8018 DPC Victorian Gas Market Report V4

GAS MARKET TASKFORCE Final Report and Recommendations October 2013

Contents Gas Market Taskforce 1 Foreword 2 Recommendations 4 About the Victorian Gas Market Taskforce 9 Context 9 Australian gas markets 11 The importance of gas for Victoria 12 Victoria’s gas supply outlook 14 New export demand – impacts and opportunities 15 Key Findings 19 Taskforce Proposals 20 Initiatives to improve gas supply 21 A pathway for diversifying gas supply in Victoria 21 Royalties and payments for communities and landholders 31 Increase productivity and reduce the costs of major projects 33 Better supply and demand information is needed 36 Upstream competition should be encouraged 37 Protect domestic customers through markets, not intervention 38 Wholesale markets and transmission 40 Action to accelerate existing national reforms 40 Potential new reforms to enhance competition, liquidity and transparency 44 Action to improve Victoria’s downstream market 46 Retail markets and distribution 47 Conclusion 49 Acronyms 49 Figures Figure 1: Map of Australian gas fields and key pipelines. 12 Figure 2: Gas consumption in eastern states in 2011–12. 13 Figure 3: Victoria’s main gas production basins. 16 Figure 4: The eastern gas transmission system. 41 Boxes Box 1: What is natural gas? 10 Box 2: Queensland’s LNG trains 16 Box 3: Snapshot of onshore gas exploration in Victoria 22 Box 4: What is hydraulic fracturing? How often has it been used? 29 Box 5: Proposed Productivity Commission review 46

of 54 Page 2 of 54 Foreword It is my pleasure to present the Report of the Gas Taskforce to the Premier of Victoria, The Hon Denis Napthine. The Report makes 19 recommendations including lifting the holds on fracking and the approval of new Coal Seam Gas (CSG) exploration licences. Importantly, the Report also details recommendations to ensure the application of the highest standards of regulatory and scientific oversight of the gas industry. Victoria has enjoyed cheap and reliable natural gas for many years but those days are fading fast. Prices are rising, known conventional gas resources in Bass Strait will not last forever and there are prospects of onshore gas. Victorians should be under no illusions. Rising gas prices will have a negative impact on Victoria’s manufacturing base. Jobs and investment are at risk. Costs of living will rise and could rise for longer if not addressed. When the problems of rising prices arose recently in the United States, price hikes gave producers the economic motive to explore and produce more gas. So much gas was found that gas prices dropped and the consequence was not only lower energy costs but a resurrection of manufacturing. In the US, the attitude was to get the job done. More recently, in some cases in eastern Australia the approach has been the opposite. The only sensible course of action is for the Victorian Government and other eastern states to promote production of additional gas supply. Alternative proposals, such as government reservations or subsidies will not address the essence of the issue either in the short or long term. The Report concludes that an onshore gas industry cannot only provide economic benefits to farmers, revitalise regional communities and create jobs but at the same time the gas industry can be managed to conserve our environment. The Taskforce has made recommendations to adopt rigorous environmental processes, to engage genuinely independent advice on key issues like water, to ensure a fair go for farmers and regional communities, to establish an independent gas Commissioner and to encourage government to support the industry. Victoria could potentially continue to benefit from its own gas resources or else it could follow New South Wales where gas prices will most likely be the highest in Australia. Of course, there are genuine interests and concerns to be addressed if the gas industry is to reach its potential in Victoria. Whilst there is currently no CSG or other unconventional gas production in Victoria, there are a number of people who are opposed to the industry. The Taskforce has attempted to find solutions to the concerns commonly raised with the Taskforce, including, water, farmers rights, agricultural production, local amenity, neighbours and local communities. Concerns about water are a key issue for farmers and generally in regards to the environment. The concerns include water contamination, loss of water, a lack of understanding of aquifers, equitable use of water and other issues. Information and management of water resources must be based on independent science and so the Taskforce recommends that one role of the proposed independent Gas Commissioner would be to establish a scientific committee, chaired by an eminent Victorian scientist, with sufficient resources to make its own assessments of the issues.

of 54 Clearly there is a lot of exaggeration about fracking. Independent advice to the Taskforce from Geoscience Australia and other sources provided compelling evidence that fracking should be allowed. To allay concerns about fracking, the Taskforce has recommended implementation of leading environmental and safety standards, including those recently agreed at the national level. The Taskforce also proposes that any chemicals used in fracking are to be first notified to the Victorian regulator and made available to the public on the Gas Commissioner’s web site. Whilst the Taskforce supports the safe application of fracking, the reality in Victoria, given its different geology, is that fracking is unlikely to be as extensive as Queensland. To deny fracking to the gas industry would be to limit its ability to explore and better understand the resources. Not even New South Wales has a ban on fracking. The Taskforce has looked at a number of broader issues relating to the framework within which the enlarged eastern Australian gas market will soon be operating. There is no doubt that there are some problems with existing arrangements. For example, there is no forward market, pricing is opaque, the issue of pipeline capacity should be discussed and ‘use it or lose it’ provisions were raised with the Taskforce. The market lacks transparency in upstream information, there is a lack of transparency on short term production and there are information asymmetries between sellers and buyers. It is easy to map out market reforms in theory and the reality of a new, much bigger market suggests that a review of the market could be warranted. But that review would need much better information than was available to the Taskforce, it should acknowledge that to date the market has worked and any review would need to rigorously assess any cost benefit analysis of options. In addition, as the Victorian Government is only one player in the market, any review needs to include all parties. In conclusion, I thank the members of the Taskforce for their contributions and I congratulate the Victorian Government for its foresight to commission the Report and to provide the support to make the Report possible. The report expresses the views of the Taskforce members not the Victorian Government. I also acknowledge the excellent work of Dr Helen Foard from the Department of Premier and Cabinet (DPC), who was the key person managing the Taskforce project and the development of the Report with others from DPC including Mr Andrew Abbott, for executive oversight of the Taskforce Secretariat, Ms Marwa Khalaf and Ms Victoria Thaine, who provided technical and administrative support throughout the project, with early contributions by Mr Scott Fitzpatrick. There was significant technical advice and contributions from other Victorian Government agencies supporting the Secretariat including Mr Raif Sarcich, Mr Chris Brooks, Ms Kylie White, Mr Chris McAuley and their teams, as well as input from the many individuals who gave their time to the Taskforce. Finally, I thank key government advisers Mr Patrick Gibbons and Mr Greg Hannan for their assistance.

Peter Reith

of 54 Recommendations

The Gas Market Taskforce recommends that: Page

1 The Victorian Government: 21 a. Proactively support the development of the onshore industry in Victoria to create a safe and efficient onshore gas industry, underpinned by leading practice regulation and community engagement; and b. Remove the holds on the issuing of new exploration licences for coal seam gas (CSG) and hydraulic fracturing, subject to a package of reforms being adopted, including leading practice regulation, community engagement, information and science to underpin the management of the onshore gas industry in Victoria.

2 The Victorian Government take immediate action to adopt leading practice 22 regulation by: c. Strengthening and clarifying Victorian legislation and regulation to underpin onshore gas exploration and development, including fully implementing the 18 leading practices outlined in the National Harmonised Regulatory Framework (NHRF) for CSG; d. Placing conditions in licences or work plans for all (exploration and production) licences, to align Victorian requirements with the 18 leading practices under the NHRF, until ongoing legislation and ongoing arrangements are formally in place; and e. Reviewing the NHRF to identify its applicability for other types of unconventional gas, including tight and shale gas, and address any gaps.

3 The Victorian Government take immediate action to engage landholders and 22 communities by appointing a Gas Commissioner, whose primary objectives will be consulting with and building landholder and community confidence in the processes around unconventional gas exploration and the potential for development in Victoria.

of 54 4 The Victorian Government develop a comprehensive water science and 25 licensing program, including: Water management, monitoring and baseline assessments a. Establishing an independent water science program to undertake comprehensive baseline assessments of water resources in areas that may be prospective for unconventional gas, including ongoing monitoring of those resources; b. Undertaking comprehensive baseline water studies in areas where onshore gas development is most prospective and requesting the Commonwealth to commence the Gippsland bioregional assessment as soon as possible; c. Utilising independently reviewed data from exploration activity undertaken by proponents as a useful source to inform baseline assessments and monitoring; d. Establishing an independent Water Science Committee under the Gas Commissioner to be chaired by an independent eminent scientist who:  oversees the water science and monitoring program; and  provides independent advice on water quality and other environmental issues relevant to gas industry exploration and development operations. Water licensing to ensure integrated water management for all uses e. Ensuring there is alignment and coordination between the legislation and agencies responsible for water management with the gas industry regulation, including:  subjecting the gas industry to similar licensing requirements as any prospective user and, to ensure integrated management of water resources, water licences should be issued under the Water Act 1989 (Vic); and  where aquifers are connected (either between onshore and offshore sources or aquifers at different depths), requiring that all users hold a water licence and be subject to coordinated management under the Water Act.

5 The Victorian Government remove the holds on hydraulic fracturing, subject to 27 establishing the highest environmental and safety standards for hydraulic fracturing operations, including: a. Developing new guidelines that clearly set out the requirements for hydraulic fracturing operations using the NHRF as a minimum standard; b. Imposing a permanent ban on the use of BTEX chemicals in the hydraulic fracturing process; c. Requiring the public disclosure of all chemicals used in hydraulic fracturing operations on the Gas Commissioner’s website; d. Requiring demonstration of the effects of proposed chemical mixes, prior to those chemicals being approved for use in operations; e. Encouraging the use of environmentally benign chemicals in hydraulic fracturing operations; and f. Independent monitoring of impacts and seeking independent expert advice on best-practice hydraulic fracturing to inform legislative and regulatory amendments.

of 54  The Gas Commissioner’s science committee can monitor impacts and provide independent expert advice.

6 To create incentives for industry to explore and develop onshore gas, the 29 Victorian Government: a. Adopt a royalty rate that is attractive for industry and competitive compared to the schemes existing in other states; and b. Delay the requirement to pay royalties for an agreed period (‘royalty holiday’) to reduce project costs and encourage production.

7 To deliver a fair share of benefits for communities and build landholder and 29 community support for the onshore gas industry, the Victorian Government: a. Adopt a Royalties for the Regions program to share the benefits of natural gas production in Victoria with local communities; b. Establish a mechanism allowing local people to advise on funding priorities for a Royalties for the Regions program, using existing arrangements where possible; and c. Raise the legislated upper limit for compensation for loss of amenity from $10,000 to $20,000 and introduce indexation of this limit at CPI.

8 The Victorian Government develop and announce the details of the tax and 29 royalty arrangements for the onshore gas industry as soon as possible, in order to provide certainty for industry.

9 The Victorian Government take action to improve productivity in all facets of 31 major projects, including: a. Engaging with the Commonwealth Government to identify opportunities for joint government action to improve productivity, including the advocacy of labour market reform; b. Reducing the regulatory cost of major projects by streamlining regulatory arrangements and reducing duplication; c. Nominating a senior official within the Victorian administration who can be the ‘go to’ person to coordinate approvals and other industry requirements; and d. Requesting the Commonwealth Government work with Victoria to accredit its environmental assessments and approval processes to minimise unnecessary costs to businesses by removing duplication and double handling while maintaining high environmental outcomes.

of 54 10 To improve certainty and accessibility of gas supply information, the Taskforce 32 recommends that the Standing Council on Energy and Resources (SCER): a. Initiate a comprehensive annual forecast for the Australian gas industry incorporating reserves, gas supply, industrial and residential customer demand, and supply and transportation asset capacity. It is intended that this forecast would build on the existing Gas Statement of Opportunities report; b. Clarify the roles and responsibilities for public reporting of resource information, including the roles of various Commonwealth and state government agencies with a role in gas market information or reporting; and c. Coordinate consultation between governments and the upstream sector to establish a consistent reporting regime for the public reporting of gas reserves and production.

11 The Victorian Government, with the objective of moving away from joint 33 marketing arrangements, request the Australian Competition and Consumer Commission (ACCC) review the existing joint marketing arrangements for gas producers, assessing their relevance in light of the rapidly evolving eastern gas market.

