Chapter 1

Chapter 1

Introduction

1.1        On 5 March 2015, the Senate, on the recommendation of the Selection of Bills Committee, referred the Landholders' Right to Refuse (Gas and Coal) Bill 2015 to the Environment and Communications Legislation Committee for inquiry and report.

1.2        The bill is a private senator's bill introduced by Senator Waters. The bill proposes to:

1.3        Senator Waters has previously introduced bills in the 43rd and 44th Parliaments that sought to provide landholders with the right to refuse the undertaking of gas and coal mining activities by corporations on certain land. The previous bills were the:

Conduct of the inquiry

1.4        The reporting date for the inquiry was initially 7 August 2015; however, on 24 June 2015 the Senate granted an extension of time to report until 31 August 2015. The reporting date was subsequently further extended to 30 September 2015.

Submissions and correspondence

1.5        In accordance with its usual practice, the committee advertised the inquiry on its website and wrote to relevant individuals and organisations inviting submissions. The closing date for submissions was 29 May 2015. The committee received 96 submissions, which are listed at Appendix 1. The submissions may be accessed through the committee's website: www.aph.gov.au/senate_ec.

1.6        In addition to the published submissions, the committee received a significant number of form letters and other correspondence that expressed support for the bill. The committee agreed to publish an example of each type of form letter as a submission. In total, 166 individuals provided a form letter. The committee also received 115 emails that contained short statements of support for the bill or discussed matters beyond the scope of this inquiry. This correspondence was available to the committee throughout the inquiry, however, the emails were not published as submissions.

Public hearings

1.7        Public hearings were held in Brisbane (on 27 July 2015), Canberra (on 28 July 2015 and 9 September 2015) and Tamworth (on 25 August 2015). A list of witnesses who gave evidence at these hearings is at Appendix 2. The transcripts of evidence may be accessed through the committee's website: www.aph.gov.au/senate_ec.

Acknowledgement

1.8        The committee thanks all of the organisations and individuals who assisted the committee with the inquiry.

Consideration by other committees

1.9        When examining a bill or draft bill, the committee takes into account any relevant comments published by the Senate Standing Committee for the Scrutiny of Bills. The Scrutiny of Bills Committee assesses legislative proposals against a set of accountability standards that focus on the effect of proposed legislation on individual rights, liberties and obligations, and on parliamentary propriety.

1.10      The bill was considered by the Scrutiny of Bills Committee in its Alert Digest no. 3 of 2015. That committee had no comment on the bill.[1]

Scope of this inquiry and structure of this report

1.11      In undertaking this inquiry, the committee has given consideration to the evidence received about coal and gas activities to the extent necessary to understand what the bill seeks to achieve and the approach taken in drafting the bill. However, the Senate has not asked the committee to conduct a wide-ranging inquiry into issues associated with coal mining and onshore gas extraction. Rather, the committee has examined a specific legislative proposal. The committee's principal task is to formulate a recommendation to the Senate as to whether this particular bill should be passed. Accordingly, this is not a comprehensive report on various issues that are relevant to the extraction of coal and gas. Many of the issues raised in submissions to this inquiry, particularly those relating to the extraction of CSG, have been considered by other inquiries. A non-exhaustive list of other inquiries is provided at Appendix 3.

1.12      This report comprises four chapters:

Coal and unconventional gas resources in Australia

1.13      As will be outlined later in this chapter, the bill would apply to coal, CSG, shale gas and tight gas resources. The following paragraphs provide background information on these resources and how those resources are extracted.

Coal mining

1.14      Coal is Australia's largest energy resource. Substantial amounts of black coal are located in the Sydney Basin (New South Wales) and the Bowen Basin (Queensland). Substantial amounts of brown coal are located in Victoria's Gippsland Basin.[2] Coal mining occurs throughout Australia (see Figure 1.1). The second edition of the Australian Energy Resource Assessment, published in 2014, noted that there 'is significant potential for further discoveries of coal in Australia', with estimates that 'over one trillion tonnes of additional coal resources could be present in more than 25 underexplored coal-bearing sedimentary basins within Australia'.[3]

Figure 1.1: Australia's operating black and brown coal mines, 2012

Figure 1.1: Australia's operating black and brown coal mines, 2012

Source: Geoscience Australia and Bureau of Resources and Energy Economics, Australian Energy Resource Assessment, second edition, 2014, p. 129.

