16 August, 2014

Legal News & Analysis – Asia Pacific – Australia – Energy & Project Finance

 

New Bill Proposes Ban On BTEX Chemicals In Fracking

 

WHAT YOU NEED TO KNOW

 

• A moratorium on coal seam gas (CSG) exploration and hydraulic fracturing (or “fracking”) has been in place in Victoria since August 2012 and is proposed to continue until July 2015.
• The Resources Legislation Amendment (BTEX Prohibition and Other Matters) Bill 2014 proposes, among other things, a ban on the use of BTEX chemicals in fracking fluids.
• The proposed ban on BTEX chemicals may indicate a preparedness by the Victorian Government to lift the moratorium on fracking and the grant of new CSG exploration licences in Victoria. A prohibition of BTEX chemicals in fracking fluids has been a critical step forward for the CSG industries in NSW and QLD.
• Broader regulatory reforms across the planning, land management, environment, and natural resources sectors will likely be required before the Government seriously considers lifting the CSG moratorium.

WHAT YOU NEED TO DO

 

• Interested parties are encouraged to read the Bill and consider the amendments it proposes.

 

The Resources Legislation Amendment (BTEX Prohibition And Other Matters) Bill 2014

 

The Resources Legislation Amendment (BTEX Prohibition and Other Matters) Bill 2014 (Bill) was introduced into the Victorian Legislative Assembly on 6 August 2014.

 

The principal amendment proposed in the Bill is the introduction of a statutory prohibition on the use of BTEX chemicals in hydraulic fracturing fluids across Victoria’s mining and energy legislation. The ban on BTEX chemicals was flagged by the Victorian Minister for Energy and Resources Russell Northe when announcing the community and stakeholder engagement program on the possible development of onshore natural gas in April 2014.

 

In addition, the Bill also proposes a number of other amendments which add to and tidy up the regulatory framework for future onshore gas projects.

 

This is a serious development in CSG regulation in Victoria and appears to represent a first step towards the lifting of the two year ban on fracking and the grant of new CSG exploration licences .

A copy of the Bill and accompanying Explanatory Memorandum can be found here.

What Are BTEX Chemicals? 

 

BTEX chemicals refer to benzene, toluene, ethylbenzene and xylene, which are naturally occurring compounds found in petroleum products. They may be added to fracking fluids in small proportions (about 1%) to control the properties of the fracking fluid (for example, to make the fluid thicker so that it holds the ‘proppant’ in the fluid (usually sand) more uniformly. Proppant is used to hold open cracks that form in the coal seam).

 

BTEX chemicals have caused community concern because of the potential environmental contamination and health risks associated with their escape into ground water or the air.

 

The Proposed Ban On BTEX Chemicals

The Bill amends the Mineral Resources (Sustainable Development) Act 1990, the Petroleum Act 1998, the Geothermal Energy Resources Act 2005, and the Greenhouse Gas Geological Sequestration Act 2008 to provide that an authority issued under those Acts is subject to the condition that BTEX chemicals cannot be used in any hydraulic fracturing permitted by the authority in more than the maximum amounts prescribed by regulation.

The Bill and accompanying Explanatory Memorandum do not indicate what maximum amounts may be prescribed, though it is likely the prescribed amounts will preclude the use of BTEX chemicals. For example, the maximum amounts of permissible BTEX chemicals set by regulation in Queensland are so low that, in practice, BTEX chemicals cannot be used at all.

 

First Steps Towards A Change Of Policy On CSG Exploration In Victoria 

 

There has been a moratorium on th e grant of new CSG exploration licences and hydraulic fracking under existing licences since 24 August 2012. Following the announcement of the moratorium by the Baillieu Government, the Gas Market Taskforce, headed by former Howard Government minister Peter Reith, was established to consider the potential impact of CSG exploration on Victorian water tables and aquifers.

In November 2013, the Taskforce released a report recommending the Government lift the moratorium on both the grant of new CSG exploration licences and hydraulic fracking. Instead, the Napthine Government announced the moratorium would be extended until July 2015, a decision criticised by industry and business groups, but welcomed by environmentalists and many farmers.

 

Though the moratorium remains in place, the Victorian Government is progressing work on scientific studies and with communities regarding potential CSG activity.

The Victorian Government is undertaking, in collaboration with the Federal Government, water science studies to examine the impacts of potential onshore natural gas developments on Victoria’s water resources.

In April 2014 Minister Northe launched the community and stakeholder engagement program seeking public input in the possible development of onshore natural gas. Information on these programs can be found on the Victorian Government’s Natural Gas Community Information website.