12 Eastern market governments do not adopt a policy for domestic gas 34 reservation.

13 Eastern market governments, through SCER, accelerate and enhance the 38 implementation of the existing reforms under the National Gas Market Development Plan, including: a. Pursuing ways of making the voluntary markets for transmission capacity more transparent, flexible, efficient and liquid; b. Investigating options for developing uniform transmission capacity rights and pursue ways of facilitating more transparent and liquid trade in transmission capacity; c. Identifying and removing barriers to trading in gas across different downstream markets in order to move towards more consistency and, as far as practicable, a single market design; d. Undertaking the necessary work to establish a single trading zone at Wallumbilla as a matter of priority; e. Drawing on relevant experience from gas markets in other countries, such as the United States, the United Kingdom and continental Europe; and f. Establishing key performance measures in gas market reform, assign responsibilities for delivering them, and annually commission a review of success and consider further facilitation of market development.

of 54 14 Industry participants support efforts to increase transparency and liquidity in 38 markets through:  Publishing available transmission capacity on the capacity trading mechanism under development by the Australian Energy Market Operator (AEMO) to allow more dynamic trade in transmission capacity; and  Accelerating efforts to develop a published gas price index to report price expectations.

15 Eastern market governments request that: 39 a. The Productivity Commission (PC) conduct a comprehensive review and cost benefit analysis of potential reform options relating to the eastern gas market, taking into account the rapid change in market dynamics and with the aim of increasing efficiency, transparency and competitiveness of the eastern gas market; and b. Eastern market state Premiers jointly write to the Commonwealth Treasurer, incorporating the proposed terms of reference, to seek approval for the PC review.

16 The Victorian Government immediately request the Australian Energy Market 41 Commission (AEMC) undertakes, in consultation with the Australian Energy Market Operator (AEMO), a thorough review of pipeline capacity, investment, planning and risk management mechanisms in the Victorian Declared Wholesale Gas Market (DWGM) with the objective of ensuring arrangements for access to the pipeline capacity promote competition, risk management by market participants and provide appropriate investment signals and incentives.

17 The Victorian Government consider whether arrangements for rule-making in 41 the Victorian DWGM are adequately responsive to the gas industry given the challenges it is facing.

18 The Victorian Government continue the Energy for the Regions Program to 42 extend the access of gas to regional Victoria.

19 The Victorian Government ensures that the effective operation of the access 42 dispute framework is addressed through the Council of Australian Governments (COAG) work program, which includes: a. improving resourcing of the Australian Energy Regulator (AER); and b. reforming the dispute resolutions processes related to regulated monopoly services.

of 54 About the Victorian Gas Market Taskforce The Gas Market Taskforce was established in December 2012 to provide policy options to the Victorian Government on improving the operation and efficiency of the eastern Australian gas market, suggesting ways of facilitating market transparency and transmission capability, and increasing gas supply to meet rising demand at competitive prices. The eight member Taskforce is chaired by former Commonwealth Minister, the Hon. Peter Reith, and the members are:  Craig Arnold – Dow Chemicals  David Byers – Australian Petroleum Production and Exploration Association  Frank Calabria – Origin Energy  Cheryl Cartwright – Australian Pipeline Industry Association  Mark Collette – Energy Australia  Angus Taylor – Port Jackson Partners  Innes Willox – Australian Industry Group The Taskforce met five times since January 2013 and the Taskforce Chair has also met with more than 50 industry experts and participants during this period, including relevant state Ministers and Commonwealth representatives. The Victorian Government was the first to give serious consideration to the long-term issues faced by the eastern gas market. A number of other state and national bodies have since launched reviews to consider a range of aspects of this market. The Taskforce has attempted to consider and, where appropriate, build on this work and identify gaps. This report presents the findings and recommendations of the Taskforce. It presents a snap shot of the issues and challenges facing the eastern gas market and the proposals for addressing these issues. It is supported by a Supplementary Report that provides a more detailed analysis of findings. Context Natural gas is set to increase in importance over the coming decades as it becomes more easily and economically transported as liquefied natural gas (LNG). Its abundance and low carbon characteristics make it an increasingly more attractive fuel. Composed predominantly of methane, natural gas is extracted from naturally occurring geological structures using a number of technologies and processes (see Box 1 for further details).1

1 Geoscience Australia Material provided in briefings to the Chair of the Taskforce (May, 2012)

of 54 Box 1: What is natural gas? Natural gas, or simply gas, is the commonly used name given to methane gas that is sourced from naturally occurring geological formations in the earth. It can also include varying amounts of other components, such as carbon dioxide, nitrogen, hydrogen sulphide and other higher alkanes. While the composition of extracted gas varies depending on its source and the particular geological formation from which it is extracted, the gas sold to consumers is processed to meet uniform quality standards. Gas extracted from porous zones in rock formations such as sandstones is often referred to as conventional gas because this has been the dominant source historically. This can be found onshore and offshore, and often occurs close to oil deposits, hence production of natural gas is sometimes accompanied by oil production. Unconventional gas is sourced from other types of geological formations. For example, of current interest in Australia are: coal seam gas (extracted from coal seams); shale gas (extracted from rock formations known as shales); and tight gas (extracted from rock with very low permeability). Compared to conventional gas, unconventional gas resources are characterised by: the low permeability of hosting reservoir rocks, laterally extensive accumulations and a requirement for capital-, energy- and technology-intensive extraction methods. Gas can also be produced in other ways, such as from the decomposition of organic matter, and can be used in the same way as natural gas. However, these tend to be niche sources due to the small volumes produced.

of 54 Australian gas markets Australia has three separate gas markets: the western market, the northern market and the eastern market (Figure 1). The eastern market, which connects Victoria, New South Wales, Queensland, South Australia and Tasmania, is the focus of this report.

The traditional market structure and arrangements have been effective in meeting domestic demand.

The existing market structure has served the eastern market well in the past, facilitating investments and construction of over 20,000 kilometres of pipelines connecting demand centres and supply sources across the eastern market. Particularly, over the last decade the eastern gas market has become increasingly more interconnected. In 1997, the Victorian Kennett Government led significant market reforms through its privatisation of the Gas and Fuel Corporation, which was disaggregated into separate transmission (GPU Gasnet), distribution (Multinet, Westar and Stratus) and retail (Kinetik, Boral and Energy Partnership) companies, as well as an independent market operator (VENCorp).2 Since disaggregation these companies have undergone various mergers, acquisitions and name changes. Figure 1: Map of Australian gas fields and key pipelines. (Source: Geoscience Australia.)

Figure 2: Gas consumption in eastern states in 2011–12. (Source: Bureau of Resources and Energy Economics, 2013 Australian energy statistics data.)

2 Victorian Government Application to the National Competition Council for a Recommendation on the Effectiveness of the Victorian Third Party Access Regime for Natural Gas Pipelines (1999) pp. 5–6

of 54 Within the eastern market, Victoria has also led with the deregulation of retail gas prices in 2009, which has allowed competition to grow in the retail sector.3 Today, Victoria’s gas market has a greater diversity of market participants with multiple retailers and wholesale buyers, and strong interconnectivity with other states.4 Overall, the eastern gas market has been effective at stimulating investment and domestic demand has been met at prices much lower than international gas prices.

The importance of gas for Victoria

Gas is an important energy source and underpins Victoria’s economy.

For many decades, Victoria has had access to low cost electricity and gas, which has provided a major competitive advantage and underpinned its strong and diverse economy. Natural gas accounts for 19 per cent of all energy used in Victoria.5 In 2011–12, Victoria consumed 270 petajoules (PJ) of natural gas, making it the largest consumer in the eastern gas market (Figure 2). Victoria’s manufacturing and business sectors rely on natural gas as an energy source and as a feedstock in the manufacture of a range of products, such as basic chemicals, plastics, pharmaceuticals, fertilizers, paints, pesticides and cosmetics. Victoria has the largest residential gas demand of any Australian state, with total residential demand exceeding 100 PJ per year or two-thirds of all residential gas consumption in Australia.6 This is supported by an extensive

3 Gas Today Gas Retail Deregulation – Victoria leads the way (Accessed on 15 March 2013)

4 Department of Primary Industries The Victorian Gas Market (Accessed on 15 March 2013)

5 Bureau of Resources and Energy Economics 2012 Australian energy statistics data

6 Grattan Institute Getting gas right – Australia’s energy challenge (June 2013) pp. 10

of 54 reticulated gas network that supplies gas to over 1.8 million Victorian households using gas for cooking and heating, particularly in winter.7 The large quantities of gas located in the Bass Strait have ensured that Victoria is a net gas exporter to other states in eastern Australia. These large reserves coupled with the lack of gas export opportunities outside the eastern market have led to low and stable prices for several decades. Until recently, the typical wholesale gas price in Victoria has been in the order of $2– 3/GJ. Gas is likely to continue to be an important primary energy source for Victorian businesses and households. It may also have a larger role in electricity generation in Victoria and across Australia into the future.

Gas at competitive prices can help underpin Victoria’s energy mix into the future.

Around 17 per cent of total installed electricity generation capacity in Victoria is gas fired. However, in 2012-13 gas fired electricity generation contributed around 4.1 per cent of total electricity generated in Victoria and in 2011-12 this was only 1.5 per cent.8 Gas generation varies significantly from year to year, often depending on the number of peak days and the availability of other generation sources. This is because natural gas has been used for electricity generation in Victoria, mainly during peak times. This is partly because gas generation is more costly than coal fired generation, and partly because gas generation can be started more rapidly on demand than other generation types. This responsiveness makes it ideal for use as peaking and intermediate generation as well as a back-up for intermittent renewable electricity generation.

7 Australian Energy Regulator State of the energy market 2012 – upstream gas markets pp. 88

8 Department of State Development, Business and Innovation (Victoria) information provided to Taskforce

of 54 Victoria’s gas supply outlook

Conventional gas from Commonwealth waters in Bass Strait will continue to underpin the security of Victoria’s gas supply in the medium to long term.

Victoria’s gas is supplied from conventional sources originating from three geological sedimentary basins (Figure 3).9 All gas production in Victoria is currently sourced from offshore in Commonwealth waters beyond three nautical miles of the Victorian shore. The Gippsland Basin has produced 8,791 PJ, which is 90 per cent of Victoria’s and nearly 50 per cent of the eastern market’s cumulative gas production to date.10 Geoscience Australia has estimated that just under half of the available resources in the Gippsland Basin has been extracted over the last 45 years. The Otway Basin has produced gas since 2005 and currently provides about 29 per cent of gas produced annually in Victoria.11 The Bass Basin has relatively minor reserves and production. Further details and maps of Victoria’s gas resources and their regulation are provided in the Supplementary Report. Victoria appears to have adequate gas reserves for the medium to long term. At current production, existing gas reserves of about 11,900 PJ could continue to produce for nearly 30 years. However, should production from Victorian fields increase significantly, or estimations are not realised, then existing reserves could be depleted much sooner. A recently announced deal between BHP Billiton/Exxon Mobil to supply Origin with 432 PJ over 9 years from Bass Strait12, for example, points to higher production and faster depletion of Victoria’s traditional reserves.

9 Core Energy – Australian Energy Market Operator Eastern and Southern Australia: Existing Gas Reserves and Resources (April 2012)

10Geoscience Australia Australian Gas Resource Assessment (2012)

11Energy Quest Energy Quarterly May 2013 Report

12The Australian Origin paid high price for Bass Strait Gas (24 September 2013)

of 54 Figure 3: Victoria’s main gas production basins. Pie charts show past and remaining production. (Data Source: Australian Gas Resource Assessment 2012; Map: Geoscience Victoria.)

New export demand – impacts and opportunities

The eastern gas market is undergoing rapid transformation and gas prices will rise due to increasing export demand driven by a new LNG export industry.

Market participants and experts have consistently pointed out that the rapidly changing dynamics and structure of the eastern gas market is the key driver for uncertainty and upward pressure on domestic gas prices in the eastern gas market. By 2017, the eastern market will more than triple in size from one that primarily services domestic demand of around 700 PJ per annum – predominantly met through conventional gas resources in Bass Strait and the Cooper Basin – to one that is dominated by export demand supplied by unconventional gas resources in Queensland. Almost $60 billion in capital is being invested to construct three LNG plants in Gladstone, Queensland, each comprising of two trains.13 These plants will commence exporting LNG from September 2014 (Box 2). There is also potential for further growth driven by expanding LNG exports.

13 Bureau of Resources and Energy Economics, Resources and Energy Major Projects (April 2013 – May 2013)

of 54 Box 2: Queensland’s LNG trains An LNG train is a facility for the processing and liquefaction (often for export) of natural gas. An LNG train comprises a series of steps to remove unwanted components from the extracted natural gas – such as dust, water, hydrogen sulphide, carbon dioxide and other contaminants – and then compresses and refrigerates the extracted methane to produce LNG ready for shipping. LNG projects in Queensland. (Source: Bureau of Resources and Energy Economics, Resources and Energy Major Projects—April 2013, May 2013.) Project Company Expected start-up Capacity

Australia Pacific Origin, Conoco 2015 495 PJ/a (9.0 mtpa) LNG Phillips, Sinopec

Queensland Curtis QGC, CNOOC 2014 467 PJ/a (8.5 mtpa) LNG

Gladstone LNG Santos, Petronas, 2015 429 PJ/a (7.8 mtpa) Total, Kogas

Note: Arrow LNG has a proposal for LNG initially for 440 PJ/a (or 8.0 mtpa) but has not received the Final Investment Decision and may collaborate with other firm(s) to utilise their LNG trains.

