Energy White Paper Issues Paper December 2013- Public
Consultation
Submission to Energy White Paper Taskforce, Department of
Industry
Professor Terence Daintith
Professor John Chandler
Centre for Mining, Energy and Natural Resources Law
University of Western Australia
Dated: 7 February 2014
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Scope of the Submission and Executive Summary
We refer to the request (p. 13) for comment on issues relating to the regulation of
energy infrastructure.
The picture that emerges from other jurisdictions such as the United Kingdom and
Norway is that in maturing petroleum provinces it is difficult to secure optimal
utilisation of offshore infrastructure, through third party access, by arm’s length
regulation alone. This submission suggests that the most productive way forward, in
this and a number of other areas relating to the achievement of optimal recovery, is
for government to develop a much closer relationship with its licensees, through a
government-industry forum in which this and other issues could be the subject of
regular informal discussion and in which a common sense of the best development
and production strategies could be forged
About the authors
Professor Terence Daintith
Terence Daintith is the former director of the University of London’s Institute of
Advanced Legal Studies, where he now holds a professorial fellowship. In addition to
his work at UWA, he is also a visiting professor at the University of Melbourne and at
University College Dublin. His main research interests are in oil and gas law,
constitutional law, and regulation. He is joint editor of Daintith, Willoughby, and Hill’s
multivolume United Kingdom Oil and Gas Law, the basic reference in the field, and
founding editor of the Journal of Energy and Natural Resources Law.
Professor John Chandler
John Chandler is the Co-Director of the Centre for Mining, Energy and Natural
Resources Law at the University of Western Australia, where he teaches mining and
petroleum law and corporate governance. He has over 30 years’ experience in the
resources industry as a partner in large commercial law firms and as a director of
resources companies. He is the general editor of Lexisnexis’s Energy and
Resources Law service and the co-author of Petroleum Law in Australia.
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Third party access: the background
While there is extensive current discussion of the issue of third party access to
infrastructure, presently under review by the Productivity Commission, the question
does not appear to have received recent attention so far as offshore oil and gas
infrastructure is concerned. Discussion in the late 1990s, against the background of
Part III of the Trade Practices Act 1974 - whose drafting made it unlikely that it could
be used by seekers of offshore third party access - resulted only in the production by
APPEA of a set of very general and unenforceable recommendations on the matter.
This document is no longer visible among the publications listed on their website. At
that time it was argued that the absence of a third party access regime for upstream
oil and gas facilities was not a problem. Such facilities, it was said, did not exhibit
natural monopoly characteristics, and there was little need to worry about smaller,
less attractive developments because there were plenty of larger resources available
to meet demand. Producers and would-be producers would reach commercial
access deals where this was sensible without any need for help from regulation 1.
Experience Elsewhere
While this may have been an adequate response 15 years ago, experience
elsewhere, notably in the North Sea, indicates that as a petroleum province matures
and the focus switches from large to small finds and to the reworking of already
exploited fields, willing co-operation between existing infrastructure owners, and
holders of title to deposits that cannot be exploited without access to such
infrastructure, becomes an essential pre-condition for optimal recovery of the
province’s resources. Such experience also shows that it would be most unwise for
a government simply to accept the industry view as expressed in the 1990s and to
assume that such co-operation will automatically be forthcoming when it is needed.
In the United Kingdom, a much simpler regime than that available in Australia for
obtaining third party access has failed to produce satisfactory results offshore,
largely because companies seeking access are reluctant to initiate formal
proceedings when negotiations break down, and government has had to equip itself
with powers to initiate proceedings on its own account.
Development of a Government Industry Forum
At this stage, however, we do not want to suggest any reinforcement of the offshore
infrastructure access regime, whether by way of a specific industry regime or by the
extension of a simplified general model. Access regulation, which has essentially
been directed towards promoting competition, may not be the best way to solve a
problem which, in the medium to long term, is one of optimal recovery of national
resources. Instead, it seems to us that in the first instance, the most productive way
J. Crum ‘Access to Upstream Facilities:The Producer’s Point of View’ 1999 AMPLA
Yearbook 208.
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forward, in this and a number of other areas relating to the achievement of optimal
recovery, is for government to develop a much closer relationship with its licensees,
through a government-industry forum in which this and other issues could be the
subject of regular informal discussion and in which a common sense of the best
development and production strategies could be forged. The work of bodies of this
type, exemplified by PILOT in the United Kingdom and Konkraft in Norway, shows
what can be achieved through this sort of common informal effort, which need not
stop with title-holders, but can profitably extend to contractors and trade unions also.
In Australia, the tendency since the Montara and Macondo incidents has been to
emphasise a formal regulatory posture of government, at arm’s length from industry
and based on a tightening of rules and sanctions. We certainly do not suggest that
this posture is inappropriate in relation to the risks to health, safety and the
environment that are posed by offshore exploration and production operations.
By contrast, in relation to strategies for exploration, development and production,
which directly bear on this issue of security of supply, we think it important that
government should keep clearly in view the fact that its relationship with title-holders
is better conceived in terms of a partnership contract than of arm’s length regulation.
As in all contracts both parties do not have exactly the same goals and constraints,
and the legal rules and powers are there to ensure that government can impose its
will when it really needs to, but the core of the relationship is consensual and based
on a common purpose, and in our view this badly needs some institutional, but
informal, expression. The 2011 reforms, by establishing national bodies to take over
competencies formerly exercised by different Designated Authorities, have created a
new opportunity for the development of a national forum to encourage a governmentindustry dialogue. NOPTA looks like the obvious public partner in such a forum, but
one might hope that some way could be found of drawing on the views and expertise
of NOPSEMA without compromising its necessary independence.
In the context of the present inquiry, the value of the kind of institutionalised
discussion that we propose is that over time it offers the best chances of developing
consensus as to the kinds of changes, both in commercial attitudes and in regulatory
ordering, that may be needed to ensure optimal recovery of resources. In our view,
if further regulation should prove to be necessary to stimulate the shared use of
infrastructure, it would be much better developed as a tool of resource management
within the framework of the Offshore Petroleum and Greenhouse Gas Storage Act,
than as an offshoot of competition law.
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