it is also relevant to exploration for geothermal energy resources.
Removing barriers to exploration
In 2010, the Policy Transition Group advised the Australian Government that there was evidence that costly, time-consuming and inconsistent or contradictory policies and regulations were acting as potential barriers to efficient levels of exploration in Australia.
In response, the government will task the Productivity Commission to inquire into the non-financial barriers to mineral and energy resource exploration. The inquiry will determine whether there is evidence of unnecessary regulatory burden and examine Australia’s framework for exploration, including the various approvals required before exploration can begin and the opportunities for improving regulatory processes.
The Productivity Commission is expected to begin the review by the end of 2012.
Filling information gaps
Because our mineral and energy resources belong to the nation, all Australians are entitled to full information about those resources and their reserves. Consistent and accurate information from all companies that mine or have rights to exploit mineral deposits in Australia also encourages further development of our resources and enables a comprehensive understanding of our resource endowment. It improves governments’ ability to forecast production for policy and revenue purposes and allows industry to better assess the risks and rewards of exploration or mining.
In recent years, many resources companies have been delisted from the Australian Stock Exchange (ASX) following takeovers or mergers with other, primarily foreign-listed, companies and therefore may not be required to report publicly on exploration results, mineral resources and ore reserves. The same holds for private and foreign resources companies not listed on the ASX. Companies listed on the ASX are required to report this information publicly.
A considerable number of unlisted companies are involved in black coal exploration and extraction in Queensland, New South Wales, Tasmania and Western Australia. Only 38% of Australia’s economic demonstrated resources of black coal is publicly reported. None of Australia’s brown coal economic demonstrated resources is reported, as the resources are all owned by unlisted companies or overseas consortiums.
The integrity of our public resource information base may be compromised by this inconsistency in reporting. To help address this problem, the SCER is considering options to increase formal reporting of Australian resources, such as a voluntary survey, regulation reform, or the realignment and increased use of current mechanisms.
5.3.4 Addressing capacity constraints
The productivity of our energy resources sector depends on reliable access to a skilled workforce and on the availability of efficient infrastructure to deliver product to markets across the globe. Both are critical in avoiding constraints or bottlenecks along the supply chain.
Energy resources infrastructure
Australian energy resources are often in remote locations, and getting product to market reliably requires efficient rail networks, roads and ports as well as systems to ensure distribution through to domestic consumers. This section focuses largely on our export infrastructure needs, although some of this capacity is also important in maintaining supply to domestic energy and feedstock markets.
Issues relating to infrastructure for delivering energy within Australia, such as electricity poles and wires and gas pipelines, are outlined in chapters 9 and 10.
Over the past decade, the energy and resources sector has generated a wave of large-scale infrastructure investment. However, competition for investment is fierce, and remote projects inevitably compete for resources against infrastructure developments in towns and cities.
This infrastructure is provided mainly through private investment, although some common-use infrastructure can be provided or supported by the public sector. The challenge for resources companies, rail operators and port owners is to plan, build and deliver export infrastructure in the right locations, on time and in an environmentally sustainable way.
To help policymakers better understand likely future requirements, the Bureau of Resources and Energy Economics was commissioned to develop detailed forecasting of projected export infrastructure needs for Australia’s bulk energy and mineral commodities. The bureau’s report, Australian bulk commodity exports and infrastructure—outlook to 2025, was released in July 2012 (BREE 2012f).
The report showed that over $30 billion has been invested in export-facilitating infrastructure over the past decade, enabling the current expansion of wealth-creating energy and minerals projects. It also found that, on the basis of expected growth in Australia’s coal and LNG exports, there is adequate planned and proposed infrastructure to meet forecast demand.
The report recognised that large-scale developments, such as infrastructure projects, are often susceptible to planning delays and that this can be a critical factor affecting upstream resource development. While it found that the risk of not having sufficient capacity under different growth scenarios is manageable, that finding relied on all planned infrastructure projects being developed on time.
The Australian Government is aware of these risks, particularly where critical infrastructure developments intersect with environmentally sensitive regions such as the Great Barrier Reef Marine Park or similar zones. For this reason, the government is working closely with the Queensland Government Port Infrastructure Working Group to ensure a coordinated approach on regulatory issues affecting the resources sector.
