Speech to the Board of Regional Development Australia, Whyalla and Eyre Peninsula Inc.

3 May 2019

This speech was presented at the Chambers, Whyalla City Council, 15 Darling Terrace, Whyalla, at 9.30am, Friday 3 May 2019.

Good morning and thank you for the opportunity to speak to you about the rather vexed issue of oil and gas exploration in the Great Australian Bight.

To begin with, I want to say that my Centre Alliance colleagues and I have approached this issue with an open mind.

We have given it the scrutiny it deserves and in the case of Equinor’s plans I have sought answers from the company itself on three separate occasions.

Specifically, I asked for information in relation to the proposed benefits with capital investment, jobs, supply chains, its experience in waters similar to that of the GAB and its estimates of the tax it anticipates paying as a function of time.

None of questions have been answered, which I think says something about their level of community engagement and transparency.

If Equinor expects me to not oppose a proposal that has so many risks then it should at least answer my questions.

But aside from that, there are three main reasons why I oppose drilling in the Bight.

Firstly, I’m not convinced that our regulatory framework is stringent enough in terms of environmental protection, and in particular I have concerns about a response to an oil spill.

Secondly, I’m not convinced that Equinor’s bid and others like it will deliver the economic benefits its proponents are claiming.

And thirdly, in a more general sense, I’m not convinced that Australia will get what it deserves financially from the oil and gas industry.

In this issue there are a number of important competing interests at play, including resource security, economic activity, jobs, professional and recreational fishing, tourism, environmental conservation and risk management and response to a catastrophic event.

But ultimately we have formed the view that the Bight and other areas that may be affected by a spill are too important economically and environmentally to favour the interests of oil and gas producers over the others.

**** 

To briefly summarise the situation as it stands, two current exploration permits - EPP 39 and the neighbouring permit EPP 40 - were originally held by BP Australia.

Equinor, the Norwegian multinational energy company, acquired a 30% interest in 2013 and then took up a 100% interest in both permits in June 2017 when BP withdrew from the area completely.

Equinor, which changed its name from Statoil last May, was ranked as the world's eleventh-largest oil and gas company in 2013, when it was also the world’s twenty-sixth largest company in terms of overall profit.

Equinor’s proposed Stromlo-1 rig is to be drilled in the Ceduna sub-basin, 372 km offshore, some 470 km west of Port Lincoln and 700 odd km west of Adelaide and Victor Harbor.

As you may be aware, during the past two Parliaments the Senate’s Environment and Communications References Committee conducted an inquiry into oil and gas production in the Bight while BP was still involved in the area.

It released a report in May 2017, a month before Equinor took over BP’s licences.

The Senate inquiry did not make any official recommendations in its report.

It simply received submissions, held public hearings, heard evidence from a variety of stakeholders, and published a summary.

In September 2017 the Government tabled its response to the report, which in part read:

“Australia has a strong track record of discovering and developing its natural resource base and our regulatory framework requires stringent health, safety and environmental protection.”

And on the evidence that has been provided I do not believe the regulatory framework is stringent enough with regard to environmental protections.

Two months ago Equinor released its draft Environment Plan (EP) for public comment on the proposed Stromlo-1 exploration drilling program.

It received 30,000 public submissions during the one-month consultation period. That’s about 1000 submissions a day – it is apparent that there’s a lot of public interest in this.

Last month, Equinor released its final, 425-page Environment Plan which will now be assessed for approval by the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA).

And once NOPSEMA gives approval Equinor will have the right to start drilling... it’s out of the Government’s hands and I just don’t believe that’s good enough.

We cannot kid ourselves - catastrophic events can and do occur. 

In fact it was a catastrophic oil spill that led to the creation of NOPSEMA.

The Montara oil spill was an oil and gas leak and subsequent slick that took place in the Montara oil field in the Timor Sea, off the northern coast of Western Australia in August 2009.

Considered one of Australia's worst oil disasters, the slick resulted from a blowout in the Montara wellhead platform and continued leaking for 75 days until it was capped.

The Australian Department of Resources, Energy and Tourism estimated that the Montara oil leak could have been as high as 2,000 barrels or 320 cubic metres a day, five times greater than what the oil company PTTEP Australasia initially estimated.

The Montara Commission of Inquiry established by the Rudd Labor Government and headed by Commissioner David Borthwick AO PSM concluded that:

“PTTEP Australasia did not observe sensible oilfield practices at the Montara Oilfield. Major shortcomings in the company’s procedures were widespread and systemic, directly leading to the Blowout.”

