Cost Benefit Analysis of proposed
reforms to water access for
Petroleum & Gas Projects
Qwater Conference
7-8 November 2014
Project Overview
 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
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.
3
Summary of Gas Reserves
Shale gas
Tight gas
Coal seam gas
Conventional
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
Low
gas extraction
High
Low
Water required for
hydraulic fracturing
High
Low
Not Applicable
Estimated Qld reserves
Cooper Basin
92.9 trillion cubic
feet
~30 trillion cubic
feet
(92% of Australia’s
~ 0.57 trillion cubic
4
feet
Depth below surface
Options Considered
 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
Option 1 – Aligns Requirements
 Note that Option 1 (and the proposed change for mineral
resources would align the requirements for Mines and
Petroleum & Gas
Current statutory provisions
Water take
Associated Water
Non-associated
water
Mineral resources*
Petroleum and gas^
Dewatering licence in groundwater
management areas
Obligations in Chapter 3
Licence in groundwater management
areas
Obligations in Chapter 3
Proposed statutory provisions
Water take
Associated Water
Non-associated
water
Mineral resources*
Petroleum and gas^
Obligations in Chapter 3
Obligations in Chapter 3
Licence in groundwater management
areas
Entitlement in groundwater
management areas OR additional
underground water obligations 6
Cost Benefit Analysis
 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
Costs and benefits for private
industry
Cost Type
Project
approvals &
monitoring
bore
network
Ongoing
admin costs
Other Cost
Baseline
Comment
Chapter 3 covers
both Associated
and
Baseline
Ave cost per project
Shale gas
$4,250,000
$100,000
Base costs plus costs to
obtain a water licence
Base costs plus costs to
obtain a water licence
$250,000
$13,333
No change from base
case
No change from base
case
Cost to industry includes
net cost of water
purchases (after resale)
Cost to industry
includes net cost of
water purchases (after
resale)
Non-associated
water
Make Good
Arrangements,
implementing
spring management
strategies, etc
Option 2
CSG
Non-associated
water
Chapter 3 covers
both Associated
and
Option 1
Not
quantified
Not
quantified
Avoid need for Make
Good Arrangements
Avoid need for Make
8
Good Arrangements
Other industry impacts
 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
Impacts on government costs
 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
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)
11
Compiled CBA
Cost /
Benefit
Business –
Regulatory
Burden
Option 1 (PV over 10 yrs)
Option 2 (PV over 10 yrs)
Slight increase in
compliance costs
 in substantive
compliance costs for
some sites (CSG and
shale projects)
-$2,107,000
May need to purchase
water
Business –
Other costs  uncertainty
and
social licence
benefits
 competition between
energy producers
State Govt
(Regulator)
Unquantified
May need to obtain
water from
alternative source
-$2,107,000
Unquantified
 social licence
 costs (DNRM)
-$702,000
 costs (EHP)
One-off legislative and
administrative costs
-$1,405,000
-$75,000
One-off legislative
and administrative
cost
Potential impact on
regional investment
 impacts (other
users &
environment)
Unquantified
Potential impact on
Environmnt regional investment
and
 impacts (other users &
Social
environment)
Unquantified
Total
-$2,884,000
-$500,000
12
-$4,012,000
Conclusions
 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
Further Information
 Report is available online
www.dnrm.qld.gov.au/__data/assets/pdf_file/0010/17
8876/mja-report-project2.pdf
 alex.marsden@marsdenjacob.com.au
 Marsden Jacob’s Offices:
− Perth
− Melbourne &
− Sydney
14
15