There is enough gas to meet this massive increase in demand, but the market must be allowed to efficiently transition and increase supply to respond to demand and rising prices.

Australia’s inland basins offer the possibility of very large reserves of unconventional shale oil and gas along with further discoveries of coal seam gas (CSG).14 In an unconstrained market, supply will respond to meet the increasing demand. A key finding of the Taskforce is that there is plenty of gas to support both domestic and export markets far into the future. However, there is likely to be a transition period given the rapid increase in demand and the long lead time required to explore and develop new sources of conventional and unconventional gas. The Taskforce is conscious that the impact of the change has already created considerable uncertainty across the eastern market. More needs to be done to ensure supply can be made available to meet the rapid growth in demand from LNG exports.

The introduction of LNG exports has kick started a period of transition in the eastern gas market, which is experiencing uncertainty, increasing gas prices and, potentially, a shortfall in supply.

The rapid growth to supply LNG exports from Gladstone will impact on the eastern gas market dynamics and market development in the short and longer term as the market transitions and becomes more connected to international markets. Prices are already rising. There are a number of factors contributing to higher prices and uncertainty in the eastern market.

14ACOLA Engineering energy: Unconventional Gas Production. A study of shale gas in Australia. Final Report. (May 2013)

of 54 The Grattan Institute reported that there are sufficient gas resources but that demand may not be met in the short term, particularly in New South Wales between 2015 and 2017, due to insufficient infrastructure availability and insufficient market signals driving investment in supply infrastructure.15 As recently as 2009, there was an expectation that significant volumes of ‘ramp-up’16 gas would be produced in Queensland in the lead up to commissioning of the LNG export trains, which would ensure there is a plentiful supply of gas in the eastern market to maintain low prices.17 However, the excess ‘ramp-up’ gas did not become available as producers employed a range of management techniques, such as gas swaps between LNG proponents and storage.18 The lack of ‘ramp-up’ gas has been compounded by delays in developing new production fields for LNG export due to flooding in Queensland, a shortage of equipment and skills, and significant community concerns creating delays in development of proven resources, especially in New South Wales. In the long term, the fact that the eastern gas market is becoming less isolated means that domestic consumers will compete with international consumers for gas, and inevitably, the price of gas will increase to approach international prices. It is unlikely that gas prices in the eastern market will return to the significantly lower levels that the market has enjoyed in the past. Although, there remains uncertainty regarding the long-term impact on LNG markets of other countries exporting gas, including the United States (US).19 Companies are also experiencing difficulties securing long-term contracts,20 with several firms consulted by the Taskforce Chair confirming this observation. Furthermore, the higher costs associated with developing new gas sources, compared with the traditional sources that have supplied the eastern gas market, means that this market, particularly in Victoria, is unlikely to return to the low gas prices it has historically experienced.

Production costs are also increasing.

Increasing production costs are also contributing to rising gas prices. There are increased costs associated with the exploration and production of new gas fields that will grow faster with increased production to meet LNG export demand. New offshore gas production will generally require drilling wells that are deeper or further from the coast; the wells can also be of a lower quality and require treatment to improve gas quality before delivery. The production of natural gas from shale, tight or coal seam formations is typically more expensive than conventional gas, placing further pressure on gas prices given future supply is expected to largely come from these new onshore sources.21 These formations require more drilling and augmentation to increase flow rates.

15Grattan Institute Getting gas right – Australia’s energy challenge (2013) pp. 18 & 23

16‘Ramp-up’ gas describes the excess gas produced by wells prior to full production expected to be produced and available for sale as wells are progressively developed ahead of commencement of LNG operations.

17Energy Quest State of the energy market, Part One Essay – Australia’s Natural Gas Markets: Connecting with the World p. 36.

18Queensland Department of Energy and Water Supply Gas Market Review: 2012 (2012) p. 38

19Energy Quest Australian Coal Seam Gas 2013: All Aboard the LNG Train (May 2013)

20Australian Energy Market Operator 2012 Gas Statement of Opportunities for Eastern and South Eastern Australia (2012) p. iv

of 54 Irrespective of the LNG demand, a range of factors are contributing to higher costs of major projects in Australia. For example, a high Australian dollar (although this helps in purchasing overseas equipment thereby reducing construction costs in some areas), and rising capital and labour costs are placing upward pressure on mining and construction projects, and will contribute to increasing gas production costs. One stakeholder cited that the average break-even costs of producing gas in the eastern market are estimated to increase by a range of $2–6 per GJ.22 Costs in the Australian mining sector are rising in general, causing Australia to lose its operating cost advantage.23 Port Jackson Partners reports that over half of Australia’s mines have costs above global averages and longer delays are contributing factors to higher project costs in Australia. The Australian Petroleum Production and Exploration Association (APPEA) also reports that Australia’s environmental regulatory framework is duplicative, excessive and at times inconsistent, which is causing delays and imposing costs on the industry without always delivering the desired objectives.24

Industry and governments must address community concerns and create a ‘social licence to operate’.

The need to supply gas from unconventional onshore gas sources has been met by community opposition, in Australia and around the world. Various published reports and some Taskforce members have expressed concerns that unconventional gas developers do not yet have a ‘social licence to operate’. In New South Wales, where community opposition has delayed or halted industry investments, the New South Wales Government is seeking to address significant public concern. Some stakeholders consider that this is the biggest challenge to increasing supply at competitive prices. Others consider that industry has not worked hard enough to inform and manage the public debate about the risks and mitigation of potential impacts of unconventional gas exploration and production, including management of third party and environmental impacts. The problem is particularly acute where developments are in close proximity to urban centres or productive agricultural land.

The emerging LNG gas industry is well underway and brings considerable benefits and future opportunity to the national economy.

21Australian Petroleum Production and Exploration Association Unconventional Gas (Accessed on 15 March 2013)

22Core Energy Group cited in an industry stakeholder’s presentation

23Port Jackson Partners for the Minerals Council of Australia Opportunity at risk – Regaining our competitive edge in minerals resources (September 2012) pp. 25 – 27

24Australian Petroleum Production and Exploration Association Cutting Green Tape – Streamlining Major Oil and Gas Project Environmental Approvals Process in Australia (February 2013) p. 2

of 54 The Grattan Institute estimates that by 2017 Australia will have the largest gas export industry in the world, worth $53 billion a year.25 In May 2013, McKinsey & Company estimated yet-to-be- approved future LNG projects could contribute a further $320 billion to the Australian economy between 2015 and 2025.26 To realise these benefits, Australia must address the increasing costs and imposts that negatively affect Australia’s attractiveness to investors, and must support development of a competitive, transparent and responsive gas market. Australia is also expected to face competition from other jurisdictions (not traditionally competitors) as unconventional sources increase global reserves for LNG markets. The Taskforce considers that the right policy settings, which balance benefits and impacts, can create an environment that will allow Australia to attract investment in new and expanded gas production and LNG developments in an increasingly competitive global LNG market.

National gas market reforms are evolving to meet new challenges, but is this enough?

In December 2012, the Standing Council on Energy and Resources (SCER) recognised the significant new challenges facing the gas industry, particularly the eastern gas market, and agreed to the Australian Gas Market Development Plan. The Plan focuses government efforts on actively pursuing two policy principles: 1) ensuring supply can respond flexibly to market conditions; and 2) promoting market development, which are being progressed through three areas of reform: 1. Increasing the role of the market; 2. Improving market information; and 3. Effective regulation. The Victorian Government has also announced a $19.2 million program to grow Victoria’s earth resources and implement its response to the parliamentary inquiry into greenfields mineral exploration and project development in Victoria.27 Key Findings Overall, the Taskforce found that:  By 2017, the eastern market will more than triple in size from one primarily servicing domestic demand, to one that is dominated by export demand.  In the past, gas has been predominantly supplied through conventional resources in Bass Strait and the Cooper Basin, but in the future, unconventional onshore gas will be the dominant source to meet domestic and export demand in eastern Australia.

Prices are rising and there is considerable uncertainty in the eastern market.

 The rapidly changing dynamics and structure of the eastern gas market is the key driver for market uncertainty and upward pressure on domestic gas prices in the eastern gas market.

25 Grattan Institute Getting gas right (June 2013) pp. 2

26 McKinsey & Company Extending the LNG boom: Improving Australian LNG productivity and competitiveness (May 2013)

27 Economic Development and Infrastructure Committee (Accessed on 16 September, 2013)

of 54  There is currently considerable uncertainty across the eastern gas market with gas prices increasing and expected to remain higher than historical prices. There is uncertainty about the extent and timing of gas price increases in the short and long terms.  Residential gas prices in Victoria are likely to increase by around 30 per cent by 2015, although falling somewhat by 2020, with prices 20 per cent higher than 2013 prices. In 2013, average annual Victorian household gas costs are estimated to be $1,200.  Large users are experiencing difficulties securing long-term contracts and some manufacturing firms have indicated they may shutdown if they cannot secure gas at competitive prices.  Some market participants have expressed concern that contracted gas may not be delivered.  New South Wales faces the greatest immediate challenges, as more than 95 per cent of its gas use is imported from other states and there are barriers to CSG development due to community opposition and regulatory uncertainty.  In the medium to long term, supply and demand will regain equilibrium and lead to a stabilisation in gas prices, which are likely reflect international, in particular Asian, gas prices that are higher than the historical eastern Australian gas prices.

Community concerns with onshore gas are significant and must be addressed.

 Local communities must be properly consulted and engaged by industry and governments to ensure community concerns are addressed to create a ‘social licence to operate’ for the onshore gas industry.  Water issues in relation to onshore gas development were the most commonly raised concern with the Taskforce.  Many industry stakeholders and experts consider baseline assessments of water resources, water monitoring and management issues must be addressed to underpin a successful gas industry that is acceptable to landholders and communities. Independently reviewed data collected during exploration activity can support the collection of necessary information.  The potential impacts of hydraulic fracturing are also commonly raised in the media and by communities, landholders and anti-CSG activists. However, based on the evidence available, the Taskforce was advised that hydraulic fracturing “when conducted correctly, is unlikely to introduce hazardous concentrations of chemicals into groundwater or to create connections between fresh and coal containing aquifers.” (Geoscience Australia, 2012)

Existing market reforms should be accelerated and could be expanded to meet new challenges.

 The existing national reform agenda goes some way towards addressing issues in the eastern market; however, a greater urgency to achieve reforms is required and more actions may be needed, subject to a further cost benefit analysis. The Taskforce has considered the above context and findings and makes recommendations to address these issues in the remainder of the report.

of 54 Taskforce Proposals The Taskforce recommends action to facilitate new gas supplies as the best way of meeting the significant increase in demand driven by the new LNG export industry while ensuring gas can be supplied to meet domestic demand. The Taskforce recognises there is tension between providing certainty for industry to enable investment in new gas sources and alleviating community concerns regarding the potential impacts of onshore gas exploration and development on communities and the environment.

Initiatives to improve gas supply

More should be done to reduce barriers in order to increase supply and options for new gas sources.

The Taskforce agrees that Victoria, other eastern market states and market participants need to adopt strategies to facilitate exploration and production of new gas supplies to ensure that a diverse portfolio of gas supply options are available to the market at competitive prices. As conventional gas sources are depleted eastern states, are becoming increasingly dependent on unconventional gas sources. Ideally, these could be sourced at the lowest cost from within the eastern market.

A pathway for diversifying gas supply in Victoria

Victoria could diversify its supply options to include gas from offshore Bass Strait reserves, interstate, and potentially Victorian onshore sources.

The two most feasible options for Victoria’s future gas supply are: 1. Victoria could augment its gas supply with new onshore sources within Victoria; and 2. Victoria could import gas from other states in the eastern market, which will be facilitated with an increasingly mature and connected eastern gas market (initiatives to improve efficiency of the interconnected eastern gas market are discussed in more detail in the section on wholesale markets and transmission, pages 32-40). Victoria and the eastern market could also import gas from the northern or western Australian markets, but this would require new pipeline infrastructure. There are reports of the Northern Territory Government lobbying for the construction of a pipeline between Tennant Creek to Mount Isa in north-west Queensland.28 Importing of gas from other countries is unlikely, given the significant domestic resources available. Importing of gas from overseas would only occur if the political and production costs for developing onshore gas in Australia exceeded the costs of importing, including the upfront fixed costs for the infrastructure that would be needed.