Unconventional gas and fracking

1.15      Natural resources that are classified as 'unconventional' are those that require 'greater than industry-standard levels of technology or investment to exploit'.[4] With respect to natural gas, unconventional resources include natural gas found in coal beds (CSG), in shale (shale gas), low quality reservoirs (tight gas), or as gas hydrates.[5]

1.16      Figure 1.2 indicates the location of Australia's CSG reserves and gas infrastructure, whereas Figure 1.3 does the same for tight gas and shale gas resources.

Figure 1.2: Location of Australia's coal seam gas reserves and gas infrastructure

Figure 1.2: Location of Australia's coal seam gas reserves and gas infrastructure

Source: Geoscience Australia and Bureau of Resources and Energy Economics, Australian Energy Resource Assessment, second edition, 2014, p. 97.

Figure 1.3: Tight gas and shale gas resource locations and gas infrastructure

Figure 1.3: Tight gas and shale gas resource locations and gas infrastructure

* shows the locations of all shale and tight gas discoveries with reported contingent resources.

Source: Geoscience Australia and Bureau of Resources and Energy Economics, Australian Energy Resource Assessment, second edition, 2014, p. 99.

1.17      CSG was first produced in Australia as part of a standalone project in Queensland in 1996.[6] In 2012–13, CSG production accounted for 12 per cent of Australia's total gas production.[7] Ninety per cent of all natural gas produced in Queensland is CSG.[8] Shale gas and tight gas are largely in the exploration stage; for example, the Queensland Government advised that 'exploration for shale and tight gas in Queensland is in its infancy and no production of gas from these formations has occurred to date'.[9] In South Australia, where most potential shale gas resources are located, the first shale gas well started commercial production in October 2012.[10]

1.18      Growth in CSG exploration and production has been encouraged by government decisions; in 2000, the then Queensland government decided that 13 per cent of all power supplied to the state electricity grid would be generated by gas by 2005. This requirement was subsequently increased to 15 per cent by 2010 and 18 per cent by 2020.[11]

1.19      Most CSG production, and expected growth in CSG production, is from the Bowen–Surat basins in Queensland.[12] Australia's CSG production is expected to increase significantly, as shown by Figure 1.4.

Figure 1.4: Australian gas production outlook by type

Figure 1.4: Australian gas production outlook by type

Department of Industry and Science, Resources and Energy Quarterly, March 2015, www.industry.gov.au/industry/Office-of-the-Chief-Economist/Publications/Documents/‌req/‌REQ-March15.pdf (accessed 29 April 2015), p. 66.

Hydraulic fracturing

1.20      The practice of hydraulic fracturing (commonly known as 'fracking', or 'fraccing') is the most common method used by petroleum companies to increase production from a CSG well.[13] Hydraulic fracturing involves fluid being pumped into a well to cause fractures in the surrounding rock, increasing the rate and total amount of the petroleum resource extracted from reservoirs. In Australia, hydraulic fracturing is used in approximately 20 to 40 per cent of CSG wells. Hydraulic fracturing is used for 'wells that intersect lower permeability coal seams', which 'are usually deeper seams'.[14] However, hydraulic fracturing is required for all shale and tight gas wells.[15]

1.21      The fluid used for hydraulic fracturing operations consists of:

1.22      The CSIRO provides the following explanation of how fracking is carried out:

Typically, a well is fully cased from top to bottom with steel casing. To gain access to the coal, the casing is perforated at specific intervals along the well, where the fracture treatment is to be carried out. Hydraulic fracturing typically involves injecting fluid made up of water, sand and chemical additives under high pressure into the cased well. The pressure caused by the injection typically creates a fracture in the coal seam where the well is perforated. For a large CSG treatment, the fracture might typically extend to a distance of 200 to 300 metres from the well. The fractures grow slowly. For example, an average velocity may be less than 10 metres per minute initially and slowing to less than one metre per minute at the end of the treatment. The sand in the hydraulic fracturing fluid acts to keep the fracture open after injection stops, and forms a conductive channel in the coal through which the water and gas can travel back to the well. After the fracturing is complete, most of the hydraulic fracturing fluid is, over time, brought back to the surface and treated before being used again or disposed of.[17]

