Cost Benefit Analysis of proposed reforms to water access for Petroleum & Gas Projects

Qwater Conference

7-8 November 2014

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Cost Benefit Analysis for the Qld Dept of Natural Resources and Mines - to support a Consultation Regulation Impact Statement

Project 2 covered water access for Mines and Petroleum projects – proposed aligning the requirements

Focus on Non-Associated Water for Petroleum and Gas projects

Particularly important for Shale gas

Project Overview

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Key Definitions Associated Water - water that is not necessarily and

unavoidably taken in the process of extracting the resource (eg. mine dewater)

Non Associated Water - water that is not necessarily and unavoidably taken. This includes water for:− hydraulic fracturing; − accommodation camps; and − in drilling operations.

Petroleum and gas activities – all activities undertaken on survey, exploration or production tenures. These include:− conventional oil and gas projects; − CSG projects; and− shale gas projects.

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Shale gas Tight gas Coal seam gas Conventional

Depth below surface 2000 – 5000 metres

2000 – 5000 metres

300 – 1000 metres

1000 – 5000 metres

Rock type Shale Sandstone and limestone

Coal seams Sandstone and limestone

Production well type Vertical or Horizontal

Vertical or Horizontal Vertical Vertical and

Horizontal

Hydraulic fracturing Always Always Occasionally Rarely

Water released through gas extraction Low High Low

Water required for hydraulic fracturing High Low Not Applicable

Estimated Qld reservesCooper Basin 92.9 trillion cubic feet

~30 trillion cubic feet

(92% of Australia’s reserves)

~ 0.57 trillion cubic feet

Summary of Gas Reserves

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Base case: No legislative change, work cooperatively with industry. No legislative but government and industry work together to encourage minimisation of impacts and promote the coexistence

Option 1: Require an entitlement under the Water Act. Remove the statutory right to non-associated water, and require an entitlement under the Water Act (eg. water allocation, licence or permit).

Option 2: Increased obligations. Retain current statutory rights and introduce further statutory obligations. Require tenure holders to assess the options for sourcing non-associated water, and to minimise impacts of taking water

Options Considered

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Note that Option 1 (and the proposed change for mineral resources would align the requirements for Mines and Petroleum & Gas

Option 1 – Aligns Requirements

Water take Mineral resources* Petroleumand gas

Associated WaterDewateringlicence in groundwater

management areasObligations in Chapter 3

Non-associated water

Licence in groundwater management areas

Obligations in Chapter 3

Current statutory provisions

Proposed statutory provisions

Water take Mineral resources* Petroleumand gas

Associated Water Obligations in Chapter 3 Obligations in Chapter 3

Non-associated water

Licence in groundwater management areas

Entitlement in groundwater management areas OR additional underground water obligations

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Cost Benefit Analysis undertaken over 10 years. Requires inputs (for both CSG and Shale Gas):− Project numbers;− Project size; and− Requirements of an “average project” (monitoring

bores, baseline assessments, make good arrangements…).

The impacts of the proposed change can be categorised as:− the costs and benefits for private industry;− impacts on government costs; and− environmental and social costs and benefits.

Cost Benefit Analysis

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Cost TypeBaseline

Comment

BaselineAve cost per project Option 1 Option 2

CSG Shale gas

Project approvals & monitoring

bore network

Chapter 3 covers both Associated

and Non-associated

water

$4,250,000 $100,000 Base costs plus costs to obtain a water licence

Base costs plus costs to obtain a water licence

Ongoing admin costs

Chapter 3 covers both Associated

and Non-associated

water

$250,000 $13,333 No change from base case

No change from base case

Other Cost

Make Good Arrangements, implementing

spring management strategies, etc

Not quantified

Not quantified

Cost to industry includes net cost of water

purchases (after resale)Avoid need for Make Good Arrangements

Cost to industry includes net cost of

water purchases (after resale)

Avoid need for Make Good Arrangements

Costs and benefits for private industry

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Improved social licence to operate (Option 1 and 2)− proposed changes may improve community comfort

regarding water take for petroleum and gas activities Increased uncertainty (Option 1 only)

− As Option 1 will require approval of a licence, the proposed change will represent a higher level of uncertainty for industry in the exploration and feasibility stages of a project.

Improved competition between energy producers through consistent framework of underground water rights (Option 1 only)

Other industry impacts

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Setup costs− 1 of a number of reforms – so not easy to

isolate costs− Estimated by government at:

−$75,000 for Option 1 and −$500,000 for Option 2

Ongoing costs− Estimated by government at:

−1 FTE per annum ($100,000) for Option 1 and −2 FTEs per annum ($200,000) for Option 2

Impacts on government costs

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Environmental and social costs and benefits

Potential costs of the proposed changes− Could shift investment to other regions

(it is unclear whether movement is realistic) Potential benefits of the proposed changes

− minimising the unintended impacts of gas development –It was noted that fraccing has been used in the Cooper Basin for conventional oil and gas

Marsden Jacob estimated that at full production between 8,000 to 24,300 wells would be necessary for the most productive part of the Cooper Basin (requiring around 30 and 40 billion litres annually)

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Cost / Benefit Option 1 (PV over 10 yrs) Option 2 (PV over 10 yrs)

Business – Regulatory Burden

Slight increase in compliance costs -$2,107,000

in substantive compliance costs for some sites (CSG and shale projects)

-$2,107,000

Business – Other costs and benefits

May need to purchase water

uncertainty

social licence

competition between energy producers

Unquantified

May need to obtain water from alternative source

social licence

Unquantified

State Govt (Regulator)

costs (DNRM)One-off legislative and administrative costs

-$702,000

-$75,000

costs (EHP)One-off legislative and administrative cost

-$1,405,000-$500,000

Environmnt and Social

Potential impact on regional investment

impacts (other users & environment)

Unquantified

Potential impact on regional investment

impacts (other users & environment)

Unquantified

Total -$2,884,000 -$4,012,000

Compiled CBA

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Over a 10 year period the quantified costs of the proposed reform will result in a net cost of around:− $3 million for Option 1 and − $4 million for Option 2.

Key unquantified costs include:− the potential need for industry to purchase water; − increased uncertainty with the licence approval process (Option 1

only)

Key unquantified benefits include:− social licence and better relationships with landholders;− competition between energy producers (Option 1 only);− impacts on groundwater; and− risks to regionally significant aquifers

Conclusions

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Report is available onlinewww.dnrm.qld.gov.au/__data/assets/pdf_file/0010/178876/mja-report-project2.pdf

alex.marsden@marsdenjacob.com.au Marsden Jacob’s Offices:

− Perth− Melbourne & − Sydney

Further Information

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