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NSW government puts its energy future at great risk

NSW faces a critical shortage of natural gas within two years, and it needs new supplies beyond that.

So how is it that the government has done so little since its election in 2010 to encourage much-needed investment and resource development in NSW? Indeed, why have its actions during the period retarded development of its gas industry, discouraged investment and introduced a degree of sovereign risk that had previously not existed?

For many decades, abundant supplies of natural gas were available in NSW without the state producing any natural gas. Supplies piped from South Australia and later Victoria enabled NSW households and businesses to enjoy a convenient, low cost, clean, non-toxic fuel at home and work, and to fuel industries. These “good old days” are coming to an end as supplies from other states rapidly decline and demand from our energy-hungry Asian neighbours increases. These changes are irreversible.

For some time NSW has needed to prioritise an energy policy that quickly moves to greater gas production and self-reliance. NSW has very large coal seam gas reserves that can now be developed, if we have the will to do so. Metgasco has also identified conventional gas potential in the Northern Rivers area which it is keen to explore. Gas production would also provide royalty income, regional investment and job creation, as is occurring in Queensland. Despite this, NSW has repeatedly taken actions to discourage its gas industry. In contrast, leadership by governments in Qld and South Australia have moved to streamline regulation and facilitate gas production.

NSW has only a few identified gas resources of scale. Santos, AGL and Metgasco are natural gas explorer-producers that have identified these, with Metgasco having identified potentially the second-largest gas resource, equivalent to 15 years of NSW demand. Resource development has a long lead time. This lead time has been increased by strong headwinds from activists and a government that isn’t doing enough to explain that NSW needs its own gas production and that the science and regulations are sound.AGL was forced to abandon its Camden expansion project and is making slow progress with its Gloucester project. Santos’s Pilliga project appears under perpetual siege. In both cases, government approvals of activities are notable for their absence.

Metgasco is particularly disappointed by a recent decision by the Office of Coal Seam Gas (OCSG) to suspend approval for our conventional exploration well in Northern Rivers on the spurious basis that we had failed to conduct an appropriate community consultation program.

The suspension decision was appalling and must damage the confidence of any company considering doing business in NSW. The decision was made with no notice – not even a phone call – to a company that has operated in NSW for over 10 years and invested $120 million. It came only days before drilling was to commence, incurring costs up to $3 million and a 40 per cent fall in share price.

Extensive submissions made

Metgasco does not accept the OCSG’s views on our community consultation as we consider that we complied with the government’s consultation guidelines. We have made extensive submissions to the OCSG to demonstrate that it had no lawful right to suspend, that it did not observe lawful process and that its decision was wrong. The OCSG is reconsidering its own decision and we have initiated court action if the suspension order is not removed.

How or why the government made its decision is unclear. The OCSG has stated publicly that consultation requirements for a single exploration well are limited, it acknowledges that the existence of industry opposition is not a measure of consultation and it did not respond to the reports and plans we submitted about our consultation program.

Is it confused about what consultation means? Was the government intimidated by protesters, many of whom do not live in our exploration licence areas, or by councillors outside our operating area who oppose fossil fuels and have no accountability for development of NSW’s resources or the provision of energy to homes and industry?

If the suspension decision is upheld, the hurdles for consultation for resource and infrastructure projects across the state just got a lot higher for any kind of activity that attracts activist attention. Resources security, investment, employment, regional development, business confidence, regulator credibility and government leadership are all at stake.Many might say “at risk”.

The benefits and risks of a gas production industry need to be put in perspective. It is highly regulated. There are no health, safety or environment risks that cannot be managed. There are more than 1 million petroleum wells producing in the US today, with over 1 million wells fracked in the US in the past 60 years. The US environmental protection agency has stated that there is no evidence to link fracking with water contamination. In Qld, 3000 conventional wells have been drilled in the past 50 years and about 5000 CSG wells drilled in the past 20 years. Health, safety and environmental issues are simply not evident on any objective basis. Natural gas produced from CSG wells currently supplies one-third of the gas demand in eastern Australia, and most gas supplied to Sydney from central Australia comes from wells that have been fracked.

For any industry to succeed, there must be a stable and sensible regulatory environment, based on science and fact, with timely and consistent approvals. There must also be clear, visible leadership by government. The government is the owner of the state’s resources. The community is looking to the government to clearly explain why NSW needs its own gas production, how its regulations provide assurance that the industry is safe and how interfaces with the community will be managed. No industry will succeed if the government abdicates this role, allowing decisions to be made on the basis of misinformation spread by social media, protests and self-interest.

The government needs to work constructively with Metgasco and other resource industry participants to build community confidence and acceptance. A phone call would be a good start.

Len Gill is the chairman of Metgasco.

Len Gill - Australian Financial Review, Tuesday 24 June, 2014

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