Overview of the bill

1.23      When reviewing proposed Commonwealth legislation, it is essential to consider whether the clauses are supported by a constitutional power and whether any constitutional prohibitions have been contravened. The bill and its explanatory memorandum do not expressly state which of the constitutional heads of power the bill is relying on. It is clear, however, that the bill relies on the corporations power in paragraph 51(xx) of the Constitution, as the prohibitions contained in the bill apply to constitutional corporations.[18] Evidence received by the committee about the constitutional law matters relevant to the bill is outlined in Chapter 3.

1.24      The remaining paragraphs in this chapter provide an overview of the key clauses in the bill.

A right for landholders to refuse entry to land

1.25      Part 2 of the bill addresses property rights issues associated with gas or coal mining. Key definitions in this part of the bill are 'gas or coal' and 'gas or coal mining activity', which are defined as follows:

1.26      A constitutional corporation would commit an offence if it conducted gas or coal mining activities, or entered or remained on land to do so, without having an 'ownership interest'[20] in the land or having the prior written authorisation of each person with an ownership interest in the land.[21]

1.27      The prior authorisation must contain certain information including, among other things, 'an independent assessment of the current and future risks associated with the proposed gas or coal mining activity on, or affecting, the land and any associated groundwater systems'.[22]

1.28      The bill specifies circumstances where the authorisation would be invalid. These circumstances include where the corporation applies to a person who has an ownership interest in the land and the corporation does not advise the person of their right to refuse authorisation, or that they should seek independent advice about the authorisation before signing.[23]

1.29      The offence would apply to relevant gas or coal mining activities that occur on or after commencement (the day after Royal Assent).[24]

Penalty

1.30      The maximum penalty for a constitutional corporation that commits the offence in subclause 10(1) would be 5,000 penalty units (at the time of writing, the penalty would be $900,000).[25] Further, a constitutional corporation that commits this offence is deemed to have committed 'a separate offence in relation to each day (including a day of conviction for the offence or any later day) during which the contravention continues'.[26]

Remedies and costs

1.31      Clause 13 of the bill provides that, without limiting the relief that a court may grant to a plaintiff, the relief may include an injunction or interim injunction. Any costs incurred by the plaintiff in seeking relief in court are to be paid by the defendant, regardless of the outcome. Exceptions are provided if the action was instituted vexatiously or without reasonable cause, or if the court considers it would be unreasonable, in all the circumstances, to order that the defendant pay all costs.

'Unreasonable' refusal

1.32      The bill does not address the issue of a landholder 'unreasonably' refusing access. In her second reading speech, however, Senator Waters stated that the resources remain vested in the states and if the resources are needed, the existing compulsory acquisition arrangements available to the Commonwealth and state governments provide 'a sufficient safeguard against a landholder "unreasonably" refusing access authorisation'.[27]

Ban on hydraulic fracturing

1.33      Part 3 of the bill would ban constitutional corporations from engaging in hydraulic fracturing operations (clause 14). The maximum civil penalty for contraventions of clause 14 would be 50,000 penalty units (at the time of writing, this would equate to $9 million). The Environment Minister may apply to the Federal Court on behalf of the Commonwealth for a civil penalty order within six years of a contravention.[28] The court may order a pecuniary penalty for each contravention.[29]

1.34      Where a person has engaged in or proposes to engage in conduct contrary to clause 14, under clause 15 of the bill the Environment Minister, an interested person, or a person acting on behalf of an unincorporated organisation that is an interested person, may apply to the Federal Court for a prohibitory, mandatory or interim injunction. An interested person includes individuals and organisations:

1.35      For an individual to qualify as an interested person, they must also be an Australian citizen or ordinarily resident in Australia or an external territory. For an organisation to be considered an interested person, they must also be incorporated or otherwise established in Australia or an external territory.[31]

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