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Cost Benefit Analysis of proposed reforms to water access for Petroleum & Gas Projects Qwater...
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Transcript of Cost Benefit Analysis of proposed reforms to water access for Petroleum & Gas Projects Qwater...
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
[email protected] Marsden Jacob’s Offices:
− Perth− Melbourne & − Sydney
Further Information