The commercial potential of onshore gas is currently unknown in Victoria but could become a part of Victoria’s gas supply mix, bringing gas supply security and economic benefits for the state and local communities.

28ABC News, NT push for gas pipeline link with Queensland (22 February 2013)

of 54 Victoria is the least advanced of the eastern market states in terms of exploration and development of onshore natural gas. This is due to a number of factors, including its proximity to significant low cost conventional resources in Bass Strait and uncertain geological suitability for natural gas from coal seams. A brief history of exploration in Victoria is provided in Box 3 and further details about Victorian exploration licences, including a map of onshore gas exploration tenements, is available in the Supplementary Report. Presently, all forms of unconventional natural gas (in shale, tight and coal seam formations) are at an early stage of exploration in Victoria and there is a lack of key information to estimate potential resource sizes. There is currently no production, commercial reserves or identified reserves of unconventional gas in Victoria.

Box 3: Snapshot of onshore gas exploration in Victoria In Victoria, gas from coal seams and from oil shale is regulated under the Mineral Resources (Sustainable Development) Act 1990 (MRSDA). Shale gas and tight gas are regulated under the Petroleum Act 1998. There are nine* active petroleum exploration permits in Victoria. Lakes Oil Pty Ltd discovered gas in tight reservoirs near Seaspray in Gippsland in 2004 and acquired a Retention Lease in 2007. Other companies have acquired acreage nearby but have not yet drilled. Beach Energy Pty Ltd has stated that there is potential for shale gas and oil in the Otway Basin, Western Victoria, but has not yet drilled. CSG was specifically included as a mineral in the Mining Act 1958 in 1983. Prior to this it was most likely regulated under mining legislation as part of State-owned underground coal mining operations. There has been active CSG exploration drilling conducted from 2000 to 2007 in the Otway and Gippsland Basins. There are currently sixteen* Mineral Exploration Licences in Victoria that include CSG. *The number of licences changes from time to time with the grant and surrender of titles and was accurate as at 23 September 2013

There is a long lead time from discovery to production; therefore, onshore gas resources discovered in Victoria today are not likely to be available to meet the predicted transition shortfall, around 2017, due to transitioning to LNG export. Typically, it takes around five years to bring discovered gas into commercial production. In some cases, existing Victorian operations may be able to commence production in under five years, for example, where infrastructure already exists.

Holds on hydraulic fracturing and new exploration have given Victoria an opportunity to identify where reforms are needed to achieve leading practice regulation of onshore gas operations.

Responding to community concerns, on 24 August 2012 the Victorian Government announced a hold on approvals for new CSG exploration licences, a hold on hydraulic fracturing approvals, and a ban on the use of BTEX (benzene, toluene, ethylbenzene, and xylene) chemicals in hydraulic fracturing. When announcing the holds, the Victorian Government also announced that the holds would remain until the outcomes of the NHRF were considered, and policy and legislation strengthened to ensure better protection of water resources and to ensure mixed land-use issues were considered. Since placing these holds the Victorian Government has reviewed its regulatory arrangements for CSG with respect to the NHRF leading practices.

of 54 The current holds should be lifted, subject to a package of reforms being adopted to build community confidence and manage potential risks.

The Taskforce considers that the Victorian Government is well placed to take a proactive and supportive approach to build an onshore industry based on leading best-practice policies designed to create a safe and efficient onshore gas industry. The Taskforce recommends a package of reforms, which should include consultation, science and leading practice regulation into the management of the onshore gas industry in Victoria. Specific recommendations are set out below, with further details concerning key areas for reform available in the Supplementary Report (Chapter 3).

Recommendation 1. The Taskforce recommends that the Victorian Government: a. Proactively support the development of the onshore industry in Victoria to create a safe and efficient onshore gas industry, underpinned by leading practice regulation and community engagement; and b. Remove the holds on the issuing of new exploration licences for coal seam gas (CSG) and hydraulic fracturing, subject to a package of reforms being adopted, including leading practice regulation, community engagement, information and science to underpin the management of the onshore gas industry in Victoria.

Adopt leading practice regulation and engage with communities State and territory governments have worked cooperatively to develop a National Harmonised Regulatory Framework for Natural Gas from Coal Seams (NHRF), which is designed to provide guidance to the governments on leading practices for assessing and regulating CSG projects.29 The NHRF was endorsed by the Commonwealth and state and territory governments in May 2013. It has been developed as one mechanism to help build community confidence in the CSG industry by providing guidance on leading-practice regulatory standards and tools to manage risks associated with the development of CSG in four core areas of public concern: 1) well integrity; 2) water management and monitoring; 3) hydraulic fracturing; and 4) chemical use. The Taskforce is advised that Victoria’s existing legislative and regulatory framework provides a good basis for applying the leading practices set out in the NHRF and that the Victorian Government has identified a number of reforms that would better align Victoria’s regulatory framework for CSG with the leading practices agreed in the NHRF. A number of other areas to improve Victoria’s regulatory framework for onshore gas have also been identified. These include specific provisions and clarifications for regulation of CSG operations and hydraulic fracturing, and formalising administrative arrangements and coordination between regulators. The NHRF does not specifically address other unconventional gas, such as tight gas and shale gas; however, areas of concern for CSG may also apply to other unconventional gas exploration and development.

29Standing Council on Energy and Resources National Harmonised Framework for Natural Gas from Coal Seams (May 2013) (Accessed on 8 October 2013)

of 54 The Taskforce recommends that the Victorian Government take immediate action to implement leading practice regulation to meet the requirements of the NHRF. In the immediate-short term, as an interim measure, the Taskforce supports the requirement for all leading practice requirements to be addressed through the use of conditions applied to licences or work plans. In the longer term the MRSDA, the Petroleum Act, and the associated regulations and guidelines should be amended to clearly reflect the requirements of the NHRF leading practices.

Recommendation 2. The Taskforce recommends that the Victorian Government take immediate action to adopt leading practice regulation by: a. Strengthening and clarifying Victorian legislation and regulation to underpin onshore gas exploration and development, including fully implementing the 18 leading practices outlined in the National Harmonised Regulatory Framework (NHRF) for CSG; b. Placing conditions in licences or work plans for all (exploration and production) licences, to align Victorian requirements with the 18 leading practices under the NHRF, until ongoing legislation and ongoing arrangements are formally in place; and c. Reviewing the NHRF to identify its applicability for other types of unconventional gas, including tight and shale gas, and address any gaps.

Without a ‘social licence to operate’ there will be strong community opposition to the onshore natural gas industry in Victoria.

A successful natural gas industry must build confidence and support within the community. The Taskforce considers Victoria is well placed to learn from the experience of other states and overseas to inform its own management and possible development of onshore gas. Local communities must be properly consulted and engaged, and industry and governments must address community concerns to create a ‘social licence to operate’. In Queensland, which is now in a phase of large scale development, the establishment of a Gas Fields Commission has created significant improvements in the level of engagement between the Government, industry, landholders and communities. Noting Victoria is still in a very early exploration phase, the Taskforce considers the establishment of a similar office in Victoria would greatly assist consultation with local communities. Further, if the industry moves to production testing and development, the Commission would facilitate a smooth transition and coexistence between industry, landholders and communities. Similar to the Queensland model the Gas Commissioner should be independent of the industry regulator. The primary objectives of the Gas Commissioner will be to consult with and build landholder and community confidence in the processes around unconventional gas exploration and potential development in Victoria. The principal roles for the Gas Commissioner would be to liaise with landholders, communities and industry, manage communications and information, establish an independent science committee (in particular, to independently monitor and provide expert advice on water issues and hydraulic fracturing), and advise on the proposed Royalties for the Region program (see section below on Royalties and payments for communities). The Taskforce recommends the appointment of a Victorian Gas Commissioner prior to the removal of the holds on hydraulic fracturing and the issuing of new exploration licences for unconventional gas. Further details of the proposed functions of the Commissioner are set out in Chapter 3 of the Supplementary Report.

of 54 Recommendation 3. The Taskforce recommends that the Victorian Government take immediate action to engage landholders and communities by appointing a Gas Commissioner, whose primary objectives will be consulting with and building landholder and community confidence in the processes around unconventional gas exploration and the potential for development in Victoria.

Land access is a key consideration for onshore gas development.

As a complement to its work on the NHRF, SCER is developing a Multiple Land Use Framework (MLUF) for the minerals and energy resources sector to address challenges arising from competing land use, land access and land use change. The objective of the MLUF is to maximise the net benefits to present and future generations through a combination of land uses that benefit the wider community. The Victorian Government is contributing to the development of the MLUF and is considering how it may be applied in the Victorian context to improve relationships between the resources sector and other land users, particularly the agricultural sector. Given that the issue is already under review through MLUF, further consideration could be managed by the proposed Gas Commissioner.

Understand and manage risks to water resources

Understanding and managing the risks that gas development poses to water resources requires a rigorous science-based approach to build community confidence in the gas industry.

The Taskforce recognises that water is a vital issue for farmers and community. The Taskforce also recognises that the issues concerning water management are dynamic and complex, extending beyond the gas industry, typically involving a range of competing users and environmental concerns. The potential local and cumulative impacts of gas development on water quality and quantity is the most commonly raised issue by stakeholders regarding gas development and is seen by many industry stakeholders and experts as the most critical issue that must be addressed to underpin a successful industry.

Water users should be treated equitably; water use should be licensed, measured and accounted for as part of integrated water planning and land use strategies.

In Victoria, the Water Act 1989 provides a robust framework for managing water quality and quantity. As a general rule, under the Water Act any prospective water user should be treated equitably. In Victoria, CSG producers (regulated under the MRSDA) are required to meet their water use by obtaining a water licence30, or trading a water licence within the cap of the relevant water resource. Proponents of shale and tight gas (regulated under the Petroleum Act 1998) are also required to hold a water licence if they use water. Offshore oil and gas producers in Commonwealth waters are not subject to state legislation and are not currently required to hold a water licence.

30A water licence as used in this report is intended to cover both water licences and water shares.

of 54 The Taskforce considers it appropriate that the gas industry be subject to similar licensing requirements as any prospective user and, to ensure integrated management of water resources, licences should be issued under the Water Act 1989.

Connectivity of aquifers at different depths and between connected offshore and onshore aquifers must be understood to underpin safe and sustainable management of water resources.

A potentially significant barrier to onshore gas development is the sustainability of groundwater in the Latrobe Group aquifer in Gippsland. The Taskforce received advice that the aquifers associated with prospective onshore gas fields in Gippsland are connected with offshore aquifers, and that significant water extraction and depressurisation has occurred as a result of oil, gas and water extraction from conventional wells in Bass Strait.31 Groundwater levels in the Latrobe Group aquifer have been declining by about one meter per year over the past 30 years.32 The decline in sustainability of groundwater in the Latrobe Group aquifer in Gippsland has already impacted on existing water users who have had to drill deeper bores, or increased pumping to access water. An important difference between CSG and tight and shale gas resources is the depth they are located and from which they are extracted. Shale and tight gas are typically found deeper than CSG, below most aquifers used for agriculture or human consumption. The Taskforce understands the Victorian Government is working on revised arrangements for licensing deep activities. Further details resources are available in Chapter 3 of the Supplementary Report. To strengthen the requirements for managing and monitoring impacts of extraction on water resources, the Taskforce recommends that where aquifers are connected (either between onshore and offshore sources, or aquifers at different depths), all users should be required to hold a water licence and be subject to coordinated management under the Water Act 1989. This would mean amendments are required to a number of Acts (including the Petroleum Act 1998, Offshore Petroleum and Greenhouse Gas Storage Act 2010 (Vic) and Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cwth)) to require groundwater extraction to be licensed.

A water science program is needed for baseline information and ongoing monitoring.

To better understand the connected water system, all elements (including offshore water usage) need to be considered and managed equitably within a coordinated regulatory framework. Reliable baseline information is urgently needed to assess the potential impact of gas projects on water resources. Regulators also require reliable information and robust processes to assess cumulative impacts of multiple projects, which may be proposed for the same area.

31Hatton, T., Otto, C., Underschultz, J. Falling Water Levels in the Latrobe Aquifer, Gippsland Basin: Determination of Cause and Recommendations for Future Work. (Joint Report for CSIRO Wealth from oceans flagship program, CSIRO Land and Water and CSIRO Petroleum Resources.) (13 September 2004)

32Department of Sustainability and Environment (Victoria) Gippsland Region Sustainable Water Strategy (2011)

of 54 The Commonwealth Government has established an Independent Expert Scientific Committee that oversees a research program aimed at addressing gaps in knowledge about CSG impacts. The key priorities for this program are: understanding changes in groundwater hydrology and aquifer integrity; aquatic health including co-produced water; chemical risks to human; and environmental health, including the potential for impacts on ecosystems. Through a national partnership agreement with Victoria, the Commonwealth has agreed to begin the Gippsland Bioregional Assessment no later than the end of 2013. Victoria has also commenced collecting baseline information in other areas of the state that may be prospective for gas.

