Effects of oil and gas exploration and production in the Great Australian
During the course of the inquiry, the committee received evidence of the
impacts, both economic and environmental, of oil and gas exploration in the
Great Australian Bight. The evidence, in the first instance, outlined the impacts
arising during the exploration period and following production of oil and gas.
More particularly, extensive evidence was received about the impacts in the
event of an oil spill.
Matters related to impacts in the event of an oil spill are discussed in
the next chapter. The discussion in this chapter canvasses the evidence
received in relation to the regional and national economic effects which can result
from exploration and production as well as possible mitigation of benefits as a
result of current tax arrangements, including the Petroleum Resource Rent Tax
arrangements. The chapter concludes with a discussion of environmental impacts
arising during the exploration and production phases.
Economic impacts of oil and gas production
The committee received evidence that outlined the potential economic outcomes
of oil and gas production in the Great Australian Bight. These included direct
and indirect employment opportunities, remedying the widening trade deficit,
and increasing Australia's energy security. Some witnesses challenged the
extent to which these benefits could be realised.
Dr Malcolm Roberts, Chief Executive Officer of the Australian Petroleum
Production and Exploration Association (APPEA), stated that 'there is a
compelling economic case for Australia and South Australia to test the
potential of the bight as an oil province'. Dr Roberts particularly noted the
volume of oil imported and the costs associated with this.
The contribution of new discoveries of commercially-viable oil supply to
energy security was also noted by APPEA.
Ms Claire Fitzpatrick, BP Developments Australia, noted that under
International Energy Agency rules, if oil is discovered, 'at the point
those oil reserves become a project and they bring that forward, that would
actually count towards your 90-day [energy] supply requirement'.
The Department of Industry, Innovation and Science pointed to the size
of the oil and gas industry:
Over this time, Australia's offshore oil and gas resources
and the underlying regulatory regime governing their management have been
significant contributors to the Australian economy. In 2014–15 the oil and gas
extraction industry (including onshore and offshore oil and gas) contributed
around $31 billion to industry gross value added and employment of around
Dr Roberts also stated that the oil and gas industry is one of
Australia's 'highest value-add industries' generating highly skilled jobs both
directly in 'upstream exploration and production' and in 'downstream
processing, engineering and other services'.
APPEA, in its submission to the committee, also detailed the results of a PwC
report it commissioned in 2014 which found that the oil and gas sector
generates significant value relative to its input. For every dollar of domestic
production, the sector adds 70 cents to Australian output, compared to an
average of 49 cents for all other industries. The report found that the total
value-add of the petroleum sector was $32 billion and expected to rise to $67
billion by 2029–30.
Dr David Moffat, General Manager, Exploration, Chevron Australia, outlined
Chevron's operations in Australia and noted that significant economic benefit
had arisen from these operations. Dr Moffat stated that Chevron had invested
more than $80 billion in projects in Western Australia.
Dr Moffat added that two seasons of seismic acquisition had been
completed and they 'provide early but very promising evidence that the Bight
represents a tremendous opportunity for both Australia and South Australia in
particular, on a scale possibly akin to the Bass Strait or the North West Shelf'.
The South Australian Government submitted that exploration in the Great
Australian Bight was anticipated to bring with it 'investment into, and
expenditure in South Australia through industry contracts, construction and
suppliers'. It noted that while the greatest scope for local investment lies in
a future development and production phase, there have still been a number of
opportunities in a range of services.
Regional Development Australia Whyalla and Eyre Peninsula (RDAWEP) and
the Eyre Peninsula Local Government Association (EPLGA) noted that oil and gas
activity in the Great Australian Bight will create opportunities for the
development of business capability and diversification though direct and
indirect services provision. RDAWEP and EPLGA submitted that:
Power, water and freight infrastructure in the region is
generally antiquated and inadequate. Economic activity that creates additional
demand for port infrastructure, standard gauge rail, improved roads, increased
transmission capacity and cheaper and more abundant power and water in the
region is most welcome if it leads to an improvement in the provision and
efficiency of the relevant infrastructure.
However, the RDAWEP and EPLGA acknowledged that the potential benefit to
the region from oil and gas activities is unknown, and dependent upon the
nature and extent of the oil and gas activity in the future.
