Alert

Who does this affect?

Energy industry and holders of petroleum tenements.

What do you need to do?

Review and consider the impact of the CCS Bill on your business, and if appropriate, take the opportunity to provide a submission on the proposed regime by the closing date, being 10 June 2008.

Authors
James Fahey  
Partner

Lachlan McMurtrie  
Solicitor

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James Fahey  
Partner
T +61 3 9643 4331

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After much anticipation, the long awaited exposure draft of the Offshore Petroleum (Greenhouse Gas Storage) Amendment Bill has been released for public comment. The bill is a significant step at the Federal level to set up a regulatory regime to facilitate carbon capture and storage (CCS), a major potential abatement measure to reduce the emissions of greenhouse gases.

Overview

The exposure draft of the Offshore Petroleum (Greenhouse Gas Storage) Amendment Bill (the CCS Bill) was released for public comment on Friday 16 May 2008. The exposure draft is the most recent step in a stakeholder consultation process undertaken by the COAG Ministerial Council on Minerals and Petroleum Resources and follows the November 2006 discussion paper Implementing an Australian Regulatory Framework and the 2005 Carbon Dioxide Capture and Geological Storage: Australian Regulatory Guiding Principles.

The CCS Bill is being referred to the House of Representatives Standing Committee on Primary Industries and Resources for review. The closing date for submissions is 30 June 2008.

If enacted in its current form, the CCS Bill will amend the Offshore Petroleum Act 2006 (Cwlth) (Offshore Petroleum Act) (the plain English rewrite of the Petroleum Submerged Lands Act 1967 (Cwlth)) to insert a regime for regulating carbon dioxide capture and storage (CCS) in deep sub-seabed geological formations within the Commonwealth offshore jurisdiction.

Initially, the CCS Bill will only apply to carbon dioxide, however, the possibility of expanding the scope of operation to other greenhouse gases is incorporated into the CCS Bill.

Release of acreage on work-bid or cash-bid basis

Under the CCS Bill, greenhouse gas storage acreage will be released in an equivalent manner to petroleum acreage via gazette notice inviting applications for a Greenhouse Gas Assessment Permit on a work-bid or cash-bid basis.

New greenhouse gas titles

The CCS Bill establishes a greenhouse gas title system which largely mirrors the current petroleum tenements under the Offshore Petroleum Act. The new titles are:

• Greenhouse Gas Assessment Permit (similar to a petroleum exploration tenement) which will authorise the holder to explore for greenhouse gas storage formation and injection sites.
• Greenhouse Gas Holding Lease (similar to a petroleum retention lease) which will enable the lessee to retain tenure over acreage while a commercial source of greenhouse gas for injection is obtained.
• Injection Licence (corresponds to a petroleum production licence) which authorises injection and storage of greenhouse gas in an Identified Greenhouse Gas Storage Formation (see below under Categories of storage formation).
• Greenhouse Gas Search Authority (similar to a special prospecting authority).
• Greenhouse Gas Special Authority (similar to an access authority).
• Greenhouse Gas Infrastructure Licence which authorises the construction and operation of infrastructure relating to a greenhouse gas substance in the licence area, and
• Pipeline Licence - the current pipeline licensing provisions will be expanded to provide for greenhouse gas pipelines.

Geotechnical integrity - categories of storage formations

The CCS Bill requires greenhouse gas title-holders to notify the Minister as their knowledge of potential storage formations within their title area improves. The escalating categories of storage formation are:

• Potential Greenhouse Gas Storage Formation - where the title-holder reasonably suspects the formation has potential for greenhouse gas storage, and
• Identified Greenhouse Gas Storage Formation - where a title-holder reasonably believes a formation is an “Eligible Greenhouse Gas Storage Formation”, they may apply to the Minister to have it declared an Identified Greenhouse Gas Storage Formation. An Eligible Greenhouse Gas Storage Formation is a formation suitable for the permanent storage of a particular amount of a particular greenhouse gas substance injected at a particular point or points over a particular period.

The categories of storage formation will be used to ensure the geotechnical integrity of formations used for the injection of greenhouse gases.

Interaction with petroleum tenement rights

The CCS Bill generally gives primacy to the rights of petroleum tenement holders. The Minister can reject greenhouse gas title applications if there is a significant risk that they will compromise a petroleum production (for tenements granted pre- or post-commencement of the amendments). However, the Minister may impose conditions on post-commencement petroleum tenements to prevent certain operations which would compromise injection and storage activities that are or could be carried out under an existing or future greenhouse gas title.

Holders of petroleum production tenements will continue to have the ability to do whatever is necessary in the tenement area for the purpose of recovering petroleum including:

• injecting carbon dioxide in the tenement area for enhanced petroleum recovery, and
• subject to approval, injecting for disposal in the licence area carbon dioxide stripped from the petroleum stream that is recovered in the tenement area.

Public comment is invited about the scope of the greenhouse gas injection and storage activities of petroleum tenement holders.

Long term monitoring and liability

Greenhouse gas title holders will have statutory responsibilities (including protection of the environment, other seabed resources and human health and safety) under the injection title similar to those under the petroleum tenements. In particular, the decommissioning and closing of greenhouse gas storage formations requires the title holder to report to the Minister on:

• modelling of the behaviour of the stored gas
• assessment of the expected migration pathways and short and long-term consequences of migration, and
• suggestions for monitoring, measurement and verification of the injected gas behaviour.

Importantly however, the CCS Bill is silent with respect to post closure liability to persons suffering injury or loss as a result of migration or escape of stored carbon dioxide. The Australian Government Solicitor Legal Note on this topic¹ notes that the CCS Bill is not intended to exclude, limit or allocate such potential common law liability and rather, the position is that greenhouse gas industry participants will need to make their own arrangements (eg for insurance) to deal with any such potential liability.

Footnotes

1 Responsibility and Liability for Greenhouse Gas Injection and Storage Activities Authorised under an Amended Offshore Petroleum Act 2006, available at <http://www.aph.gov.au/house/committee/pir/exposuredraft/back/back08.pdf>.