Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

The oil and gas industry is a very important industry for my home state of Western Australia, which is why Liberal members and senators in this parliament have taken a very close interest in the progress of the Offshore Petroleum and Greenhouse Gas Storage Amendment (National Regulator) Bill 2011 and related legislation. This legislation has been floating around the parliament in various guises now for way more than a year. That it has taken so long is yet another example of govern­ment incompetence, government arrogance and government refusal to go through proper process. In fact, the processes that were followed by the federal Minister for Resources and Energy in relation to this are nothing short of world's worst practice.

This legislation was introduced without any consultation whatsoever with the state government in Western Australia. Yes, there has been, belatedly, some negotiation in recent months. And, yes, we are now in a position where the coalition is able to support passage of this legislation given the agreements that have been reached. But it should not have taken so long. It should not have required the Senate's insisting on send­ing the minister back to the drawing board. The minister, being part of a government that promised in the lead-up to the 2007 election that this was going to be a new era of cooperative federalism, should never have been forced back to the drawing board. He should have gone through proper process right from the start.

This bill seeks to establish national regulators. Senator Siewert talks about the Commonwealth wanting to take primary responsibility for regulation, and I will have some further remarks about how effective that might be later on. This bill seeks to establish national regulators through expans­ion of the current National Offshore Petrole­um Safety Authority to the National Off­shore Petroleum Safety and Environmental Management Authority. It also seeks to create the National Offshore Petroleum Titles Administrator.

Under the current process, ministers from the states and the Northern Territory, through their departments, have performed the func­tion and exercised powers conferred directly on them by the Offshore Petroleum and Greenhouse Gas Storage Act 2006 and its predecessor act, the Petroleum (Submerged Lands) Act 1967. The Commonwealth conferred these powers on the states and territories as part of the then decision on how to manage these affairs. The state govern­ment in Western Australia has managed that responsibility very competently and in the national interest. Sixty per cent of offshore petroleum activity is being conducted off the coast of Western Australia. Yes, we have Commonwealth waters and we have the three-nautical-mile zone in which the state is responsible. Of course, we cannot draw some artificial line whereby the Commonwealth can do all the things it wants to do without talking to anyone and the states are going to do all their sorts of things without talking to anybody about it. Clearly there have to be lines of communication. Clearly there has to be coordination. Clearly different levels of government have to work together to make sure that there are no unintended conse­quences—environmental, social or safety consequences—on either side of that particu­lar line.

This government thought: 'We're just going to press ahead. We want to just throw overboard all the processes that have happened in the past without talking to anyone.' I note that Senator Eggleston, a very distinguished Liberal senator from Western Australia, was the coalition representative on—and in fact the Deputy Chair of—the Senate Economics Legislation Committee, which looked into this legislation. He was responsible for drafting a very eloquent report into the flaws in the process and in what was proposed at the time.

But I will just stick with the process for a moment. These bills were initially intro­duced without any consultation. Eventually Minister Ferguson was shamed into talking to the Minister for Mines and Petroleum in Western Australia, the Hon. Norman Moore. A process was underway whereby the state minister in Western Australia thought that some negotiations were happening in good faith between the state government and the Commonwealth government. And what happened? While these negotiations were ongoing and had not been resolved, the government some months ago pressed ahead again with this legislation, trying to create facts. It is very difficult to negotiate and have discussions on the basis of trust when, again and again, the actions taken by the govern­ment are completely counter to what is being worked on in good faith by the different parties involved in the negotiations.

We were led to believe that the govern­ment would make amendments to the legisla­tion that was being presented to the Senate in June last year, only to find out that the legislation—which was still in the form in which we opposed it—was being reintro­duced in exactly the same fashion as what we had complained about. There was mis­leading, there was bad process, there was lack of consultation and lack of cooperation on something where, quite frankly, the Com­monwealth, state and territory governments with relevant interests in offshore oil and gas activities should be working together in the national interest.