They did however state that:
GAB oil and gas activities have had a positive economic
impact in the region to date.
BP similarly noted that at the early stages of exploration, it is not
possible to quantify precisely what economic benefits any future development
would bring, but pointed to economic benefits arising from Bass Strait oil and
gas operations and natural gas operations in Western Australia. BP stated that
'these potential outcomes are the prizes that motivate companies and
governments in the pursuit of new oil and gas resources in the Great Australian
It also submitted that its exploration work had already created jobs and
infrastructure for South Australia through initiatives such as upgrading Ceduna
Airport to handle helicopter flights, and developing Port Adelaide to include a
dedicated oil and gas marine supply base.
The $8 million upgrade to Port Adelaide's bunkering facility provided more than
20 local jobs.
However, some submitters challenged the economic benefits of offshore
oil and gas ventures in the Great Australian Bight. Mr Peter Owen, Director,
The Wilderness Society challenged the argument about the benefits of oil
and gas to Australia's fuel security. Mr Owen commented that:
I would suggest it is energy insecurity to continue to invest
in the expansion of the fossil fuel industry when we know that it is not an
option. We have to be investing in renewables, and investing in renewables
rapidly, if we are serious about energy security...If we are going to talk about
energy security, let us talk about it—for sure—but let us talk about it in real
terms and acknowledge the reality that we are now facing: we have just signed
the Paris Agreement. Australia cannot be seriously entertaining expanding the
fossil fuel industry.
Other submitters pointed to the high capital intensiveness of the oil
and gas industry and questioned the employment benefits to the economy. For example,
The Australia Institute described them as 'minimal'. It stated that:
Such activities are highly capital intensive, so require
relatively few workers. While eventual production would employ more people, in
the context of the South Australian labour force, the impact would be minor.
The Australia Institute also submitted that though offshore exploration
and production in the Great Australian Bight would see a significant increase
in oil and gas workers, it would only provide 'a very small increase in employment
overall in South Australia'. It noted that due to the nature of the workforce,
it expected that:
...the majority of any future employees would be fly-in-fly-out
(FIFO) workers who would be flown from around Australia to Adelaide and Ceduna
and then to production rigs by helicopter. Many of these employees would not be
from South Australia and would not reside in South Australia during their employment
on the project.
Similarly, the Australian Maritime Officers Union (AMOU) commented that
the employment opportunities for its members in the exploration activities in
the Great Australian Bight may be limited. The AMOU went on to state that it
understood the bridge team of the Ocean GreatWhite would be predominantly
workers on 457 visas (10 out of 12 mariners) and commented:
We would expect that at the end of their swing the 457 visa
holders would be helicoptered to the international airport at Adelaide and then
flown home, never setting foot on the Australian mainland.
The Aboriginal Lands Trust also expressed doubt in relation to the
potential economic benefit to the Great Australian Bight region. It stated
Whilst it's asserted that there will be economic benefit to
the Region, the Trust is yet to see evidence of this although BP has identified
that is has employed 4 Aboriginal people so far.
It was also noted that there may be limited opportunity for the
construction of oil and gas infrastructure in Australia with the Australia
Institute noting that capital equipment such as the specialist rig Ocean
GreatWhite is almost exclusively imported which provides little benefit to the
In addition, The Australia Institute questioned the claims about the
large multiplier benefit to the economy. Mr Roderick Campbell, Research
Director, The Australia Institute, commented that:
...what needs to be remembered is that the income of the
employees being spent in local communities or at suppliers is usually not
without some opportunity cost. It is not that the people or businesses would be
sitting around unemployed in most cases. They would usually be doing something
else. So claims of large multiplier benefit are generally rejected by
The committee was provided with evidence of costs to other industries as
a consequence of oil and gas production. The South Australian Oyster Growers
Association (SAOGA) provided its view of oil and gas activities in the Great
Australian Bight. It submitted that it does not want to block the oil and gas
industry from ventures, but it stated that the development of an oil industry
in the Great Australian Bight poses a significant risk to the currently,
pristine and unpolluted environment and its reputation as such. It highlighted
that 'these are the features that the oyster industry's reputation and credentials
in the market place are based upon, and have taken decades to establish and
SAOGA noted that Australia has a Quality Assurance Program that applies
to all species of bivalve shellfish that are consumed in Australia or exported
for consumption. This program is designed to ensure public health protections
for consumers, and underpins sustainable development and consumer confidence.