Independently reviewed data gathered during exploration can be used to inform baseline water assessments.

The industry can also contribute significantly to the information base and ongoing monitoring of water resources. In particular, the Taskforce notes there is a significant opportunity to build baseline knowledge of water resources using data gathered by proponents during the early exploration phase in Victoria. Collaboration between industry and regulators in the sharing of information will not only improve the information base, but also the cost effectiveness of information gathering. In order to build community confidence in the information provided by industry to regulators, peer review and independent assessment of data should be required. Industry information should also be made publicly available on the websites of relevant agencies.

The Gas Commissioner convenes a water science committee chaired by an eminent scientist.

The Taskforce recognises the need for credible independent science and information to inform decisions concerning operations. It is proposed that a dedicated water science committee be established bringing together government and non-government experts, including scientists with relevant expertise (such as hydrology, groundwater ecosystems and water quality), and relevant agencies, including the Department of Environment and Primary Industries, the Environment Protection Authority, the Department of State Development, Business and Innovation, and Geoscience Victoria. The Committee would be chaired by an eminent scientist and would have a key role in reviewing baseline information on water resources, monitoring information from bores, and assessing impacts of water use, water quality, cumulative impacts and hydraulic fracturing operations.

Coordination of governance and regulatory arrangements is needed.

The regulatory processes and agencies involved in water management and gas regulation must be coordinated to ensure the processes are safe, robust and streamlined. The Taskforce also recommends the Victorian Government takes action to ensure alignment of and coordination between the legislation and the agencies responsible for water management, and the gas industry regulation.

of 54 Recommendation 4. The Taskforce recommends that the Victorian Government develop a comprehensive water science and licensing program, including: Water management, monitoring and baseline assessments. a. Establishing an independent water science program to undertake comprehensive baseline assessments of water resources in areas that may be prospective for unconventional gas, including ongoing monitoring of those resources; b. Undertaking comprehensive baseline water studies in areas where onshore gas development is most prospective and requesting the Commonwealth to commence the Gippsland bioregional assessment as soon as possible; c. Utilising independently reviewed data from exploration activity undertaken by proponents as a useful source to inform baseline assessments and monitoring; d. Establishing an independent Water Science Committee under the Gas Commissioner to be chaired by an independent eminent scientist who:  oversees the water science and monitoring program; and  provides independent advice on water quality and other environmental issues relevant to gas industry exploration and development operations. Water licensing to ensure integrated water management for all uses. e. Ensuring there is alignment and coordination between the legislation and agencies responsible for water management with the gas industry regulation, including:  subjecting the gas industry to similar licensing requirements as any prospective user and, to ensure integrated management of water resources, water licences should be issued under the Water Act 1989 (Vic); and  where aquifers are connected (either between onshore and offshore sources or aquifers at different depths), requiring that all users hold a water licence and be subject to coordinated management under the Water Act.

Improve standards for hydraulic fracturing Hydraulic fracturing is the fracturing of rock formations by a pressurised liquid. It is used to stimulate the flow of gas, oil, steam or water from fractures in coal or other hard rock formations for the purpose of petroleum, geothermal or water production. Tight gas and shale gas normally requires hydraulic fracturing to liberate contained gas; coal sometimes requires hydraulic fracturing. Hydraulic fracturing has been used in petroleum recovery in Australia for more than forty years (see Box 4 for further information about hydraulic fracturing).

of 54 Box 4: What is hydraulic fracturing? How often has it been used? Hydraulic fracturing is used to stimulate the flow of gas and oil from fractures in coal or other hard rock formations, such as shale, tight gas and deep geothermal. This enables an economic recovery of hydrocarbons. The first commercially successful use of hydraulic fracturing was in the 1940s. Other industries also use reservoir stimulation; for example, hot dry rock geothermal energy production relies on hydraulic fracturing. The process involves injecting a fluid into the rock formation at high pressure. The mix of chemicals used in the hydraulic fracturing fluid and the pressure required depends on the geological environment. Typically hydraulic fracturing fluids have three components: water (approximately 90 per cent), proppant to hold fractures open such as sand or equivalent (approximately 9 per cent) and chemicals (approximately 1 per cent). 33 For CSG, the need for hydraulic fracturing to stimulate the flow of gas depends on the geological setting of the resource. Shale gas and tight gas typically require hydraulic fracturing. There have been around 2,500 hydraulic fracturing treatments Australia-wide, compared with 1.5 million in the US. Most hydraulic fracturing has occurred in Queensland, where around 8 per cent of existing CSG wells have been fractured since 2000 and between 10–40 per cent may be fractured in the future. 34 In Victoria, prior to the hold on hydraulic fracturing, there have been a total of 23 hydraulic fracturing operations in the Seaspray area of Gippsland. 11 were conducted by Lakes Oil for tight gas exploration and 12 were conducted by CBM Resources for CSG exploration.

The Taskforce recognises that significant community concerns have been raised concerning the potential health and environmental impacts of hydraulic fracturing.

Concerns that have been commonly raised include: the use of toxic chemicals; water usage; contamination of land and water; the triggering of earthquakes and subsidence of land where hydraulic fracturing has occurred. In briefing the Taskforce Chair, a key message from Geoscience Australia is that: “Hydraulic fracturing, when conducted correctly, is unlikely to introduce hazardous concentrations of chemicals into groundwater or to create connections between fresh and coal containing aquifers.” (Geoscience Australia, 2012) A key government response to the issues and concerns raised by the community regarding hydraulic fracturing, was the decision in December 2011 by Australian governments to develop the NHRF. Six of the 18 leading practices in the NHRF relate primarily to hydraulic fracturing activities, with a further six also relevant to hydraulic fracturing. Risks and risk mitigation technology of hydraulic fracturing based on experience in the US were recently reviewed by a group of well-respected Australian scientists.35 Further details concerning risks and mitigation strategies for hydraulic fracturing are included in the Supplementary Report.

33Geoscience Australia material provided to Taskforce (May 2012)

34SCER, The National Harmonised Regulatory Framework for Natural Gas from Coal Seams 2013. (accessed June 23 2012)

of 54 Recent investigations of reported incidents in Queensland did not find evidence of risks to the environment or to public or animal health.36,37,38 Investigations into the effects of hydraulic fracturing by agencies in the US, where most hydraulic fracturing has occurred, have found that there is no evidence of groundwater contamination due to hydraulic fracturing per se.39 The instances of reported contamination in Texas, for example (6 in 16,000 wells) were due to surface spills or mishandling of waste, processes in common with any drilling activity.40

Action to regulate and build confidence in the hydraulic fracturing operations.

The Taskforce recognises the significant community concerns that have been raised regarding the potential health and environmental impacts of hydraulic fracturing. If operations involving hydraulic fracturing are to proceed in future, communities need to be confident that these activities are being conducted to the highest possible standards and that risks to the environment and other land uses are minimised. To address these concerns and build community confidence, the Taskforce recommends the Victorian Government set and enforce the highest standards for hydraulic fracturing processes, including supporting a number of new initiatives that are consistent with the requirements of the NHRF (such as leading practice for well integrity and full public disclosure of chemicals to be used prior to approval of those chemicals in an operation), or in some cases go beyond the NHRF requirements (such as placing a statutory ban on BTEX chemicals). Baseline measurement of groundwater quality and the development by the Victorian Government of an observation bore network would enable assessment of the effects of hydraulic fracturing on groundwater and have benefits extending beyond the gas industry to other water users.

35ACOLA Engineering energy: Unconventional Gas Production. A study of shale gas in Australia. Final Report. (May 2013)

36Minister for Natural Resources and Mines Plan to remediate coal bore on Darling Downs Media Release (21 August 2012)

37Queensland Government Condamine River Gas Seep Investigation (January 2013)

38Queensland Government Gas Monitoring at Tara Gas Field (7 May 2010)

39The US Environment Protection Authority Evaluation of Impacts to Underground Sources of Drinking Water by Hydraulic Fracturing of Coalbed Methane Reservoirs (June 2004)

40US Ground Water Protection Council State Oil and Gas Agency Groundwater Investigations and their Role in Advancing Regulatory Reforms. A Two-State Review: Ohio and Texas. (Aug 2011)

of 54 Recommendation 5. The Taskforce recommends that the Victorian Government remove the holds on hydraulic fracturing, subject to establishing the highest environmental and safety standards for hydraulic fracturing operations, including: a. Developing new legislation, regulations and supporting guidelines that clearly set out the requirements for hydraulic fracturing operations using the NHRF as a minimum standard; b. Imposing a permanent ban on the use of BTEX chemicals in the hydraulic fracturing process; c. Requiring the public disclosure of all chemicals used in hydraulic fracturing operations on the Gas Commissioner’s website; d. Requiring demonstration of the effects of proposed chemical mixes, prior to those chemicals being approved for use in operations; e. Encouraging the use of environmentally benign chemicals in hydraulic fracturing operations; and f. Independent monitoring of impacts and seeking independent expert advice on best- practice hydraulic fracturing to inform legislative and regulatory amendments.  The Gas Commissioner’s science committee can monitor impacts and provide independent expert advice.

Royalties and payments for communities and landholders The Taskforce encourages the Victorian Government to facilitate onshore gas exploration and development through tax incentives and to build community support for the industry with payments for communities.

Industry incentives – consistent and competitive royalty rates are needed.

“Trade-offs for Australia’s policy makers include changes to the tax system that improve the financial viability of individual projects and reduce operator risk in the early phases of a project.”41 The Taskforce notes that the onshore gas industry faces significant costs and risks, particularly at the beginning of projects. The Taskforce recommends that the Victorian Government establish tax and royalty arrangements that provide certainty and financial incentives for industry, particularly in the early phases of projects. The Taskforce notes there are currently inconsistent royalty rates for CSG and other unconventional gas sources that could be prospective for future development in Victoria. Under the MRSDA, the royalty rate that applies to CSG is 2.75 per cent of net market value. The Petroleum Act 1998 (Vic) covers onshore shale and tight gas with the royalty rate set at 10 per cent of the wellhead value of production.

41McKinsey & Company, Extending the LNG boom: Improving Australian LNG productivity and competitiveness (May 2013) pp. 17

of 54 To create incentives for industry to explore and develop onshore gas, the Taskforce recommends that the Victorian Government establish a royalty rate for onshore gas resources that is consistent across all potential source types of onshore gas, and is attractive and competitive compared to other states. The Taskforce also recommends that the requirement to pay royalties is delayed for an agreed period (a ‘royalty holiday’) to reduce costs and encourage production. The Supplementary Report includes a summary of royalty schemes in other states.

Payments for landholders, neighbouring landholders and communities to build support.

Upfront industry payments to landholders can help build support and certainty for landholders that will be most directly impacted by onshore gas exploration and development. The Taskforce is pleased to advise that two principle exploration companies have agreed to make minimum payments of $10,000 as initial access payments for any exploration activity. This $10,000 payment, made under the companies’ land access agreements, is greater than the amount otherwise available in legislation.

More generous arrangements for compensation should be developed and local communities who are not direct landowners should be included.

The existing Victorian legislation provides for compensation under the MRSDA and the Petroleum Act 1998 (Vic) to landowners for loss or damages due to exploration or production activity. Where land is to be occupied for exploration or mining, landowner consent or a compensation agreement must be in place before work can be approved. A claim for compensation can also be made where land is not occupied for exploration or mining, but a landowner still suffers loss or damage due to exploration or production. For example, the owner of a neighbouring property may claim compensation from a miner if they believe that the operation has reduced, or will reduce, their property’s market value, or their amenity. Such a claim would not involve a prior compensation agreement and must be made within three years of the loss, damage or licence expiry, whichever occurs earlier. In the view of the Taskforce, compensation arrangements should more adequately account for the benefit that miners receive and the externalities that communities and landowners are exposed. The Taskforce considers there is an immediate opportunity to increase the existing $10,000 upper limit for compensation payable for loss of amenity to landowners or neighbouring landholders to $20,000 and index this at CPI to retain its value into the future. More support could also be provided to landowners, such as information packs on unconventional gas and landholder rights, and mediation should be offered to facilitate agreement between landholders and project proponents prior to referring disputes to the Victorian Civil and Administrative Tribunal (VCAT) or the Supreme Court.

Royalties can be used to ensure a fair share of benefits from onshore gas development are returned to communities that are most impacted.

