Kwm victoria looks ‘offshore’ to address domestic gas shortages a gas has no volume

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The Victorian Labor Government is embracing offshore gas as a long-term supply option for Victorian consumers, while maintaining the ‘fracking’ ban and the moratorium on onshore conventional gas. It announced on 16 May 2018 that it will release 5 new oil and gas offshore exploration blocks in the Otway Basin in Victorian waters. What does this mean for you?

• The Victorian Government is opening up parcels of offshore acreage for exploration in an effort to boost domestic gas supply in the State. This announcement forms part of Victoria’s $42.5 million 3-year Victorian Gas Program, which includes evaluating the state’s potential gas resources.

• While this announcement has largely been viewed by industry as a positive step, there is debate as to whether gas volumes flowing from these new exploration blocks would be significant enough to meaningfully increase gas supply in the State.

• Companies will be permitted to access offshore gas by drilling from onshore locations (subject to regulatory approvals). Despite this, the Victorian Labor Government remains firmly opposed to exploration for, or extraction of (ie. ‘fracking’), unconventional gas located onshore.

• While the NT Government has recently announced that it will overturn its ‘fracking’ moratorium (please see our previous article Northern Territory paves the way for onshore gas), and the South Australian Government has recently put a policy in place to incentivise onshore gas exploration and extraction (eg. announcing a 10% royalty to landowners), there is little likelihood that Victoria will follow suit any time soon. Although the Victorian Liberal opposition has announced that it will overturn the moratorium on onshore conventional gas if elected in November, it continues to support the ‘fracking ban’. As the estimated reserves of both unconventional gas and conventional gas located onshore in Victoria remain uncertain, the jury is still out as to whether Victoria will be able to significantly increase its gas production in the near-term.

• Companies can tender for the right to carry out exploration activities in the 5 new blocks for 6 years. The closing date for applications is 15 February 2019. Further information about the tender process can be found on the Victorian Government website.

• However, there is speculation in the Victorian gas industry that these offshore fields are unlikely to significantly improve supply in the tight east-coast gas market, and so these areas are not expected to fully offset the rapid decline of the existing (larger) Bass Strait fields. We therefore expect that, despite the potential for increased gas supply to ultimately flow from this latest announcement, it is unlikely to placate those who are calling to lift the ban on an onshore gas industry in Victoria.

• Exploration is likely to involve drilling for offshore gas from onshore locations. Given the location of these offshore acreages, it is expected that drilling may be located within marine national parks. Section 40 of the National Parks Act 1975 (Vic) requires Ministerial consent for any directional drilling from onshore under a national park.

• Premier Daniel Andrews has insisted that the release of this new offshore gas acreage does not breach the moratorium on conventional onshore gas exploration and drilling (which is currently due to expire on 30 June 2020). Although the Victorian Liberal Opposition has said that it would lift the moratorium on drilling onshore for conventional gas if elected in November, both Victorian Labor and Liberal parties remain committed to the permanent ‘fracking’ ban that was legislated last year.

• The Victorian Government has reiterated its support for a domestic gas reserve – it expects any commercial quantities of gas that are discovered will be reserved for Victorian homes and businesses ahead of supply to the export market. Large export markets have been blamed for domestic gas shortages in Australia, which in turn have pushed up prices. Currently, only about half of Victoria’s produced gas is consumed within Victoria.

• The areas being released have never been drilled before, but are near major existing gas fields, established infrastructure and gas storage facilities. The new exploration blocks are located in the offshore Otway Basin in Victorian waters, up to 3 nautical miles off the coast, near the Otway Gas Processing Plant. The areas extend for 1,300 square kilometres from Port Campbell to the South Australian border, and are part of the national 2018 Petroleum Acreage Release.

• The announcement forms part of the Victorian Government’s $42.5 million 3-year Victorian Gas Program, which is using the latest technology and research methods to evaluate the state’s potential gas resources. The program includes geoscientific, environmental and economic studies, to properly assess the impacts, risks and potential benefits of onshore conventional gas exploration, as well as offshore prospecting and gas storage options.