The Western Australian government was very concerned that, under the proposals as they originally stood, there would be no requirement for the Commonwealth to advise the WA state government about the location of licences over the WA coast. They were concerned that activities could take place in Commonwealth waters offshore from WA, which often can come under significant public and media scrutiny due to their proximity to sensitive environmental areas. Yet the Commonwealth government arro­gantly wanted to press ahead without having any proper protocols in place about lines of communication between the Commonwealth and the states and territories. I draw attention to the observation made in Senator Eggleston's report. He would have liked to have contributed to this debate but is sadly not here today, and I want to make sure that we have proper focus on the report that he put together. He noted the involvement of the US National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling and said:

The Commission recommended the need to actually strengthen state and local involvement in oil spill contingency planning and training, rather than weaken it.

I just want to make some observations in relation to the incidents that have happened in recent years. We have had the Montara incident, which was very concerning. Incidentally, it happened in a circumstance where it was the Commonwealth that decided to contract out wellhead supervision to the Northern Territory. The Common­wealth was already responsible. In relation to the Varanus Island incident, the mistake that the Western Australian state government made was to contract the Commonwealth agency, NOPSA, to conduct the supervisory role. The point here, Senator Siewert, is that the suggestion of centralising things in Canberra and giving responsibility to a single Commonwealth regulatory authority is not a way to guarantee that the situation will improve into the future. There has to be a level of competence, a level of skill, a level of expertise and a level of professionalism applied to ensure that the objectives which we are trying to achieve are actually going to be achieved. Looking at the track record, I think that has not necessarily always been the case.

Offshore petroleum operations in Australia beyond designated state and territory coastal waters are governed by the Commonwealth but are currently jointly administered through a designated joint authority arrangement with the states and the Northern Territory governments. The national regulator is NOPSA, and that is what is being proposed to be amended here. The Western Australian regulator is the Department of Mines and Petroleum, formerly the Department of Industry and Resources. The regulatory regime in Australia is a performance objective based regulatory regime, which makes the operator of an offshore facility responsible for the safe and effective operation of the facility. This regime arose from the recommendations made in 1990 by the Hon. Lord Cullen in an inquiry into the Piper Alpha explosion in the North Sea. This performance objective based regulation process allows for continuous improvement rather than a compliance mentality, and the onus is placed on operators to ensure and to demonstrate to regulators that the risk of an incident in their oil and gas operations is reduced to as low as reasonably practicable. This is not industry self-regulation. Industry must demonstrate to the regulators, and the regulators must assess and approve or not approve that the risks have been reduced to as low as reasonably practicable.

In its review of the Macondo oil spill in the Gulf of Mexico, the US National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling recommend­ed that the US policy position on the regulation of offshore drilling move from the current prescriptive model to a less prescriptive safety case approach, which is similar to the existing Australian model. So it is not as if we have to re-invent the world.

In 2009, the Productivity Commission conducted a review of regulatory burden on the upstream petroleum oil and gas sector. The Productivity Commission found that the current regulatory framework imposed a significant, unnecessary burden on the sector. It made a series of recommendations, including the need to establish a national offshore petroleum regulator, extending the role of the National Offshore Petroleum Safety Authority and establishing lead agen­cies. The Ministerial Council on Mineral and Petroleum Resources agreed in December 2009 to implement 25 of the Productivity Commission's 30 recommendations.

In May 2010, the Ministerial Council on Mineral and Petroleum Resources agreed to defer the other five recommendations, which included the institutional recommendations for a national regulator until after the Montara Commission of Inquiry reported. After the report and the government's response to it were released, the Ministerial Council on Mineral and Petroleum Resour­ces met earlier this year, 18 February 2011, to consider moving forward on the five remaining recommendations, including a revised model for upstream petroleum regu­latory reform. Consensus was not reached at that time, as I understand it, but the federal Minister for Resources and Energy advised the meeting that, irrespective of that, he would proceed with revised reforms in Commonwealth waters.

