Second Reading: Offshore Petroleum and Greenhouse Gas Storage Amendment Bill 2017

Mr SOUTHWICK (Caulfield) (17:18:57) — I rise to make a contribution on the Offshore Petroleum and Greenhouse Gas Storage Amendment Bill 2017. This bill amends the Offshore Petroleum and Greenhouse Gas Storage Act 2010 to provide protections for the holders of petroleum titles affected by changes to the boundary between the offshore area and the commonwealth-defined offshore areas.

The main focus of this bill is to take into account some of the change in tidal waters that alter potentially when the 3 nautical miles are mapped from the onshore point to offshore, and to ensure that if those boundaries move, the titles that are contained within the mapping do not affect the permit-holders. Ultimately it is protecting those that have existing permits to ensure that they are not disadvantaged by the new mapping that is being carried out.

On that basis the opposition will not be opposing this bill. We believe it is very important that we protect those people who are seeking to do exploration, particularly during the times that we are currently experiencing, when it is important to bring more supply into the market. When we are looking at the likes of gas, which I will talk a little bit about today, it is important that we ensure we do not disadvantage those title holders.

The amendments to this bill will ensure that the title holders who are affected by the boundary change receive equivalent entitlements to those they would have otherwise had, were it not for the relevant boundary change. The bill also provides reciprocal arrangements for the protection of the commonwealth petroleum title rights in the event of a boundary change, a feature already provided for under the state petroleum titles under relevant commonwealth legislation. It amends the delaying provisions to ensure that the effect of a boundary change is delayed with respect to a commonwealth title while that title remains in force. It will establish a framework to automatically grant or extend the coverage of a commonwealth petroleum title when part of the title moves from commonwealth to Victorian coastal waters as the result of a boundary change. It provides arrangements for the valid granting of renewals of Victorian petroleum and greenhouse gas titles when part of that title has moved into commonwealth waters as a result of a boundary change. The overarching impact of this bill is to better align state and commonwealth legislation, and to increase protections for relevant title holders.

We believe, or certainly we have been informed, that there are 17 current commonwealth petroleum titles located along or near the coastal waters boundary: 10 pipeline licences, three exploration permits, one production licence and three retention leases. Pipeline licences in particular are vulnerable because a licence may extend from commonwealth waters across the coastal waters boundary to carry raw products from the Bass Strait petroleum fields to onshore Victoria for processing. It is very important that those title holders are protected.

One of the things that I wanted to discuss today is when we have situations where title holders have looked at going from onshore to offshore to be within the boundary of 3 nautical miles and therefore to be effectively considered as offshore exploration. When you look at some of the legislation and the moratoriums that have been put in place by this government, we now have a situation where some companies are unfortunately being advantaged or disadvantaged. We also have a situation where some companies unfortunately have to look at deliberately working their way through to avoid some of the moratorium legislation just to get some exploration going.

I want to particularly point out the Black Watch and Halladale fields, which are developed through four extended reach wells, which will be drilled from an offshore location. The gas is transported from a drill site via two sections of pipeline totalling 10 kilometres. A pipeline connects the onshore well location to a tie-in point in an existing pipeline and then further through the Otway or Iona gas plants. These fields have reserves in excess of 50 billion cubic feet, and the Black Watch field is located in an area of 46 metres of water.

So here you have a situation where the current moratorium in place does not allow for onshore exploration of gas. Certainly the difference between the coalition and the government at this point is that we have said that a Liberal-Nationals government would allow exploration of onshore gas and that we would kickstart the industry. Obviously we would ensure that no fracking would take place in Victoria because we support the ban on fracking. We would also ensure that landowners would benefit and that they would have a right of veto. These policies are part of a gas policy we announced a few months back, and effectively the situation in terms of the Black Watch and Halladale options looks at this very thing.