All up, Commissioner Borthwick made 100 findings and 105 recommendations, one of which was to create NOPSEMA as a single, independent body responsible for regulating the health and safety, well integrity and environmental management aspects of offshore petroleum operations.

The Environmental Plan that Equinor sent to NOPSEMA does concede that catastrophic events such as the Montara spill can occur.

On page 240 of the plan Equinor provides three case scenarios in the case of an oil spill.

In the first scenario the spill would be stopped by a blow-out preventer on Day 1.

In the second scenario the spill would be stopped by capping it on Day 15 because the required infrastructure would need to come from Singapore.

In the third scenario the spill would be stopped on Day 102 – by drilling a relief well.

Equinor states in its Environment Plan that a delay of 102 days could have a permanent impact on the sea lion population which is already in decline.

It would also take more than 10 years for the affected area to return to its previous state, affect the population of pygmy whales and kill a few individual wales due to oil toxicity.

Personally I suspect there would be a few more consequences and I would love to get some advice from independent experts.

In terms of oil spills, Equinor (while still trading as Statoil) reported two spills in the space of three weeks at its Statfjord field, in the Norwegian sector of the North Sea in October 2015.

The Norwegian environmental group Bellona, a protest group formed in 1986 to curb Norway’s oil and gas industry pollution, called on Equinor to be fined.

The group’s founding president Frederic Hauge said it was the third time Statoil/Equinor has spilled oil on Statfjord since 2007 and that the company had not learned from previous mistakes.

One would hope that NOPSEMA will take these incidents into consideration when assessing Equinor’s Environment Plan; however since its formation NOPSEMA has only rejected 4% of applications.

Finally – I just want to talk about dealing with oil spills. Most people think that the Australian Maritime Safety Authority is responsible agency if there is a spill associated with drilling in the Great Australian Bight. But it’s not. I refer to questions I asked AMSA at Senate Estimates:

I asked ...

“you are the responding agency in the event that something goes wrong; is that correct?”

 Mr Kinley responded,

“Just to clarify, offshore spills are the responsibility of the titleholder to respond. In some cases, we have memoranda of understanding with some titleholders that they can access our stockpiles and equipment in case of a spill, but that is as far as our involvement in the offshore sector goes.”

 He went on to say,

“Following the Montara and the Borthwick inquiry into the Montara NOPSA became NOPSEMA and were handed that definitive role in the environment, and the responsibilities of titleholders to meet their obligations to clean up were strengthened under that.”

 And finally he stated:

“It's crystal clear now that the titleholder has that responsibility, and NOPSEMA holds them accountable to that. But we certainly have that coordinating role in the national plan, and working with the states and territories agencies under that, because ultimately, if there is an offshore oil spill and it comes ashore, our state partners are going to be responding there as well and probably accessing our strategic stockpiles that we have around the country.”

Then there’s the question of what resources Equinor have to deal with spills. From their plan they state:

Equinor Australia B.V. has contracts in place with Oil Spill Response Limited and Wild Well Control to provide subsurface dispersant injection equipment and personnel. Dispersants would be sourced from the Australian Marine Oil Spill Centre, Australian Maritime Safety Authority National Plan stockpiles and the Oil Spill Response Limited global dispersant stockpile. There is potential to obtain additional stock from mutual aid, and dispersant manufacturers would be requested to increase dispersant production.

Australian Maritime Safety Authority, Aerotech 1st Response and Oil Spill Response Limited aircraft and personnel will be contracted to undertake aerial dispersant operations from Ceduna and Adelaide airports. Additional Vessels of Opportunity will be contracted to undertake vessel dispersant operations, unless they are required for higher priority response activity, e.g. source control.

The plan also says:

Containment and recovery typically involve the deployment of booms and oil skimmers from suitable vessels, as well as the collection, transfer and disposal of oil and oily water recovered during the response.

 And adds:

additional vessels will be needed to deploy and recover booms and the increased number of vessels and  the containment booms will increase the risk of interaction/collision with marine fauna

How many aircraft are available to release dispersants? What quantities of dispersant reserves are available? How may ‘vessels of opportunity’ are there - ones which can safely operate several hundred miles off the coast? Where are the booms and oil skimmers?

These are questions I have asked of AMSA and will do the same of NOPSEMA. I need to ask them because all of the specifics are not in Equinor’s plan.

****

Let me now turn to the issue of the proposed financial benefits being promised by Equinor and its supporters.