Queensland and Western Australia have introduced schemes for allocating royalties to local communities to facilitate community acceptance of onshore gas production. The Taskforce considers Victoria could benefit from a Royalties for the Regions scheme to allocate a portion of royalties collected from gas production in Victoria to local communities.

of 54 Once the royalty holiday has elapsed and royalties are being collected, the Taskforce recommends a Royalties for the Regions program be established in which royalties can be used to fund investment in communities most affected by gas production activity. The Taskforce also recommends a mechanism should be established that allows local people to advise on funding priorities for the Royalty for the Regions program, using existing arrangements where possible.

Certainty in tax and royalty arrangements is needed as soon as possible to encourage investment.

In order for industry to undertake investment planning, the Taskforce considers there is a need for the Victorian Government to develop and announce the details of any tax and royalty arrangements for the onshore gas industry as soon as possible.

of 54 Recommendation 6. To create incentives for industry to explore and develop onshore gas, the Taskforce recommends that the Victorian Government:  Adopt a royalty rate that is attractive for industry and competitive compared to the schemes existing in other states; and  Delay the requirement to pay royalties for an agreed period (‘royalty holiday’) to reduce project costs and encourage production. 7. To deliver a fair share of benefits for communities and build landholder and community support for the onshore gas industry, the Taskforce recommends that the Victorian Government:  Adopt a Royalties for the Regions program to share the benefits of natural gas production in Victoria with local communities;  Establish a mechanism allowing local people to advise on funding priorities for a Royalty for the Regions program, using existing arrangements where possible; and  Raise the legislated upper limit for compensation for loss of amenity from $10,000 to $20,000 and introduce indexation of this limit at CPI. 8. The Taskforce recommends that the Victorian Government develops and announces the details of the tax and royalty arrangements for the onshore gas industry as soon as possible, in order to provide certainty for industry.

Increase productivity and reduce the costs of major projects Australia is considered to have one of the highest costs in the world for capital development and construction particularly for new LNG export plants, for example, Shell claims that construction costs in Australia are up to 30 per cent higher than in the US and Canada.42

42Angela Macdonald-Smith, Australian Financial Review High costs risk to gas boom: Chevron (19 August 2013) pp. 10.

of 54 There is evidence that rising costs in the mining sector in general are causing Australia to lose its operating cost advantage.43,44 A report for the Minerals Council of Australia has pointed out that although production costs globally are rising, due to rising cost of key inputs like labour, equipment, contracting services and raw materials, capital costs in Australia have been growing more rapidly.45 The report also identifies longer delays as a contributing factor to higher project costs in Australia with delays of 3.1 years typical for Australian projects compared with delays of 1.8 years for projects elsewhere in the world. McKinsey reports that the cost of delivering LNG to Japan from Australian projects is 20 to 30 per cent higher than from projects in Canada and Mozambique due to lower productivity in Australia. This is driven by higher taxation, more burdensome regulation, lower labour productivity, higher cost of freight and project design.46 The Taskforce considers there are immediate opportunities to reduce the regulatory cost of major projects and recommends that the Victorian Government take proactive action to identify opportunities to improve productivity in all facets of major projects, including engaging with the Commonwealth Government to identify opportunities for joint action.

Reducing regulatory cost by streamlining regulation and better coordinating approvals processes.

Regulation of onshore or offshore natural gas operations requires significant expertise and imposes onerous compliance costs for both government and industry. The Taskforce considers that Australia’s environmental regulatory framework is duplicative, excessive and at times inconsistent, which is causing delays and imposing costs on the industry without always delivering the desired objectives.47

Streamlining and clarifying Victorian regulation.

43Port Jackson Partners for the Minerals Council of Australia Opportunity at risk – Regaining our competitive edge in minerals resources (September 2012) pp. 25 – 27.

44McKinsey & Company Extending the LNG boom: Improving Australian LNG productivity and competitiveness (May 2013) pp. 10 – 14

45Port Jackson Partners for the Minerals Council of Australia Opportunity at risk – Regaining our competitive edge in minerals resources (September 2012) pp. 25 – 27.

46McKinsey & Company Extending the LNG boom: Improving Australian LNG productivity and competitiveness (May 2013) pp. 10 – 14

47Australian Petroleum Production & Exploration Association Cutting Green Tape – Streamlining Major Oil and Gas Project Environmental Approvals Process in Australia (February 2013) pp. 2

of 54 There are over fifty pieces of Victorian legislation, regulations, policies and administrative arrangements relevant to adopting leading practices for coal seam gas operations. The complexity in regulatory arrangements creates uncertainty in the regulatory environment and adds to the cost for industry. The diversity of the legislation as well as the number of agencies involved creates uncertainty, delays and confusion. Without compromising environmental or safety standards, the Victorian Government should take action to improve certainty, consistency and reduce regulatory costs. The Victorian Government established Minerals Development Victoria to act as the single entry point for earth resources project proponents to work with the Government, facilitate approvals processes to encourage greater certainty and timely decision making, and assist in the early identification of project infrastructure requirements. The Taskforce also considers that it would be beneficial if the Government could nominate a senior official within the Victorian administration who can be the ‘go to’ person to coordinate approvals and other industry requirements.

Addressing Commonwealth and Victorian duplication.

In 2012, the Council of Australian Governments (COAG) agreed to address duplicative and cumbersome environmental regulation and, in particular, to accelerate the development of bilateral arrangements for the accreditation of the state’s environmental approvals processes. A number of states entered into negotiations with the Commonwealth Government to develop bilateral agreements that would accredit state environmental assessments and approvals under the Environmental Protection and Biodiversity Conservation Act 1999 (EPBC Act). The bilateral agreements were being developed with the objective of removing the duplication and double handling of environmental assessments while maintaining high environmental outcomes consistent with those sought under the EPBC Act. However, in December 2012 the Gillard Government withdrew from these negotiations citing concerns regarding the scope of the agreements and the processes of how states will meet the Commonwealth standards for accreditation. The Commonwealth Government also later amended the EPBC Act to provide a water resources assessment trigger for CSG and large coal mining developments. The Coalition Government’s 2013 election policy48 includes commitments to cut red tape costs in Australian businesses, including in the energy and resources sector, and deliver “one-stop-shop” for environmental approvals. Implementation of this policy has been reported as a high priority for the recently elected Abbott Coalition Government.49

48The Coalition’s Policy for Resources and Energy. (Accessed on 26 September 2013)

49The Australian Graham Lloyd Environment Editor, (18 May 2013)

of 54 Recommendation 9. The Taskforce recommends that the Victorian Government take action to improve productivity in all facets of major projects, including: a. Engaging with the Commonwealth Government to identify opportunities for joint government action to improve productivity, including the advocacy of labour market reform; b. Reducing the regulatory cost of major projects by streamlining regulatory arrangements and reducing duplication; c. Nominating a senior official within the Victorian administration who can be the ‘go to’ person to coordinate approvals and other industry requirements; and d. Requesting the Commonwealth Government work with Victoria to accredit its environmental assessments and approval processes to minimise unnecessary costs to businesses by removing duplication and double handling while maintaining high environmental outcomes.

of 54 Better supply and demand information is needed

Inadequate market information is contributing to uncertainty in wholesale gas availability and prices.

There are multiple agencies and various sources of information summarising supply and demand data across the eastern gas market, including Geoscience Australia, the Bureau of Resources and Energy Economics (BREE), the Australian Energy Market Operator (AEMO), the Australian Energy Regulator (AER) and the Australian Energy Market Commission (AEMC). However, rapidly changing dynamics, and extensive new onshore gas production, make it difficult to accurately assess the supply and demand situation in the eastern gas market.50 Various reports can be inconsistent in units, scale and the information standards applied, and can report figures without providing analysis to enable reconciliation with other data. Further, reports are not always publicly available. The lack of adequate publicly available information has led to information asymmetry between producers, retailers, consumers and regulators. Many market participants consulted by the Taskforce have cited inadequate market information as a contributor to uncertainty in wholesale gas prices and the lack of secure contracts. The Taskforce considers that the lack of transparency in the eastern gas market could be addressed to achieve a holistic view of supply and demand through annual or specific winter and summer outlooks, particularly as the eastern market undergoes significant change to contracting levels and export demand growth. Due to the time required to develop a gas reserve for production, it is important that predicted scenarios occur over longer time periods than are currently available. A national forecast for the gas industry should be developed and published on a regular basis. It would incorporate reserves, gas supply, industrial and residential customer demand, and supply and transportation asset capacity. This could be completed on an annual basis as part of an expanded form of the AEMO’s Gas Statement of Opportunities report, with market modelling to highlight the state by state impacts of gas flows between regions given specific scenarios.

50Department of Resources, Energy and Tourism (DRET), Geoscience Australia, and Bureau of Resources and Energy Economics (BREE) Australian Gas Resource Assessment (2012) pp. 37

of 54 Recommendation 10. To improve certainty and accessibility of gas supply information, the Taskforce recommends that the Standing Council on Energy and Resources (SCER): e. Initiate a comprehensive annual forecast for the Australian gas industry incorporating reserves, gas supply, industrial and residential customer demand, and supply and transportation asset capacity. It is intended that this forecast would build on the existing Gas Statement of Opportunities report; f. Clarify the roles and responsibilities for public reporting of resource information, including the roles of various Commonwealth and state government agencies with a role in gas market information or reporting; and g. Coordinate consultation between governments and the upstream sector to establish a consistent reporting regime for the public reporting of gas reserves and production.

Upstream competition should be encouraged

Promoting competition will be beneficial to users, particularly as the eastern market tightens.

The need to promote competition in the exploration and production sectors of Australian gas markets has been identified previously and also more recently by the Grattan Institute in June 2013.51 During consultation, some stakeholders raised the issue of concentrated market structure contributing to higher prices, pointing to the dominance of large producers also contributing to the upward pressure on gas prices as the market tightens ahead of commissioning LNG export plants out of Gladstone.

Joint marketing arrangements should be reviewed.

In 2002, a COAG Energy Market Review also identified the lack of upstream gas competition as a barrier to developing an active gas commodity market and likely to “lead to much higher prices once current contracts expire over the next five years”.52 The review identified the need for more competition in the upstream production sector and, in particular, identified a need to reconsider joint marketing arrangements.

51Grattan Institute Getting gas right (June 2013)

52COAG Energy Market Review Towards a truly national and efficient energy market (2002) pp. 35

of 54 The Taskforce notes that joint marketing arrangements can help reduce risks and therefore support the development of the industry. This was an important consideration during the development of the Australian oil and gas industry in the 1960s and 1970s when the Gippsland Basin dominated Australia’s oil production. However, such arrangements also reduce competition. Australia’s eastern gas market is now in a transitionary phase and approaching maturity, with a number of interconnected producers supplying the market from different sources.53 Some members have identified a 10 year limit as a sufficient period of time to address the considerable upfront investment risk faced by project proponents, after such a time the market would be best served by individual marketing by proponents. The Australian Competition and Consumer Commission (ACCC) monitors market structures and grants authorisation for joint marketing arrangements where it is satisfied that the arrangement will result in a benefit to the public that outweighs the detriment of a lessening of competition. A compelling case can, therefore, be made for reviewing the joint marketing arrangements that have been in place for almost five decades.

Recommendation 11. The Taskforce recommends that the Victorian Government, with the objective of moving away from joint marketing arrangements, request the Australian Competition and Consumer Commission (ACCC) review the existing joint marketing arrangements for gas producers, assessing their relevance in light of the rapidly evolving eastern gas market.

Protect domestic customers through markets, not intervention

User groups have called for a domestic gas reservation or national interest test to support domestic users during the transition.