I want to make a series of points on the Montara incident. On 21 August 2009, there was an uncontrolled oil and gas release at the Montara oil field in the Timor Sea, in north Western Australia. Work commenced to drill a relief well on 14 September 2009. On 1 November 2009, during the relief efforts, a fire broke out on the drilling rig, and on 3 November the relief operations were successful in extinguishing the fire and con­taining the oil leak. The Northern Territory Department of Resources was the designated authority for the regulation of this field, as part of the NOPSA arrangements. The Montara Commission of Inquiry found that the cause of the blow-out incident was the failure of the primary well control barrier. Initial cementing problems to contain the leak were compounded by the fact that only one of two secondary well control barriers were installed. Chapter 4 of the inquiry report concluded that the existing regulatory regime supporting offshore petro­leum activities provided sufficient powers to the regulator to enable the effective monitoring and enforcement of offshore petroleum related operations. The inade­quacies identified by the inquiry primarily relate to the implementation of the regulatory regime—that is, it pointed the finger at the existing regulators as not having done their job properly. In the interests of time, I will just go quickly to the area of WA concerns. WA was concerned that the Commonwealth proposed to change the structure of the regulator without having any ongoing commitment to proper lines of communi­cation between the Commonwealth and the states. What ought to have happened, in the Western Australian state government's view, is that, rather than jettison the entire regula­tory regime that had worked well for the past 50 years, it would have been better to find areas to improve and, through incremental improvements, to improve the way the system currently operates.

A memorandum of understanding has now been signed between the Commonwealth and the state, and that is a good thing. We welcome that. That is the way the process should have got underway from the start. Since this legislation was debated in the House of Representatives—where the coali­tion was not able to support the legislation—the federal Minister for Resources and Energy has finally managed to reach agreement with Western Australia by signing a memorandum of understanding which achieved the following outcomes, which I will just put on the record for future reference. NOPSA and its successor body, NOPSEMA, will be headquartered in Perth, strengthening WA as the centre of the petroleum industry in Australia. The joint authorities, comprising the Commonwealth and relevant state or Northern Territory minister, will be retained as the decision makers for key petroleum titles in Common­wealth waters. State and Northern Territory departments will be provided with full access to relevant information about petroleum projects in Commonwealth waters. The Offshore Petroleum (Royalty) Amendment Bill 2011 will be amended to maintain the WA minister's role in the administration of offshore petroleum royalties from the North West Shelf project.

The environment regulations made under the offshore petroleum legislation will be amended to require proponents to lodge an environment plan with NOPSEMA and to have notified all persons whose interests may be affected expressly, including state govern­ment agencies, of proposed activities to be undertaken under the environment plan. The regulations will provide for stakeholder submissions to be lodged with NOPSEMA along with the draft environment plan and require that the proponents adequately deal with legitimate concerns within the environ­ment plan. NOPSEMA will then consider the stakeholder submissions and decide whether the environment plan adequately deals with the concerns raised. NOPSEMA could consult with other relevant agencies to inform itself appropriately before accepting or rejecting the environment plan.

The environment plan would also include a requirement of advance notification of state and Northern Territory agencies on dates proposed for activities such as seismic surveys and drilling where there could be local impacts of the activity and concern from the local community. This will ensure that state governments like the Western Australian government and the Northern Territory government are advised of potential activities and have the opportunity to comment and will allow NOPSEMA to seek relevant expert advice from state agencies. Practical consultation mechanisms between NOPSEMA and relevant WA government agencies will be put in place to give practical effect to all these arrange­ments.

The state government in Western Australia is still not excited about all this, but significant progress has been made. The only reason this progress has been made is that the coalition shamed the federal Minister for Resources and Energy into going through proper process. We shamed the federal Minister for Resources and Energy to comply with the Labor government's promise before the 2007 election about cooperative federalism. This is an area like no other, where proper coordination, proper consulta­tion, proper engagement and proper lines of communication between the Commonwealth government and, in particular, the state government of Western Australia are critical­ly important, because of course the offshore petroleum industry is particularly important to my home state of Western Australia. The LNG industry in particular has great potential to be a win-win for Australia: a win on the economic front and a win on the environmental front for the world. Much as this government is trying to make it harder for the LNG industry to grow and prosper in Australia, it is actually an industry that can help reduce global greenhouse gas emiss­ions. Even though it would cause increased emissions in Australia, to export LNG to places like China and Japan would actually help reduce emissions by more in other parts of the world.

With those few words: the coalition now are in a position where we are satisfied enough to support passage of this legislation. However, we remain concerned about the very bad process that the government follow­ed along the way.