Summary

• The recently elected Labor Government in the Northern Territory is expected to implement its proposed moratorium on unconventional onshore gas activities in the Territory. The moratorium will remain in place until completion of a further inquiry and consultation on unconventional gas in the Territory.
• The Victorian Labor Government has also announced a permanent ban on the exploration and development of all onshore unconventional gas in Victoria, including hydraulic fracturing (or ‘fracking’) and coal seam gas. Its current moratorium on the exploration and development of conventional onshore gas is also being extended until 30 June 2020.

Northern Territory

On 27 August 2016, the Labor Party was thrust into power in the Northern Territory following their resounding defeat of the incumbent Country Liberal Party. The new Labor Government is now expected to follow through with its pre-election pledge to implement a moratorium on unconventional onshore gas activities in the Territory.

A moratorium on hydraulic fracturing was first announced on 3 February 2016, by the now Chief Minister elect Michael Gunner. This was later confirmed and expanded at the NT Labor conference which passed a motion to implement a moratorium covering all unconventional gas prospecting exploration and extraction activities in the Northern Territory.

Although no defined period has been set-down for the moratorium, NT Labor’s policy is understood to be that it will continue until the completion of:

• a scientific inquiry undertaken by an independent expert advisory panel, including a peer review of all work done on the unconventional gas industry in the Northern Territory and a review of recent science and its reported environmental impacts; 
• a thorough community consultation process with relevant stakeholder and community groups during and following the panel report; and 
• the development of the regulatory framework ensuring appropriate environmental protections and safeguards.

At the end of that process, the Territory government will then decide to either ban hydraulic fracturing, or allow hydraulic fracturing in highly regulated and tightly prescribed areas.

In press coverage immediately following the election, Labor leader Gunner is reported to have confirmed that the moratorium will proceed and that he expects the decision to be made during the initial four year term of the new government. Gunner is also reported to have indicated that no compensation would be offered to explorers in connection with the moratorium or the ultimate decision.

The moratorium and proposed advisory panel inquiry follow an earlier inquiry into hydraulic fracturing in the Territory conducted by Allan Hawke AC. Commissioner Hawke’s report was released on 26 February 2015. The Hawke report recommended that the environmental risks associated with hydraulic fracturing could be managed effectively subject to the creation of a robust regulatory regime. The report also concluded that the substantive weight of expert opinion led the inquiry to find that there was no justification for the imposition of a moratorium of hydraulic fracturing in the Northern Territory.

In response to the Hawke inquiry, the environmental regulatory regime for onshore oil and gas was recently revised to seek to improve environmental protection and increase community confidence. The new regulations came into effect on 6 July 2016 and adopt an objectives-based approach. Any onshore oil and gas activity must now demonstrate that all environmental risks and impacts are identified and reduced to an acceptable level. Approved environment management plans are now publicly available and are legally binding on the interest holder.

We have observed both exploration and deal-making activity in the Territory being affected by the uncertainty created by the initial announcement of the moratorium (and the increasingly strong likelihood of a Labor victory). Now that Labor’s success is confirmed and the moratorium is proceeding, we anticipate continuing subdued and deferred activity in both areas pending the advisory panel reporting its findings and the consequent regulatory measures being formulated.

Victoria

On 30 August 2016, the Andrews Labor Government announced a permanent ban on the exploration and development of all onshore unconventional gas in Victoria, including hydraulic fracturing and coal seam gas.

Legislation to implement the ban will be introduced to Parliament later in 2016. Until that legislation is passed, the current moratorium on unconventional onshore gas exploration and development will stay in place. A moratorium on fracking has been in place in Victoria since 2012.

The Victorian Government has advised that exemptions to the ban will remain for other types of activities that are not covered by the current moratorium, such as gas storage, carbon storage research and accessing offshore resources. Exploration and development for offshore gas will not be affected.

The Labor Government will also extend the current moratorium on the exploration and development of conventional onshore gas until 30 June 2020. The Government has announced that an expert panel will undertake scientific, technical and environmental studies on the risks, benefits and impacts of onshore gas.

Comment

The above developments in the Northern Territory and Victoria, together with the continuing freeze on new petroleum exploration licences in New South Wales, will re-intensify the focus on onshore gas producers in Queensland and South Australia.

Ministers attending the recent COAG Energy Council meeting noted that a key issue for gas market reform is to increase the overall supply of gas and the number of suppliers, particularly in the east coast market. However, that has now become more difficult to achieve with a vast area of Australia’s potential onshore exploration acreage subject to a moratorium on such activities. The implications for gas prices in Australia could be significant.

There remains a need to sure-up gas supplies for the three LNG facilities at Curtis Island, together with residential and commercial customers in the wider east coast gas market. The task of guaranteeing such supply now falls to producers in the existing producing basins in Queensland and South Australia.