A number of stakeholders raised a domestic reservation policy for gas in the eastern gas market to provide supply certainty for domestic users, particularly during the transition period. Domestic gas reservation is the setting aside of a share of locally produced gas for the domestic market. For example, proposals made by Manufacturing Australia (MA) and the Australian Industry Group (AIG) call for a national interest test for approving gas export capacity, comparable to that applied in the US and Canada. AIG has proposed a new national economic assessment process: a national interest test, modelled on those already applied in Canada and the US (despite their different history and circumstances with energy policy and infrastructure). The proposed national interest test would be applied to new or significantly expanded LNG export capacity. Both systems provide an opportunity to assess the national consequences of significant projects, particularly economic consequences, and give the public and other gas users visibility and voice.54 It recommends that the test should be national in scope, covering developments in the west, the north and the east, including onshore and potential floating LNG proposals. However, the test must take into account the differences between these markets, particularly due to their lack of physical interconnection. The national interest test would have to be implemented by the Commonwealth to ensure national consideration. AIG’s proposed approval process for gas exports would apply three tests:

53Grattan Institute Getting gas right (June 2013) pp. 20-21

54Australian Industry Group Energy shock: the gas crunch is here (July 2013)

of 54 3. It should be clear that approval of a proposed expansion in export capacity would leave adequate supply for domestic requirements in relevant Australian markets over the life of the facility; 4. It should be established that approval of the project would be in the national interest, taking account of economic, strategic and social consequences; and 5. It should be established that proponents have adequately considered opportunities to supply gas for domestic uses in parallel with export development. MA has proposed two potential packages of interventions in the market.55 Their preferred package proposes that a proportion of production from projects and expansions approved after January 2014 be allocated to domestic requirements, with no price intervention. MA proposes that this arrangement be reviewed or adjusted to respond to the market. This package also included financial assistance to support affected businesses during the transition. In MA’s proposed alternative package, the national interest test would be applied retrospectively, to new and existing projects, to set limits on gas exports. The cost impacts of LNG exports that are affecting manufacturers are arising because of already approved LNG projects at an advanced state of completion. Whether a hypothetical national interest test or reservation policy would be retrospective (apply to existing projects) is a key factor in evaluating them. Imposing retrospective restrictions on existing projects is highly problematic, raising issues of sovereign risk, which leaves governments at risk of litigation from existing approved projects. Perhaps more importantly, such a retrospective restriction would set a precedent that severely discourages any new investment or expansion proposals to increase the supply of gas or in any other industry, therefore imposing long-term damage to the Australian economy as a whole. Since it would not be possible to apply a retrospective reservation or national interest test, any such intervention on new projects would not address market issues during the transition. Such a test would only be applied to new projects, hence the impacts on potential new projects must be considered before such an intervention is recommended.

Gas producers oppose any additional regulation on the gas industry and argue that this would reduce supply rather than protect domestic consumers.

APPEA has expressed concern regarding these proposals believing that such tests would add significant regulatory uncertainty to gas projects, duplicate existing regulatory processes and not increase gas supply. APPEA argues that a better approach would be to increase supply by reducing regulatory burden as opposed to increasing regulation or extending approval processes. In the US, approvals are a formality for export to the 19 countries with which it has a free trade agreement, and exports to further countries have also been approved. The US Department of Energy examined the potential impacts of further LNG exports and concluded that such exports would be of net benefit to the economy.56 In Canada, the impacts of the exports on the availability of gas supply to the domestic market is a consideration in the granting of approvals, but to date this has not been regarded as a concern and two export projects have been approved.

A domestic gas reservation is inconsistent with an open and competitive modern economy, but gas suppliers can act to secure domestic supply.

55Manufacturing Australia Policy Solutions for Australia’s East Coast domestic Gas Crisis (July 2013)

56Energy Quest Domestic Gas Market Interventions: International Experience (2013)

of 54 The Taskforce believes that a government-imposed domestic gas reservation would not deliver lower priced gas to domestic consumers. However, the Taskforce also understands that domestic consumers require more certainty during the transition and, therefore, sees merit in industry led reservations. Some gas producers have voluntarily earmarked particular developments for domestic markets. An example is the Santos agreement with Drillsearch to accelerate Cooper Basin production with an intention to supply additional gas into the eastern market in 2014.57 The Taskforce welcomes and encourages this voluntary approach by producers to give greater certainty to consumers about the availability of gas.

Recommendation 12. The Taskforce recommends that eastern market governments do not adopt a policy for domestic gas reservation.

Wholesale markets and transmission

The eastern gas market is composed of a series of partially connected markets that are subject to different regulatory frameworks.

Natural gas is transported through transmission pipelines that were built to service disparate demand centres across the eastern states. The main transmission pipelines servicing the eastern market are shown in Figure 4. This transmission infrastructure is privately owned and is subject to markedly different regulatory frameworks and price signals that apply in each state. A single pipeline could be subject to a number of different frameworks across its length as it crosses state borders.

Action to accelerate existing national reforms

SCER is implementing a reform program that will establish a brokerage hub at Wallumbilla, but this may need to be accelerated and bolstered to respond more rapidly to the changing circumstances of the market.

The majority of trade in wholesale gas and transmission pipeline capacity occurs through confidential long-term bilateral contracts, with some downstream trade occurring through facilitated exchange hubs that operate separately in each state. Trade through bilateral contracts is less transparent and typically has higher transaction costs than trade through a transparent market. Figure 4: The eastern gas transmission system. (Source: AER State of the Energy Market, 2012)

57Santos Media Release – Santos and Drillsearch agree to accelerate Cooper Basin production (4 July 2013)

of 54 The existing arrangements have served market development well in the past. The small number of market participants has enabled incumbents to effectively manage their risks and make investments. However, as the market expands and the number of participants grows, there will be an increasing need for more transparency and liquidity to facilitate trade in gas and transmission capacity at efficient prices and to allow new market entrants to manage risks. This can be achieved by creating greater transparency of information by developing trading hubs for wholesale gas, facilitating the development of secondary markets for the trade in transmission capacity, as well as flexible and open transmission access arrangements. The current SCER reform program seeks to develop a voluntary Gas Supply Hub market for wholesale gas in Australia to improve transparency and facilitate flexible and efficient trade in upstream markets. The first hub that will be established as part of this reform is a brokerage hub at Wallumbilla to facilitate wholesale trade of gas in south central Queensland, which will be the dominant gas-producing region in the eastern gas market in the next decade. The Wallumbilla hub is expected to stimulate trade to the extent that broad price trends will start to become transparent. SCER will review the operation of the hub in 2015; however, this needs to be accelerated and development of the Gas Supply Hub market should be bolstered to address the rapidly changing market conditions.

Availability and ownership of transmission capacity must become more transparent to facilitate trade.

An important area for SCER to consider more actively is that of transmission capacity trading. One of the most obvious shortcomings of the Wallumbilla hub is the lack of transmission pipelines within the hub zone to allow gas to be moved physically between different terminals and storage facilities, and the lack of transparency around availability of pipeline capacity to and from the hub. Clear and transparent information on availability of transmission infrastructure and the ability to access transmission infrastructure is an essential enabler for more liquid trade in wholesale gas. The existing Australian regulation framework for access to transmission infrastructure is predicated on the basis that if pipelines are working in a competitive environment then the market will be forced to allocate prices efficiently, removing the need for further regulation. While this has allowed investments to occur, there may not be sufficient flexibility and information transparency to allow efficient pricing and trade in rights of access to pipeline capacity. The Grattan Institute points out that there is such little transparency in the market for pipeline capacity that potential buyers and sellers are unable to find each other. As a result, pipeline owners have little incentive to offer competitive prices for pipeline capacity and existing pipeline infrastructure is not used to its full potential.58 It argues that facilitating short-term capacity trading would increase competition and lower gas prices. Therefore the Taskforce considers SCER should investigate options for developing uniform transmission capacity rights and pursue ways of facilitating more transparent and liquid trade in transmission capacity. This should include options for:  creating uniform tradeable products for the transmission of gas across eastern markets;  promoting transparency of information on the availability of transmission rights;  creating platforms to allow a more liquid secondary market in the trading of transmission rights;  introducing mechanisms that address the potential hoarding of pipeline capacity; and

58Grattan Institute Getting gas right: Australia’s energy challenge (June 2013) pp.22

of 54  ensuring that pipeline owners have adequate incentives to make spare pipeline capacity available to the market in a timely and transparent manner. The Taskforce considers that in the long term, establishing arrangements that facilitate trading in pipeline capacity should facilitate more liquidity in the market and enable market participants to transport their gas in response to demand. The minimum first step is for industry participants to commit to publishing available transmission capacity on a central bulletin board enabling third parties to access the information and reduce transaction costs of trade in transmission capacity. In this way a more liquid market in transmission capacity could develop and more efficient use can be made of existing transport infrastructure.

Greater uniformity and consistency between spot markets would enhance liquidity and price transparency of the market.

Downstream wholesale trade of gas to deliver to major cities or industrial regions in New South Wales, South Australia and Queensland occurs through Short Term Trading Markets (STTM), which are operated by AEMO. In Victoria, gas supply for Melbourne and major regional centres is largely traded through the Declared Wholesale Gas Market (DWGM) and shipped through the Declared Transmission System (DTS). These markets promote trading in gas and price discovery. However, there are significant differences between the STTM and Victoria’s DWGM market frameworks, which may make trading between these markets more difficult for gas shippers seeking to trade between different regions. Similarly, different arrangements for access to pipelines apply across different regions, which may also restrict the ability of parties to trade. For a more liquid, competitive and transparent market, more uniformity is desirable in trading arrangements across different regions and pipelines.

Greater transparency of forward gas prices is needed to facilitate planning and risk management.

Most market participants and stakeholders consulted by the Taskforce Chair raised the need for greater transparency in forward gas prices. The limited transparency around a market price for gas in the eastern market means that during periods of change, market participants are less able to predict a future price, plan for the future and manage price risks. A transparent market price also allows participants to trade in financial products derived from trade in gas. This in turn opens up opportunities for market participants to hedge market exposure and manage financing and risk, while at the same time transmitting a price signal for investment in gas production. Despite introduction of Victorian Wholesale Gas Futures and Options on the Australian Stock Exchange in 2009, there has been little trade in gas futures. No other secondary market in derivative financial products for gas has emerged in Australia. The Wallumbilla trading hub will help stimulate trade in derivative products, however trade on the Wallumbilla hub will be limited by existing facilities in the gas production regions of south central Queensland under the proposed ‘brokerage’ model hub. AEMO has proposed a staged approach to implementing a ‘single trading zone’ at Wallumbilla (of which SCER agreed the ‘brokerage’ hub would be the first step), which would remove these limitations. SCER should work to accelerate a single trading zone across the eastern market as a matter of priority. An industry-led process was underway to develop a gas price forward index, with the Australian Financial Markets Association (AFMA) convening a Gas Market Working Group. However, this process has been hampered by polarisation between producers and gas users on a variety of issues. Some stakeholders have expressed concerns, citing the case of the London Inter-bank Offer Rate (LIBOR) where bankers were found to have colluded to manipulate a survey-based interest rate index.

of 54 In the absence of a liquid futures market, the Taskforce considers that a survey based gas forward price index is worth pursuing as it would create greater price transparency and may assist the eventual development of such a market. The Taskforce also considers that further coordinated action is needed to enhance the transparency of information and facilitate the development of a market for financial products in gas.

Victorian and eastern market governments should draw on experience from gas markets in other countries.

Around the world, gas markets have developed in geographic isolation to supply particular cities or industrial areas. The Taskforce has undertaken a desktop review of markets in North America, the United Kingdom (UK) and parts of continental Europe (see Chapter 6 of the Supplementary Report for details). Overall, compared to these markets, the eastern Australian gas market has significantly less liquidity. The experiences from other countries have shown that, although commercial imperatives and market forces have played an important part in driving the development of liquid markets, none of the markets examined developed without some action by government. In both North America and Europe, governments have passed strong measures to open up transmission pipelines to third party access. In the UK the Government has gone further to implement wide ranging market development policies, including the development of auction based pipeline capacity allocation mechanisms that enable gas shippers to secure capacity on a short and long term basis, accompanied by anti-hoarding mechanisms and strong incentive arrangements on pipeline operators to maximise the release of available capacity. The Taskforce recommends that Victoria and eastern market governments should draw on experience from gas markets in other countries to develop market frameworks.

Monitoring and reviewing the progress of the national reform agenda is necessary to ensure effectiveness.

Any effective reform program needs to incorporate mechanisms for monitoring and measuring success. Therefore, SCER should also include measurable performance indicators, including specific timelines and responsibilities, and regular progress reviews to assess the effectiveness of its reform program. The progress reviews should be used to determine whether the program is delivering on its objectives to achieve more transparency and liquidity in the eastern gas market, and reprioritise its reforms accordingly.

of 54 Recommendation The Taskforce recommends that: 13. Eastern market governments, through SCER, accelerate and enhance the implementation of the existing reforms under the National Gas Market Development Plan, including:  Pursuing ways of making the voluntary markets for transmission capacity more transparent, flexible, efficient and liquid;  Investigating options for developing uniform transmission capacity rights and pursuing ways of facilitating more transparent and liquid trade in transmission capacity;  Identifying and removing barriers to trading in gas across different downstream markets in order to move towards more consistency and, as far as practicable, a single market design;  Undertaking the necessary work to establish a single trading zone at Wallumbilla as a matter of priority;  Drawing on relevant experience from gas markets in other countries, such as the United States, the United Kingdom and continental Europe; and  Establishing key performance measures in gas market reform, assign responsibilities for delivering them, and annually commission a review of success and consider further facilitation of market development. 14. Industry participants support efforts to increase transparency and liquidity in markets through:  Publishing available transmission capacity on the capacity trading mechanism under development by the Australian Energy Market Operator (AEMO) to allow more dynamic trade in transmission capacity; and  Accelerating efforts to develop a published gas price index to report price expectations.