One of the things that we think is very important is to reduce the costs and bring new entrants into the market. We know offshore exploration is a very costly exercise. This limits the ability of a whole lot of smaller participants to enter the industry because you have to deal with and purchase very big bits of equipment. We know the cost of drilling and exploration is actually about 10 times that of onshore exploration. In the particular case of Halladale the cost, because it starts onshore and then goes offshore, is certainly not as expensive as purely offshore drilling, but it is nowhere near as cheap as onshore exploration.

The case was made to me by many people in the industry. Particularly when you are talking about environmental situations, it makes far more sense to be able to drill straight onshore than going and drilling 1 kilometre down and then 10 kilometres out into the ocean floor and seabed, and having to run extended piping. So the opposition’s policy would enable the likes of onshore exploration and not have the situation where you have to start a drill site onshore, go offshore and then bring that gas back onshore.

Back in October 2014 the first lot of permits for offshore gas drilling near the Bay of Islands — so the state government which was certainly under our watch — allowed drilling to start in the waters off the Great Ocean Road. It was Origin Energy which was given the permit to tap into Halladale gas field near the Bay of Islands national park 30 kilometres south of Warrnambool. It allowed petroleum production licences, for the first time, to be drilled in these waters, and it allowed about 70 jobs to be created. Also — and certainly I saw this when I visited the initial workings that were being done at Halladale — this enabled job creation in the whole town, from the likes of catering, hardware, equipment and transport; a whole range of industries was created when this business was established.

The Halladale project is a multimillion-dollar project. It helps provide natural gas for residents and businesses. The licence allowed the company to search for natural gas and associated liquids. As we know, gas was first discovered in the Bass Strait, in federal waters, in 1965, and this licence, because the project was within Victorian waters, allowed gas exploration to be done under our legislation. The Halladale project escaped the government’s moratorium on onshore gas drilling because the reserves are located within 5 kilometres of the shore and can be reached by drilling horizontally.

As I alluded to, on the one hand we certainly commend Origin for the work that they did initially in taking up this project, creating the jobs and kickstarting industry in terms of exploration, and now Beach, which it has been sold to. We know that that project frustrated a number of gas companies which wanted to drill in the land nearby. There have been many, many companies, Lakes Oil being one of them, that have permits very, very close to the Halladale project, but they are not allowed to drill onshore because of the moratorium that the Labor government has put in place. However, you have got the situation where another company is able to do this offshore-to-onshore process. As I said, that project has now been sold to Beach, but it was a very complex project to run the pipeline through and to do a lot of the test drilling, and it certainly took Origin a fair amount of time to get that process going. The simplest and easiest method is a straight onshore drill that would not have to go through that very, very expensive process.

I am not going to spend much time elaborating today because I am conscious that there are a number of people who want to contribute to the debate, including the former Minister for Resources, who I am sure has a lot to contribute on this particular bill. I will just finish by saying that, needless to say, resources have always been a key part of Victoria as a state and have provided a competitive advantage for us for many, many years. It is very disappointing that we are seeing our resources being locked up and that we have no opportunity to conduct onshore exploration for gas. All that is doing is harming businesses and all Victorians, who are experiencing unprecedented prices — prices that we have never seen before — which is making it very, very hard, particularly for many small businesses that I talk to, to stay in business.

The same applies to energy with the closure within five months of Hazelwood power station. It is seeing power prices almost double. We have heard the Minister for Energy, Environment and Climate Change say on countless occasions, ‘It’s all about supply’, in a situation where, when it comes to gas and when it comes to baseload power, albeit the Latrobe Valley and Hazelwood power station, in both instances this government has not allowed supply to take place.

We certainly believe that in terms of gas, getting onshore exploration of gas to kickstart the industry and get more supply into the market, particularly for smaller businesses to be able to compete, is really important, and that will certainly ensure that we can start to get that competition going. Unfortunately in the offshore element you have got a lot of these big companies, and this will allow some small entrants. With those words I will conclude by saying, as I said at the beginning of this contribution, that we will not be opposing the bill. However, we are very, very keen to see this government get on with it and kickstart industry with some onshore exploration of gas as soon as we possibly can to reduce the pressure on prices for all Victorians.