In addition, the South Australian Shellfish Quality Assurance Program (SASQAP)
utilises a Risk Assessed Approach to monitoring with particular triggers
determining levels of monitoring. According to SAOGA, oil and gas drilling
activity in the Great Australian Bight would be a trigger for increased
monitoring, and increased cost.
SAOGA stated that:
As there are no natural seeps in the GAB, once drilling
commences hydrocarbons or PAH will need to be added to SASQAP list of
parameters for which to routinely test. This would add a significant additional
cost to industry. Any further cost to SASQAP would be financially unsustainable
SAOGA also highlighted that the South Australian Government has provided
funding for the oyster industry to develop a code that certifies the quality
and food safety of oysters, environmental sustainability and workplace safety.
Quality assurance programs can be used to 'support marketing by a producer in
particular markets to demonstrate attributes such as sustainability,
biosecurity, [and] food safety'. SAOGA stated that 'activities in the GAB must
not pose any threat to these kinds of credentialing programs and certifications
which have been achieved through considerable energy, effort and cost'.
Revenue and royalties
Submitters raised concern that existing taxation arrangements for
offshore oil and gas projects may reduce the supposed economic benefits.
For example, The Australia Institute submitted that exploration drilling would
be unlikely to yield royalties or tax to either the state or federal
governments, and that in fact, expenses associated with exploration would likely
be used as deductions from future income. It noted that the North West Shelf
project required substantial investment—$8 billion up to 2009—from the Western
Australian government in the form of infrastructure provision and subsidies
before revenues were able to be collected.
The Australia Institute warned that 'based on the Western Australian
experience, if South Australia expects to develop an offshore gas industry, it
must be ready for potentially decades of subsidy before revenues are realised'.
It concluded that:
...the economic impacts of oil production in the Great
Australian Bight would be modest, particularly when seen in the context of the
South Australian economy or the wider national economy.
The South Australian Government also noted that should commercial
quantities of petroleum be discovered and a production phase commenced, royalties
in their entirety are paid to the Commonwealth. The South Australian Government
does not receive any royalties on petroleum in Commonwealth licensed permits.
Mr Campbell also commented on the need to put the benefits in context of
the Australian economy and the timeframe of the projects:
The idea that a range of projects can contribute hundreds of
billions of dollars needs to be put in the context of the many, many years that
they are over and the fact that it is the rest of the economy that is providing
99 per cent of the revenue to the Australian government and of the jobs in the
economy. Let's not run around talking about the jobs that the gas industry or
these projects might create without any context and without considering
The Wilderness Society submitted that 'the public simply should not
subsidise such highly risky oil development activities'. 
Mr Matthew Collis, IFAW, supported this view and stated that 'Australian
taxpayers are subsidising offshore exploration in frontier areas like the Great
Australian Bight by the concessions that are given to companies there'. He went
to question whether Australian taxpayers should be undertaking that burden for
what could potentially become stranded assets.
Submitters were particularly critical of the subsidies available to
titleholders under the Commonwealth Petroleum Resources Rent Tax Assessment
Act 1987 (PRRT Act). For example, The Wilderness Society noted that under
PRRT Act, exploration activity that occurs in Designated Frontier Areas attracts
subsidies. Under sections 36B and 36C, expenditure incurred by an oil or gas
company during the exploration phase in a Designated Frontier Area is eligible
to be deducted from the company's PRRT Act taxation liabilities at a rate of
150 per cent.
The Wilderness Society stated that three of the four permits held by BP would
be eligible for such deductions.
Ms Claire Fitzpatrick, Managing Director of BP Developments Australia explained
the PRRT Act arrangements further. Ms Fitzpatrick told the committee that:
...the 150 per cent for certain frontier exploration
activities, would apply to three of our four permits. It applies to the PRRT
tax regime, which only comes into force once your project has generated
sufficient profit to trigger that. It is possible that in the future, if we are
successful and there is a full-blown development and sufficient revenues have
been generated to generate profit, that would be eligible under the current
rules...No deductions in respect of that 150 per cent incentive have been charged
The Department of Industry, Innovation and Science told the committee
that the PRRT is 'designed to be—in a sense—a risk-sharing engagement' which
The Department also explained that BP would only be able to claim eligible
portions of money spent on exploratory activity for deduction. In particular,
it would only be able to claim money that has been spent rather than the entirety
of its estimated work program of $538 million.
