Victoria: on the move?

NOT much longer now – hopefully. That was the message Victoria's Treasurer Tim Pallas gave to APPEA 2015 last week as Labor tried a different approach from the "kicking the can down the road" efforts of its predecessor. But its beleaguered oil and gas industry will believe progress when they see it.
Victoria: on the move? Victoria: on the move? Victoria: on the move? Victoria: on the move? Victoria: on the move?

Pallas addressed an industry last week that was frustrated by a drilling moratorium imposed by the previous government, but reassured them that Labor was doing everything it could to fast-track industry's ability to hunt for more gas to secure the state's long-term energy security, as well as its very prosperity.

While the Australian Energy Market Operator recently concluded that gas supplies in Victoria were secure for the foreseeable future, Pallas said the government was "always keen" to identify new sources of supply to secure reliable, long-term supply of affordable gas.

"As Treasurer, I am acutely aware of the need for companies to have certainty over the regulatory environment and predictability from government," he said.

This need for gas - while not immediately pressing - had industry execs shaking their heads on May 6 when Labor passed a motion in the Upper House to establish a parliamentary inquiry into onshore unconventional gas through the Legislative Council Environment and Planning Committee.

Yet Pallas would not be deterred. Calling it an attempt to "break the impasse", he framed the new inquiry in terms of reassuring a sceptical public about the industry's merits, and even indicated that his government was not just weighing the pros and cons but actually fighting for it - a nice change for the sector in Australia's southeastern states.

"We won't be dragging our feet on this issue," Pallas said, noting that the government has called for the committee's final report to be presented to parliament by this December.

"We're conscious of prolonging uncertainty for both the community and, importantly, for business.

"Also importantly, the inquiry will rely on evidence presented by independent experts, and engage with farmers, local councils, regional communities, industry and environmental groups so concerns can be addressed."

However, he warned that despite the government's enthusiasm, progress might not be as easy as that.

The Andrews government in Victoria has a clear majority in the Assembly but not in the Upper House, and it's likely the committee will not have a government majority. It will have a mix of government members, Liberal and National members, as well as Greens and cross-benchers, in this case most likely the Shooters and Fishers Party.

This makes progress more complex, but Pallas said there were a range of matters on which the government and opposition agree, so "the government is not beholden to the cross-benchers but we will work constructively with them".

While the inquiry is underway the moratorium on unconventional gas and drilling introduced by the Coalition will continue. In the interim, Pallas said, the Andrews government was "keen to remain in dialogue with industry and advance the consideration of conventional resources".

He criticised the former government for running a poor process, describing the Reith report as something undertaken behind closed doors, lacking openness and failing to convince a sceptical public.

"It's fair to say that many Victorians remain unconvinced," Pallas said. "Of course, there are various claims - some outdated, some incorrect, but others with some basis. Let's not kid ourselves: mistakes have been made in the past that have dented public confidence. The challenge now is to win back public confidence and trust."

"We understand industry's frustration with a moratorium, so I want to make it clear it wasn't a situation of our making.

"The previous government extended the moratorium to all drilling and we had concerns at the time around the lack of processes around that decision.

"We saw it as kicking the can down the road. It conflated two issues that should have been kept separate: onshore and offshore drilling for conventional gas reserves has been carried out successfully and safely for decades and should not have been linked with the issue of unconventional gas.

"The Victorian Labor Party has long been committed to an open and science-based process that assesses the state's readiness to expand into unconventional gas sources."

The challenge for industry, he added, was to do the work to make the case publicly that Victoria can benefit from unconventional gas resources without significant harm to the environment.

"The worst outcomes from earlier fraccing in the US should not be taken as a base line for the impact of the industry in Australia," Pallas said.

"The lessons learned should shape the regulatory environment, to ensure the questions the public ask can be properly answered and any environmental problems can be avoided.

To regain public support we need to be frank, scientific and thorough. We want a well-informed position about the future of an onshore unconventional gas industry that we can stand by.

The Auditor General is expected to table his audit examining the risks and impact of unconventional gas, and this government is undertaking a number of studies to help support the scientific basis of the inquiry. Experts in the Geological Survey of Victoria in collaboration with geoscience Australia are conducting seismic surveys in South Gippsland as we speak. This will help us to better understand the geology and the groundwater issues of the region.

We also have other experts on aquifers to help develop a regional groundwater model which will help the government better understand the connection between gas and water resources and the possible impacts of declining groundwater pressure.

Both these will be completed this year to feed into the parliamentary inquiry and subsequent government response.

Victorian legacy

APPEA, holding its 55th conference in Victoria, celebrated the first one in Melbourne in 1961, but Pallas also acknowledged the oil and gas discoveries in the Bass Strait, also in the 1960s.

ExxonMobil's Kipper Tuna Turrum project remains the largest domestic gas development on Australia's east coast, which has seen more than $4.5 billion invested and $2.8 billion in Australian content, and over 1500 jobs created during peak construction.

However, this is not something for industry or government to hang its hat on.

"We recognise that locating and developing new supplies offshore is becoming more expensive with sites harder to reach, and product requiring a higher degree of processing," he said.

This makes chasing unconventional resources even more important for both the state and industry.

According to Victoria's Energy and Earth Resources department, the state has a significant "yet to find" hydrocarbon potential. In the state's gas-prone Otway Basin, a recent study estimated that 1.8 to 3.7 trillion cubic feet of gas remains undiscovered.

In the Gippsland Basin, it is likely that 0.6-2Tcf of gas to remains undiscovered, with up to 600 million barrels of liquids.