These measures, taken with the Bill, seem to position the Victorian Government to respond more quickly to forecast significant increases in gas prices. The potential looming gas shortages in Victoria are potentially addressed either by increases in price or alternative supplies. Onshore gas development in Victoria is a key option for Victoria.

2014 Victorian State Election

With a State election on 29 November 2014, the introduction of the Bill may signal a preparedness by the Napthine Government to reconsider its position on new CSG exploration projects in Victoria. Although the Victorian Liberal Party has not released a detailed policy on the CSG industry, the Explanatory Memorandum to the Bill states that the moratorium will continue until July 2015 while scientific studies and community consultations are completed, and that the BTEX ban will form part of the overall decision on whether fracking can be undertaken in Victoria.

The Victorian Labor Party’s Platform 2014 states that its position on CSG exploration is that it will:

 

• place a moratorium on the extraction of CSG (not just fracking) until the risks to ground and surface water are properly understood; and
• maintain a ban on hydraulic fracking until a Parliamentary Inquiry into its impacts is undertaken.

 

While an explicitly pro-CSG position is not likely to be adopted by the Liberal Party ahead of the 2014 election due to its coalition with the National Party, the proposed ban on BTEX chemicals and other amendments in the Bill look like an attempt to tighten the regulatory framework as a precursor to a reconsideration of its position regarding CSG exploration in Victoria. The Victorian National Party does not appear to have made any formal policy statements on its CSG position ahead of the election.

CSG Reform In New South Wales And Queensland

The prohibition of BTEX chemicals in fracking fluids has been a critical step forward for the CSG industries in both NSW and Queensland. The introduction of a formal policy prohibiting BTEX chemicals in fracking fluids in NSW in 2012 preceded the lifting of the State’s ban on fracking. Queensland enacted a statutory ban on the use of BTEX chemicals in fracking fluids in 2010.

 

Both States have since developed sophisticated land access policies to regulate the intersection of the CSG and agriculture industries and provide greater protections for landowners. They have also established specialist regulatory bodies to monitor and administer their respective CSG regulatory regimes. In addition, these States have adopted a coordinated approach to developing an acceptable CSG regulatory environment, with each governments’ response to community concerns being delivered across the environment, infrastructure and planning, state development, and natural resources portfolios.

 

Pathway Towards A CSG Industry In Victoria

 

Before the moratorium on new CSG exploration projects is lifted in Victoria, we expect that a similarly sophisticated approach to regulation of the industry will need to be developed. While a prohibition on the use of BTEX chemicals in fracking is an important first step, it is a relatively easy measure. Other important and arguably more challenging reforms that are likely to be required for a successful CSG industry in Victoria include:

 

• a review of the environmental impact assessment process for CSG and unconventional mining exploration projects;
• more comprehensive land access procedures, including special requirements for or restrictions in relation to certain classes of agricultural land;
• a stronger statutory architecture around the negotiation of landowner compensation entitlements;
• more stringent requirements for the management and treatment of water produced
• during CSG extraction; and
• development of a framework for resolving conflicts between holders of competing authorities issued under the Mineral Resources (Sustainable Development) Act and Petroleum Act or other resource legislation.

 

While such broader regulatory developments will take time, the experience in Queensland and New South Wales suggests that a prohibition on the use of BTEX chemicals in fracking is an essential precursor to more significant reforms.

Other Proposed Amendments

The Bill proposes several other amendments to Victoria’s earth resources legislation. Many of those are administrative in nature, however others are more substantive. Those other amendments include:

 

• an ability for the Minister to propose an undertaking to an authority holder who has contravened the Mineral Resources (Sustainable Development) Act or a condition of their authority as an alternative enforcement mechanism. Proceedings cannot be initiated in respect of a contravention while an undertaking is in force or after an undertaking has been satisfied. However, it will also be an offence to contravene an undertaking.
• the incorporation of any conditions in a Land Use Activity Agreement under the Traditional Owner Settlement Act 2010 which are accepted by an applicant for an authority under the Mineral Resources (Sustainable Development) Act, the Petroleum Act, the Geothermal Energy Resources Act, or the Greenhouse Gas Geological Sequestration Act as conditions of the authority that is being sought.
• amendments to the Offshore Petroleum and Greenhouse Gas Storage Act 2010 to mirror Commonwealth information sharing provisions.

 

What This Means For You

Parties interested in CSG exploration in Victoria are encouraged to read the Bill and consider the amendments it proposes.

 

 

For further information, please contact:

  

Clare Lawrence, Ashurst

[email protected]

 

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