Under the PRRT, undeducted exploration expenditure for a project is also transferable to other projects with a taxable
profit if, at the time the expenditure was incurred, the projects were held by
the same entity. Similar rules apply in relation to the transfer of expenditure
between projects held by companies in a company group.
It should also be noted that expenses associated with clean-up
activities necessary in the event of an oil spill during exploratory activities
are considered 'exploration expenditure' for the purposes of the PRRT. The Australian Taxation Office, in answering a
question taken on notice at the Senate Economics Legislation Committee Supplementary
Budget Estimates hearing on 19 October 2016 stated:
If there was a problem with an exploration well requiring
remediation expenditure, to the extent that the expenditure had a close or
quite direct connection with the physical activities of the petroleum project,
it would be considered exploration expenditure for petroleum resource rent tax
purposes and would be available to be carried forward and uplifted.
In November 2016, the Treasurer, the Hon
Scott Morrison, announced a review into the design and operation of the PRRT.
The review is being led by independent expert Mr Michael Callaghan, with the
support of a secretariat within The Treasury.
In addition, on 1 December 2016, the Senate Economics References Committee
resolved to broaden the scope of its inquiry into corporate tax avoidance to
include an examination of Australia's offshore oil and gas industry including
the treatment and/or payment of royalties, the PRRT, deductions, and other
Submitters pointed to a range of environmental impacts arising during exploration
and production of oil and gas in the Great Australian Bight. Of particular
concern were the impacts of seismic surveying on mammals and the effects of
increased shipping on the marine environment of the Great Australian Bight.
Seismic surveying, both 2D and 3D, is used by the oil and gas industry
to explore the sea bed for oil and gas deposits. It is considered to be the
most reliable form of initial exploration and is essential in identifying geological
features below the surface. It reduces the need for excess exploration and
ensures the efficiency and safety of oil and gas operations.
For example, Murphy Australia Oil conducted seismic surveying in the Great
Australian Bight in 2013–14.
The Department of Industry, Innovation and Science noted that this work has
been done consistent with the legal requirements, which include not undertaking
survey work during restricted periods to avoid whale migration seasons and
other potential impacts.
In offshore operations, specialised vessels tow a seismic streamer—a
collection of cables with seismic sources and hydrophones attached. These
seismic sources use compressed air to produce acoustic energy which bounces off
rock formations on the seabed. The sound waves are reflected back to the
surface where the hydrophones towed by the vessel capture them for analysis.
This analysis provides information on the presence of gases or fluids in rock
formations, and the type of rock present in the area.
The figure below illustrates the process of a seismic survey.
Figure 4.1 – Seismic survey process
Source: APPEA, Submission
46, p. 13.
Seismic surveys were the subject of some debate during the course of the
inquiry with some submitters expressing concern that seismic surveying can have
negative effects on cetaceans. Mr Matthew Collis, Policy and Campaigns Manager,
IFAW, commented that seismic surveys introduce massive amounts of noise
pollution into the marine environment which affect marine life, particularly whales.
As scientific knowledge improves, we are slowly beginning to
understand the risks noise pollution entails for animals that rely on sound as
their primary sense and for every part of their life cycle. IFAW is concerned
that neither the impacts of repeated seismic testing nor the wider cumulative
impacts of multiple offshore projects are being properly taken into account
under the current regulatory system.
Greenpeace noted that a recent study had demonstrated that blue whales
occur in 44 per cent of the areas of the Bight that have undergone seismic
testing or where testing is planned and that whales are present during the
months when testing occurs.
IFAW provided more information on the effects of noise on whales and submitted:
Whales have a highly refined acoustic sense with which they
monitor their surroundings. Whales use sound to navigate, locate prey and
predators, attract mates, and for social interactions. Whales are extremely
sensitive to man-made underwater noise pollution, including seismic surveys.