The Australian Government also engages in a range of investment, advisory, reform and facilitation initiatives to help developers overcome infrastructure challenges:
Infrastructure Australia was established to support a transformation in the way Australia invests in infrastructure. It is a statutory body that advises governments on infrastructure issues, including Australia’s current and future infrastructure needs, impediments to the efficient utilisation of national infrastructure networks and mechanisms for financing investment in infrastructure. It also advises on investment priorities and on policy and regulatory changes to ensure that existing infrastructure is used efficiently and to enable the timely and coordinated delivery of national infrastructure investment.
The National Building Program is investing around $36 billion in Australia’s land transport infrastructure between 2008–09 and 2013–14, including significant investments in major road and rail projects. The next phase of the program will run from 2014–15 to 2018–19 and aim to lift Australia’s productivity through work on nationally significant land transport infrastructure.
The Major Project Facilitation Program provides assistance with government approvals processes and identifies existing government assistance programs for proponents of strategically significant major projects. It aims to coordinate Australian, state and territory government processes so that, where feasible, they occur simultaneously and without duplication.
The Regional Infrastructure Fund will inject $6 billion from 2010–11 to 2020–21 into mining communities and those that support the mining industry. Roads, rail, ports, airports, energy, water and communications infrastructure will be funded to support the mining industry’s future growth and the communities that support the industry.
The Australian Government (together with the Australian Workforce and Productivity Agency, industry skills councils, business groups, the vocational education and training sector, and secondary and higher education institutions) will implement training and workforce planning strategies to boost skilled labour supply through education and training and by promoting participation, workforce mobility and skilled migration.
Because skills and workforce development issues in many industrial sectors are similar, they are discussed in detail in Chapter 12: Sustainability, workforce and Indigenous opportunities.
5.3.5 Capturing opportunities for local industry and communities
The development of Australia’s energy resources occurs in cooperation with the community. It is important that opportunities for local businesses and Indigenous communities, and broader societal benefits, are captured from those developments.
Improving Indigenous opportunity
Access to Indigenous land for mining and other resource development activities can provide enormous social and economic benefits to Indigenous communities and their broader regions. The benefits include financial compensation for land access and use, increased equity participation, employment, and the construction of education and community infrastructure.
An ongoing challenge for governments (particularly state and territory governments), traditional owners and investors will be to maintain access while ensuring that Indigenous communities receive appropriate returns.
Negotiating land access continues to be complex, costly and time consuming. It is important that both Indigenous communities and resource developers continue to work together for mutual benefit.
Efforts to promote better Indigenous opportunities involve multiple policy areas and are discussed further in Chapter 12: Sustainability, workforce and Indigenous opportunities.
Promoting Australian industry participation
Australia’s energy resources sector creates flow-on business opportunities for Australian firms in industries such as construction, materials, maintenance and associated services. In particular, resources projects create lasting local business opportunities for servicing and maintenance in their operational phases.
For example, in 2010–11 the Queensland resources sector purchased $20.5 billion in goods and services from Queensland businesses, up from $18.8 billion in 2009–10 (MCA 2011). In addition, local content is reported to be around 60%–70% for many current LNG projects (DAE 2012).
Australian firms’ access to energy resource development opportunities varies from project to project and depends on a range of commercial factors. The Australian Government does not support mandated levels of local participation, as developers’ ability to maximise cost efficiencies is critical to our ongoing competitiveness. However, the government believes that Australian businesses should be given a fair opportunity to compete in the manufacture and supply of goods or services in the resources and energy sectors. The government’s Australian Industry Participation (AIP) policies and programs, and initiatives such as Buy Australian at Home and Abroad, enhance opportunities for local businesses to participate in the growing energy and resources sector.
Following an announcement by the Prime Minister on 6 October 2011, important reforms to AIP initiatives came into effect on 1 July 2012. The reforms strengthen the Australian Government’s approach to AIP and will provide more opportunities for Australian industry to win work supplying goods and services to major projects. The reforms include requiring the publication of AIP plans and outcomes, and extending AIP plans to major Australian Government grants and infrastructure projects.