In your own submission to the inquiry, the RDAWEP and the Eyre Peninsula Local Government Association (EPLGA) acknowledged that:

“The potential benefit to the region from oil and gas activities is unknown and dependent upon the nature and extent of the oil and gas activity in the future”.

Other submissions pointed to the high capital intensiveness of the oil and gas industry and questioned the economic benefits to the economy.

For example, The Australia Institute described the economic benefits as “minimal”.

It stated that:

“Such activities are highly capital intensive, so require relatively few workers. While eventual production would employ more people, in the context of the South Australian labour force, the impact would be minor”.

It also contended that:

“The majority of any future employees would be fly-in-fly-out (FIFO) workers who would be flown from around Australia to Adelaide and Ceduna and then to production rigs by helicopter. Many of these employees would not be from South Australia and would not reside in South Australia during their employment on the project”.

The Australia Institute also questioned the potential impacts of large multiplier effect benefits from such projects, which are generally rejected by economists.

The Australian Maritime Officers Union estimated that 10 out of 12 rig workers – more than 80 per cent - would be foreigners on 457 visas (as it was called then) who would be flown in and out from Adelaide and never set foot on the mainland of this region.

The rig itself would be imported, providing few or no jobs to Australians.

So as far as the economic benefits are concerned, don’t believe the hype. It’s simply pie in the sky designed to sway public opinion.

****

Several submissions to the Senate inquiry also raised concerns about the existing taxation arrangements for offshore oil and gas projects and I’d now like to address some of those.

The report found that exploration drilling would be unlikely to yield royalties or tax to either the state or federal governments, and that in fact, expenses associated with exploration would likely be used as legitimate deductions from future income.

For example, it noted that the North West Shelf project in Western Australia required investment of $8 billion from the WA government in the form of infrastructure provision and subsidies.

That project has three active offshore facilities: one was commissioned in 1984 and the other two in 1995 – but the WA Government did not collect any revenues until 2009.

Based on the WA experience, the report warned that if South Australia expects to develop an offshore gas industry, it must be ready for potentially decades of subsidy before any revenues are realised.

The SA Government also noted in its own submission that if commercial quantities of petroleum were to be discovered and a production phase commenced, all petroleum royalties are paid to the Commonwealth because the SA Government does not receive any royalties on petroleum in Commonwealth licensed permits.

One of the most vocal supporters is the Australian Petroleum Production and Exploration Association – the APPEA.

In the APPEA’s submission to the Senate inquiry, it made no specific claims about economic benefits that would be gained from drilling in the Bight.

Instead, it stated in its submission:

“To provide a more accurate metric, APPEA has commissioned an independent assessment of the potential economic contribution of oil and gas activities in the Great Australian Bight, which will be released when it is completed”.

APPEA’s so-called “independent assessment” was conducted by consultancy group ACIL Allen and released last year.

There were two documents which predicted enormous economic benefits including boosts to South Australia’s Gross State Product and employment.

The only problem is that the forecasts appear to have come from the APPEA itself.

The disclaimer in fine print on these documents states:

“ACIL Allen has relied upon the information provided by the addressee [in this case the APPEA] and has not sought to verify the accuracy of the information supplied.

Unless stated otherwise, ACIL Allen does not warrant the accuracy of any forecast or projection in the report.

Factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or projected reliably.”

In other words, these documents and their forecasts are pure fantasy and the APPEA needs to be taken to task for disseminating falsehoods designed to grab media attention and avoid proper scrutiny.

If nothing else, this is political spin of the highest order.

Without any evidence, it has completely contradicted the Senate Inquiry Report, which found no such economic benefits.

Finally, I also want to make the point that in general terms this issue has illustrated to me inadequacies with the amount of tax paid by the oils and gas industry.

In late 2016 the Government launched a review of the Petroleum Rent Resource Tax to address a massive $800 million revenue drop in the previous four years.

Legislation with some changes was passed last month, but in my view more are required.

In closing, I think that the regulatory process of assessing proposals such as Equinor’s is fundamentally flawed.  

It concerns me that there are so many questions about this process that have not been answered and yet Equinor only has to satisfy a government regulator to start drilling.

It concerns me that the potential economic benefits have been deliberately oversold by the oil and gas industry to court public opinion and that ultimately they will be the one who really profit from this and other ventures.

These are the reasons why I oppose oil and gas drilling in the Bight and I look forward to any questions you have.

Thank you.

 

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