Noise pollution can force whales away from important habitat, reduce feeding,
cause stress, disorient them and inhibit their communication by masking their
calls or forcing whales to call louder to be heard. At close range, loud noise
can cause temporary or permanent damage to a whale’s hearing, which has
implications for their entire way of life.
The Wilderness Society similarly noted that cetaceans use sound to
communicate, navigate and feed, and submitted that 'a single seismic survey can
cause endangered fin and humpback whales (both species rely on habitat in the
Great Australian Bight) to stop vocalising—a behaviour essential to breeding
and foraging—over an area at least 100,000 square nautical miles in size'.
The AMCS submitted that there is scientific research which has concluded
At least 37 marine species have been shown to be affected by
seismic airgun noise. These impacts range from behavioural changes such as
decreased foraging, avoidance of the noise, and changes in vocalizations
through displacement from important habitat, stress, decreased egg viability
and growth, and decreased catch rates, to hearing impairment, massive injuries,
and even death by drowning or strandings. Seismic airgun noise must be considered
a serious marine environmental pollutant.
Some submitters, for example the South Australian Oyster Growers
Association, also raised concern that there could be a connection between
seismic surveying in the Great Australian Bight and a number of whale strandings
in the area which occurred in 2014–2015.
However, Ms Claire Charlton, the lead scientist on the long-term Great
Australian Bight southern right whale study, told the committee that the causal
link between seismic surveying and cetacean strandings and death remains in
question. Ms Charlton stated:
That is a big question in that the causal effect might be
different in each case depending on what examples have been given. Certainly,
underwater noise can potentially cause physiological impacts to a whale which
could cause damage—although that would require the animal to be very close.
Internationally, that is still a very big question...
Ms Charlton also stated that the dataset for the Great Australian Bight
southern right whale study begins in 1981, and does not indicate any population
trends that have been attributed to seismic surveys.
APPEA noted that 'the oil and gas industry continue to invest millions
of dollars of extra research' into the effects of noise on marine life 'in
order to improve understanding and industry practices'.
Ms Charlton noted that Murphy and Santos—oil and gas permit holders in the
Great Australian Bight—currently sponsor both the long-term study of whales in
the Great Australian Bight, and provide sponsorship for a three year PhD
Acoustic noise and shipping
In addition to seismic surveys, submitters expressed concern with the
impact on cetaceans from an increase in acoustic noise associated with drilling
and shipping in the area, and an increase in the risk of vessel strikes.
Greenpeace Australia Pacific noted that globally, the risk to cetaceans
from vessel strikes is such that it has been recognised by the International
Whaling Commission (IWC), and included in the terms of reference for both the
IWC Scientific and Conservation Committees.
Similarly, The Wilderness Society highlighted that the Conservation
Management Plan for the Southern Right Whale stated that although reported
vessel strikes are low:
...it is likely that this risk will increase as shipping traffic
grows and the impact on an individual, especially in south-east Australia, is
likely to have a significant, potentially population-scale effect, if further
evidence confirms this as a small demographically discrete population.
The AMCS submitted that an increase in shipping in the Great Australian
Bight associated with oil and gas activity would 'increase risks associated
with animal strike, pollution, biosecurity hazards and underwater noise'.
Similarly, Greenpeace Australia Pacific submitted that:
...while it is difficult to predict accurate figures for ship
movements, should the permit areas currently released under acreage all be
developed it can be assumed that an increase in shipping will be substantial.
Quantifying the population level extent of ship strike mortality is notoriously
difficult since collisions are frequently unnoticed, but it is believed ship
strikes can jeopardise the viability of small populations.
Ms Charlton told the committee that southern right whales are
particularly prone to vessel strike, and that unless they have had previous
interactions with vessels they do not necessarily know to move out of the way
of a ship.
Ms Charlton stated that:
The southern right whales are increasing, but even
internationally we are just now seeing this 3,000 number. We are still in a
sensitive time. The southern right whales might be more prone to ship strike.
These whales have had very little exposure to anthropogenic impacts. There is a
shipping already off the Great Australian Bight. I am well aware of that. I
know that the increased shipping traffic might be relatively minor, but it is
still a consideration. These whales are very protected and not exposed at the
moment. Again, it is just important that it is done well and that we apply the right
mitigation tools, because it is a sensitive, endangered species.