Potential new reforms to enhance competition, liquidity and transparency The critical question facing the eastern market today is whether the significant structural changes it faces warrant the commitment by governments and industry to new significant market reforms to enhance liquidity and transparency in the market.

Additional national reforms should be subject to the Productivity Commission’s (PC’s) review, including a cost benefit analysis of possible reforms.

Separate regulatory frameworks and systems currently apply to transmission and wholesale markets in each state. While there is agreement that consistency in regulation is desirable and market participants have generally sought a national approach to reforms across the eastern market, there is no consensus across industry and governments on a framework or specific reforms and their costs and benefits.

of 54 Apart from the suggestions listed in recommendations 13 and 14 (above), and without further analysis, the Taskforce is not in a position to address the complex technical and economic issues needed to recommend a single integrated framework for the eastern gas market or to prescribe specific new reforms. It may be that the gas industry, rather than government, is best placed to cooperate and bring about many of the requirements for a better functioning integrated eastern gas market. The Taskforce considers there is the need for a thorough review of the eastern gas market’s regulatory environment, including cost benefit analyses of feasible options. This review should build on recent reports and work already underway, including work commissioned by AEMO, the AEMC, BREE and other organisations that have embarked on projects to consider the eastern gas market since this Taskforce was established. Given its history in advising the Commonwealth Government on broad economic policy questions, including those of infrastructure access, the PC is recommended to conduct the review of the eastern gas market and a cost benefit analysis of potential reform options with a view to informing future government policy in this area. The Taskforce recommends the terms of reference set out below (Box 5) form the basis of the PC review and that eastern market state Premiers jointly write to the Commonwealth Treasurer to seek his approval for the review.

Recommendation 15. The Taskforce recommends that eastern market governments request that:  The Productivity Commission (PC) conduct a comprehensive review and cost benefit analysis of potential reform options relating to the eastern gas market, taking into account the rapid change in market dynamics and with the aim of increasing efficiency, transparency and competitiveness of the eastern gas market; and  Eastern market state Premiers jointly write to the Commonwealth Treasurer, incorporating the proposed terms of reference (Box 5), to seek approval for the PC review.

of 54 Box 5: Proposed Productivity Commission review The Taskforce recommends that the Productivity Commission (PC) conduct a review of the eastern gas market to address the objectives of increasing competition, liquidity and transparency in the eastern gas market. Any proposed changes to the market should be subject to a rigorous cost benefit analysis. In conducting the review, the PC should identify market failures and barriers to the development of competitive, liquid and transparent eastern gas markets. The scope of the review would also include (but not be limited to) identifying and assessing options to: i. promote competition in eastern gas markets and remove impediments to new entrants to the gas markets in the retail, production, pipeline and storage sectors; ii. ensure the arrangements for the operation of and investment in pipeline networks are efficient and promote competition between gas suppliers and shippers, and in upstream and downstream wholesale and retail markets; iii. ensure the arrangements for access to and trade of pipeline capacity are efficient, transparent and promote competition between gas suppliers and shippers in wholesale and retail markets upstream and downstream of transmission pipelines; iv. remove any identified barriers to participants trading gas across multiple governance and regulatory arrangements through covered and/or uncovered pipelines; v. identify and assess opportunities for facilitating more efficient trading of existing and future potential rights to gas and storage; vi. identify regulatory or institutional barriers to improvements in transparency and price discovery; and vii. identify opportunities to increase transparency in the market for wholesale gas to support efficient price discovery and trade. This review should draw and build on recent work commissioned by the Commonwealth and state governments including the pipeline capacity Regulatory Impact Statement and reviews by AEMO, the AEMC and BREE. The review would also draw on expertise and input from key eastern market agencies, including AEMO, the AEMC and the AER. The Taskforce recommends that staff and Commissioners from each of these agencies be appointed to a reference group to ensure relevant expertise is coordinated and leveraged.

Action to improve Victoria’s downstream market

The Victorian Declared Wholesale Gas Market (DWGM) provides transparent and appropriate economic signals for investment, but also inhibits participants’ ability to manage risks.

The DWGM has been successful in stimulating retail competition, integrating new sources of supply and maintaining security of gas supply to Victorian customers. However, the DWGM has shortcomings that need to be addressed as the market grows. A review of the DWGM conducted by AEMO in 2011 concluded that there were significant areas needing attention, particularly in respect of the allocation of rights to capacity on the transmission system

of 54 and incentives on market participants to fund augmentation of transmission capacity where needed.59 This is compounded by the process for changing the rules that regulate the DWGM, which only permits the Victorian Government or AEMO to raise rule changes for assessment by the AEMC. This process restricts the potential for innovation in market development and may deter new entrants or smaller players from raising issues of market design for review. Few changes have been made since establishment of the DWGM, meaning market development is potentially less responsive to the needs of smaller market participants and new entrants. This is in comparison with the process for changing rules in the electricity market, which allows any interested parties to submit a proposal to the AEMC to change the rules in a way that better achieves the National Electricity Objective and has allowed 56 revisions to be made. Victoria is the only jurisdiction that has adopted the DWGM arrangements, which are particularly suited to Victoria’s circumstances. The Taskforce recommends the Victorian Government requests the AEMC to act swiftly to conduct a thorough review of pipeline capacity, investment, and planning and risk management mechanisms in the DWGM and, where appropriate, act to address any identified shortcomings. The objective should be to ensure that the arrangements for access to the pipeline capacity in the DWGM promote competition, risk management by market participants and provide appropriate signals and incentives for efficient investment in transmission pipeline capacity.

Recommendation The Taskforce recommends that the Victorian Government: 16. Immediately requests the Australian Energy Market Commission (AEMC) undertakes, in consultation with the Australian Energy Market Operator’s (AEMO), a thorough review of pipeline capacity, investment, planning and risk management mechanisms in the Victorian Declared Wholesale Gas Market (DWGM) with the objective of ensuring arrangements for access to the pipeline capacity promote competition, risk management by market participants and provide appropriate investment signals and incentives; and 17. Consider whether arrangements for rule-making in the Victorian DWGM are adequately responsive to the gas industry given the challenges it is facing.

Retail markets and distribution All residential customers and many business customers buy gas from a retailer and get it delivered from demand hubs through a network of distribution pipelines around 74,000 kilometres long. Most distribution networks are covered by full regulation under the National Gas Law as the monopoly characteristics of distribution systems are stronger than transmission pipelines. In Victoria, there is also full retail contestability, where consumers (including residential consumers) are able to choose a retailer from any of the competing gas retail businesses.

59Australian Energy Market Operator Transmission capacity issues in the DWGM (August 2011)

of 54 Retail prices are likely to increase, which will affect Victorian households.

Gas prices are expected to rise for retail customers in the eastern market. The Grattan Institute estimates that Victorian customers are likely to experience the largest price rises with the average annual bill increasing by around $170 by 2020.60 Modelling commissioned by the Victorian Government estimates that, if all the LNG projects that are currently under construction commence production and export as planned, the annual average residential gas bill in Victoria could increase by almost 20 per cent over the period from 2013 to 2020, rising by $180 by 2020, after peaking in 2015 at 30 per cent higher than current rates.61 The Taskforce has not identified significant opportunities in retail markets or distribution systems to place downward pressure on domestic gas prices. The Taskforce believes increasing competition and transparency of information in the upstream, transmission and wholesale markets, will offer the greatest opportunities for addressing price rises, including those experienced by domestic consumers.

The Victorian Government is implementing a program to extend access to natural gas in regional Victoria.

Almost 80 per cent of Victorian residences are connected to the reticulated gas network. This is the highest rate in Australia; however, some regional towns and cities in Victoria remain unconnected. The Victorian Government is investing $100 million, through the Energy for the Regions Program to extend the gas network to 14 priority towns across regional Victoria. In September 2013 the Government announced an additional $30 million to supply natural gas to Murray River communities. This funding is comprised of $15 million from the Regional Growth Fund and an additional $15 million from the Commonwealth’s Murray-Darling Basin Regional Economic Diversification Program.

Some stakeholders have reported difficulties and significant delays in connecting or upgrading connections to the gas network.

The Taskforce has heard from some commercial gas customers who have had difficulty in negotiating with the Victorian gas transmission and distribution owners for access to related services, such as a connection or upgrade of pipeline assets. Chapter 6 of the National Gas Law provides an accessible dispute resolution and determination framework, which is overseen by the AER. This is intended to ensure that where customers experience difficulty in getting access to regulated monopoly services, as the Victorian transmission and distribution systems are, the independent regulator may resolve them. However, the processes involved can be onerous and few disputes get as far as the commencement of a formal access dispute proceeding. The AER needs to be well resourced to ensure that where connecting customers are required to negotiate with monopoly businesses for services, that the imbalance in bargaining power inherent in this situation can be remedied where necessary and in a timely manner.

60Grattan Institute Getting gas right (June 2013) pp. 10

61SKM MMA Gas and electricity market modelling. Final Report. Commissioned by Victorian Department of State Development, Business and Innovation (2 September 2013)

of 54 The Victorian Government has had ongoing concerns with the resourcing of the AER and raised the issue through market reforms at COAG in December 2012. COAG agreed to provide the AER with more funding from 2013 and to a further review of the governance and performance of the AER in 2014. The Victorian Government should ensure that the effective operation of the access dispute framework is considered in this review. The Taskforce Chair considers the delays experienced by some customers are unacceptable and an impost on business.

Recommendation The Taskforce recommends that: 18. The Victorian Government continues the Energy for the Regions Program to extend the access of gas to regional Victoria. 19. The Victorian Government ensures that the effective operation of the access dispute

framework is addressed through the Council of Australian Governments (COAG) work program, which includes:  improving resourcing of the Australian Energy Regulator (AER); and  reforming the dispute resolutions processes related to regulated monopoly services.

Conclusion Overall, the Taskforce considers that governments and industry should take collective action and adopt a greater sense of urgency to ensure the eastern gas market can adapt and take advantage of the significant structural changes occurring. The focus of the Taskforce’s proposals for immediate action include facilitating new gas supplies and making the most of the sizeable gas resources available in eastern Australia. The Taskforce also supports a greater coordinated effort to implement existing national gas market reforms. Potentially, a more ambitious package of integrated gas market reforms with the objective of increasing competition, liquidity and transparency in the eastern market could build on the existing national gas market reforms, but this requires more work and rigorous cost benefit analysis. Finally, as unconventional gas makes an increasingly significant contribution to eastern market gas supply, strong leadership and community engagement is required. This will help to build confidence in the gas industry, which is becoming a leading national economic opportunity for Australia over the coming decades. Acronyms

ACCC Australian Competition and Consumer Commission

AEMC Australian Energy Market Commission

AEMO Australian Energy Market Operator

AER Australian Energy Regulatorv

of 54 AFMA Australian Financial Markets Association

AIG Australian Industry Group

APPEA Australian Petroleum Production and Exploration Association

BREE Bureau of Resources and Energy Economics

BTEX chemicals benzene, toluene, ethylbenzene, and xylene

CNG Compressed Natural Gas

COAG Council of Australian Governments

CSG Coal seam gas

DTS Declared Transmission System

DWGM Declared Wholesale Gas Market

EPBC Act Environmental Protection and Biodiversity Conservation Act 1999

ESC Essential Services Commission

ESV Energy Safe Victoria

FRC Full Retail Contestability

GJ Giga joules

LIBOR London Inter-bank Offer Rate

LNG Liquefied Natural Gas

MA Manufacturing Australia

MRSDA Mineral Resources (Sustainable Development) Act 1990

mtpa Million tonnes per annum

NECF National Energy Customer Framework

NEM National Electricity Market

NGL National Gas Law

NGR National Gas Rules

National Harmonised Regulatory Framework for Natural Gas from Coal NHRF Seams

PC Productivity Commission

of 54 PJ Petajoules

RDV Regional Development Victoria

SCER Standing Council on Energy and Resources

STTM Short Term Trading Market

tcf Trillion cubic feet

UK United Kingdom

US United States

VCAT Victorian Civil and Administrative Tribunal

VTS Victorian Transmission System

This Report is not Government policy, but the independent view of the Victorian Gas Market Taskforce.

The Taskforce Secretariat has tried to make the information in this product as accurate as possible. However, it does not guarantee that the information is totally correct or complete. Therefore, readers should not solely rely on this information when making a commercial decision.