Over the past two months, the NSW Government has introduced a raft of changes that affect the development of the coal seam gas (CSG) industry in the State. These reforms include:
In September 2012, the NSW Government released the Strategic Regional Land Use Policy (Policy) which aimed to give greater protection to valuable agricultural land and water resources from the impacts of mining and CSG proposals, through identifying biophysical strategic agricultural land and implementing a new Gateway Process. More details about this Policy are provided in an earlier Corrs Thinking article.
Since that time, various other regulations have been made at the State and Federal government level which affect the CSG industry.
On 12 November 2013, in response to community concern regarding the impact of CSG activities on drinking water supplies, the NSW Government announced a hold, effective immediately, on all exploration and extraction of CSG in the Special Areas zone within Sydney’s drinking water catchment. A map of the Special Areas is available here.
These arrangements will be in place pending the findings of the NSW Chief Scientist and Engineer’s investigation into the impacts of CSG activities and other contributing factors on water in these Special Areas. How long the hold will be in place is unknown and it is possible that, pending the findings of the Chief Scientist, outright restrictions on CSG development in these areas will be implemented in the future. More details about the NSW Chief Scientist and Engineer, and her Initial Report on the Independent Review of Coal Seam Gas Activities in NSW, are provided in an earlier Corrs In Brief.
On 4 October 2013, the NSW Government introduced changes which prohibit CSG development in or under all residential areas in New South Wales, the North West and South West Growth Centres of Sydney, and within 2km of such zones.
These exclusion zones have been implemented through amendments to the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (NSW) (Mining SEPP) and conform with the NSW Government’s commitment to make residential areas “off limits” to CSG development. New clause 9A of the Mining SEPP prohibits the carrying out of “coal seam gas development” on or under land within:
(a) a coal seam gas exclusion zone; or
(b) a buffer zone.
The term “coal seam gas development” is defined to include development for the purpose of petroleum exploration and production. However, the definition excludes the recovery, obtaining or removal of CSG in the course of mining or pipeline development that is ancillary to CSG development or exempt development specified in clause 10 or 10A of the Mining SEPP (being exempt development that is of minimal environmental impact).
The term “coal seam gas exclusion zone” includes:
(a) land within a residential zone, namely the following land use zones or its equivalent zone:
(i) Zone R1 General Residential;
(ii) Zone R2 Low Density Residential;
(iii) Zone R3 Medium Density Residential;
(iv) Zone R4 High Density Residential; and
(v) Zone RU5 Village; or
(b) a future residential growth area land (at this stage, only the North West Growth Centre and South West Growth Centres of Sydney),
(collectively, the exclusion zones).
The definition of “buffer zone” means land that is within 2km of any of the exclusion zones. There is no scientific rationale provided by the Government for the 2km buffer zone. In addition, no reasons were provided as to why the exclusion and buffer zones do not apply to mining or other extractive industries.
There is an “opt out” provision for councils under new clause 9A(3) of the Mining SEPP, which permits any council to nominate land areas within the exclusion zones where CSG development should not be prohibited. This process is initiated by the council who would make a recommendation to the Minister to have areas of land listed under Schedule 2 of the Mining SEPP. To date, no areas of land are listed in Schedule 2 and only time will tell as to whether councils, who are generally acting in the best interests of the local government area and not necessarily the State, will be willing to exercise these rights.
Over the next few months, further exclusion zones are likely to be introduced by the NSW Government including additional “future residential growth areas”, “additional rural village land” and “critical cluster land” across the State, as identified in environmental planning instruments or planning strategies. The areas proposed to be caught by these reforms are shown on a map on the Department of Planning and Infrastructure website, with 56 local government areas, seven village areas and critical cluster areas in the Upper Hunter, identified. Stage two of the proposed CSG exclusion zones were recently on exhibition.
The Mining and Petroleum Gateway Panel (Panel) is an independent body of 6 members constituted under Division 5 of the Mining SEPP. The key role of the Panel is to assess the impacts of State significant mining and petroleum proposals, including CSG proposals located on “biophysical strategic agricultural land” or “critical industry cluster land” before a development application is lodged, as well as to grant Gateway Certificates. This adds another layer of red tape to the overall development application and assessment process for CSG proposals.
The term “biophysical strategic agricultural land” means land so identified on the Strategic Agricultural Map (currently only for the New England North West or Upper Hunter areas) or any other land that is certified by a site verification certificate.
The reference to “critical industry cluster land” means land so identified on the Strategic Agricultural Map (currently only for the New England North West or Upper Hunter areas).
New Division 4 of the Mining SEPP sets out the procedures for application and determination by the Panel as to whether or not to grant a Gateway Certificate. The steps involved are:
(i) an unconditional certificate if the proposal meets the relevant criteria; or
(ii) a conditional certificate if the proposal does not meet the relevant criteria. The certificate may also include recommendations such as further studies or modification to the proposal. These recommendations and conditions must be addressed later in the development application phase and must be taken into consideration by the consent authority in its determination as to whether or not they have been addressed.
As such, the Panel cannot refuse to issue a Gateway Certificate which, although adding time to the overall development application process for CSG proposals, provides certainty to the CSG industry that proposals will not be refused at the Gateway stage.
On 5 November 2013, the New South Wales and Commonwealth Governments signed a Memorandum of Understanding (MoU) agreeing to work towards delivering a “one-stop shop” for environmental approvals with the aim of reducing duplication in the environmental approvals process. The MoU paves the way for a bilateral agreement (a draft which is currently on exhibition) to be made which would hand power to the NSW Government to assess and decide on matters of national environmental significance in accordance with the EPBC Act.
The MoU may be positive step for the CSG industry as, should the bilateral agreement be made, it may result in less time spent awaiting State development and Commonwealth environmental approvals. However, the EPBC Act currently prevents a bilateral agreement from applying to the water trigger. Therefore, it is possible that any future bilateral agreement may similarly exempt the assessment of projects likely to have a significant impact on water resources. The draft agreement currently on exhibition requires the NSW Government to refer CSG developments that are likely to have a significant impact on water resources to the Independent Expert Scientific Committee on Coal Seam Gas and Coal Mining for advice and to consider such advice in any assessment report.
Until the full extent of the exclusion and hold zones are known, the CSG industry faces a great deal of uncertainty. Further, there will be ongoing risk that other areas of land may be added to the exclusion zones in the future.
This regulatory uncertainty is concerning for both business and the community. It reduces investor confidence in resource development, and creates uncertainty for the community regarding their rights and the procedures for resource development.
In circumstances where NSW is overwhelmingly a gas importer (only producing 5% of its State needs), accessing and delivering a secure and affordable gas supply is a key and immediate challenge. This is particularly in view of the impending expiry of NSW gas supply contracts in 2015/2016 and the growing export contract commitments in Queensland which may force domestic gas supply prices up.
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