In addition to the increased risk of vessel strike, the noise associated
with an increase in both ship and helicopter traffic was raised by some
submitters as an issue of concern. For example, Mr Rodney Keogh, a whale tour
operator from Fowlers Bay on the far west coast of the Eyre Peninsula told the
committee that he was concerned about the impact of vessel traffic and
helicopters on the migration of whales in the area. In particular, he noted
that southern right whales are a species that 'moves away from noise and moves
away from vessel traffic'.
Mr Keogh explained that he had already witnessed southern right whales leaving
Fowlers Bay after an increase in vessel traffic. Mr Keogh stated:
For the last two years I have seen it with increased vessel
traffic at Fowlers Bay. I have seen the whales move completely out of the
area.... It is all due to acoustic noise in the water. If the whales are not
sure, they will disappear. They do not have to be on our coastline; they can be
anywhere else. They do not have to be here; if they are getting hassled they
will take off.
The importance of natal site fidelity was also raised in discussions of
the impact of drilling in the pathway of migrating cetaceans. Ms Charlton, told
the committee that there are 13 calving aggregation areas along the southern
coast and that female southern right whales have high natal site fidelity,
however there is insufficient evidence to assess the impact of drilling occurring
in the migration pathway. Ms Charlton stated:
I think there are predominantly 13 calving aggregation areas
along the southern coast. We also know from the biology of the animals that
they have high natal site fidelity. Often the female will actually return to
the site where she was given birth to then start to have her offspring and will
return to the same location every three to four years to breed. There are some
signs of animals that have redistributed their calving habitat. The science
shows that it is likely that the animals would continue to return to the same
areas. In terms of if they changed direction, it is a really big question
because, at the moment, we really know very little about their offshore
distribution and movements and migratory pathways.
Ms Charlton highlighted that further research is needed to establish a
baseline understanding of whale behaviour in the area so that the effects of
vessel traffic and acoustic noise can be identified and monitored. Ms Charlton
told the committee that research gaps include understanding the movements
between coastal aggregation grounds (migration pathways), understanding the
offshore distribution of the area's population, and whether population is
Ms Charlton also highlighted that:
...there is a real opportunity for conservation and industry to
co-exist. It is really a matter of gathering the right amount of data, adopting
the precautionary principle, finding out the information we need and seeing
that those mitigation tools are in place.
In response to questioning about the interaction of whales and turtles
with the infrastructure of the oil and gas industries, Mr Russell Lagdon,
Senior Environment Manager, Chevron Australia, pointed to North West Shelf oil
and gas activities. He commented that the industry operates in offshore waters
on the cetacean migration path and further, that the humpback population on the
west coast has 'rebounded quite significantly'. Mr Lagdon added:
Yet [humpbacks] migrate through waters where we drill and
explore and where there are major shipping routes for iron ore and other
natural resources. So it would seem that the activity is not significantly
impacting their breeding rates.
Greenhouse gas emissions
A number of submitters argued that increasing oil and gas production in
Australia will negatively affect Australia's ability to meet its commitment to
reduce greenhouse gas emissions by 2030. In particular, submitters made
reference to the historic, global climate agreement made in Paris under the
United Nations Framework Convention on Climate Change at the 21st Conference of
the Parties (The Paris Agreement).
The Paris Agreement sets in place a durable and dynamic framework for
all countries to take climate action from 2020, building on existing
international efforts in the period up to 2020. The key outcomes of the Paris
Agreement include a global goal to hold the average temperature increase to
well below 2°C and to pursue efforts to keep warming below 1.5°C above
The AMCS submitted that:
Opening up the Bight for oil development goes completely
against Australia's—and the world's—commitment to the Paris Agreement and the
aim of limiting global warming to 1.5 degrees Celsius above pre-industrial
The Wilderness Society also submitted that research conducted by the
University College London has identified that in order to maintain a reasonable
chance of complying with the aims of the Paris Agreement, only 49 per cent of
existing oil reserves in the OECD Pacific region can be burnt. The Wilderness
Society concluded that this would indicate that opening the Great Australian
Bight for exploration would be inconsistent with this estimation, and would be
in conflict with the Paris Climate Agreement.
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