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Cost Benefit Analysis of proposed reforms to water access for Petroleum & Gas Projects Qwater Conference 7-8 November 2014.

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Presentation on theme: "Cost Benefit Analysis of proposed reforms to water access for Petroleum & Gas Projects Qwater Conference 7-8 November 2014."— Presentation transcript:

1 Cost Benefit Analysis of proposed reforms to water access for Petroleum & Gas Projects Qwater Conference 7-8 November 2014

2  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 2 Project Overview

3 3 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.

4 Shale gasTight gasCoal seam gasConventional Depth below surface 2000 – 5000 metres 300 – 1000 metres 1000 – 5000 metres Rock typeShale Sandstone and limestone Coal seams Sandstone and limestone Production well type Vertical or Horizontal Vertical Vertical and Horizontal Hydraulic fracturingAlways OccasionallyRarely Water released through gas extraction LowHighLow Water required for hydraulic fracturing HighLowNot Applicable Estimated Qld reserves Cooper Basin 92.9 trillion cubic feet ~30 trillion cubic feet (92% of Australia’s reserves) ~ 0.57 trillion cubic feet 4 Summary of Gas Reserves

5  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 5 Options Considered

6  Note that Option 1 (and the proposed change for mineral resources would align the requirements for Mines and Petroleum & Gas 6 Option 1 – Aligns Requirements

7  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. 7 Cost Benefit Analysis

8 Cost Type Baseline Comment Baseline Ave cost per project Option 1Option 2 CSGShale 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 Ongoing admin costs Chapter 3 covers both Associated and Non-associated water $250,000$13,333 No change from base case Other Cost Make Good Arrangements, implementing spring management strategies, etc 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 8 Costs and benefits for private industry

9  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) 9 Other industry impacts

10  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 10 Impacts on government costs

11 11 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)

12 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, Compiled CBA

13  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 13 Conclusions

14  Report is available online 8876/mja-report-project2.pdf 8876/mja-report-project2.pdf   Marsden Jacob’s Offices: − Perth − Melbourne & − Sydney 14 Further Information

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