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Economics Legislation Committee
(Senate-Thursday, 27 February 2014)
Australian Renewable Energy Agency
National Offshore Petroleum Safety and Environmental Management Authority
Commonwealth Scientific and Industrial Research Organisation
Senator KIM CARR
Ms Hazel Bennett
Australian Skills Quality Authority
Senator KIM CARR
Department of Industry
Mr G Wilson
Senator KIM CARR
- Australian Renewable Energy Agency
- INDUSTRY PORTFOLIO
Content WindowEconomics Legislation Committee - 27/02/2014 - Estimates - INDUSTRY PORTFOLIO - Geoscience Australia
CHAIR: Good morning Dr Pigram and officers from Geoscience Australia. I invite you to make a brief opening statement if you choose to, or we can get straight into questions.
Dr Pigram : Thank you. I do not have an opening statement but I do have an answer to the question that you posed to the CSIRO in relation to shale gas in Tasmania if you would like me to answer that at this point.
CHAIR: I was going to ask some questions about shale gas generally, not just in Tasmania. Please go ahead.
Dr Pigram : I think your question was prompted by Petrotherm taking out a lease for shale gas in Tasmania.
Dr Pigram : My understanding is that the rocks that they are targeting are in a basin that we call the Tasman basin—surprisingly. It covers about the eastern half of the island. It is in Permian rocks, so about 200 million years old, and the potential is in sediments that are probably between 700 metres and a kilometre in depth, but where those rocks come closer to the surface—and you might know from history that in the north-west there was an oil shale industry in the late 1800s. It is those kinds of rocks, that they are targeting at depth, that might have some potential for shale gas development. At this point, it is very much a potential scenario. It is not tested; clearly, that is what Petrotherm will do—they will test that potential. But certainly what we know about the shale and its history and the fact that there is a bitumen seep on the southern tip of Tassie coming from those rocks would suggest that it is certainly worth examining.
CHAIR: That raises issues in general, some of which we have canvassed before, about the potential development of shale gas in Australia, and I think we have even discussed some aspects of how that has gone in the US—
Dr Pigram : Yes.
CHAIR: and how advances in technology make the commercial exploitation of shale gas possible in ways, over the last decade or so, that it had not been previously. But countering that, there was also genuine community concern about some of the environmental impacts. I am not sure if you are able to assist me but I am keen on trying to look at those concerns in a rational way to see whether they are well-founded or ill-founded and to try and ensure that, where possible, if there are issues we explore how those can be addressed so that we can both exploit the potential of the energy that comes from shale gas in Australia and, at the same time, ensure that environmental protections are put in place that are appropriate and capable of dealing with that.
At a general level, are you able to indicate whether you think there is a risk of water pollution when fracking for shale oil and gas, whether that is high and whether it can be managed?
Dr Pigram : I heard your question earlier to CSIRO and I understand the issues around community concern. They generally fall into three or four categories. One is around fracking: the potential for contamination of other aquifers and water supplies, the chemicals used in fracking, and whether or not they might generate an earthquake, for example. I think these are the issues that people are generally concerned about.
In terms of fracking, in these depths what you are attempting to do is open up about a millimetre of the rock to enable a pathway for the fluids to flow. The great contrast between shale gas and coal seam gas, where the produced water is a major issue, is that these sediments are dry. You are not going to produce a lot of water. But you will need a quantity of water simply to be used in the fracking process because the fluids used in fracking, which is short for 'hydraulic fracking', are essentially water with some additives. I will go to what the additives are in a moment. There is an issue around adequate water supply for fracking as opposed to produced water in a shale gas space. So it is kind of the opposite side to coal seam gas.
The issue that people mostly bring up in relation to the chemicals in the water is the hydrocarbons that are placed in the water to facilitate fracking. In Queensland and New South Wales, those chemicals—the short term for them is BTEX—are banned. I am not sure if that is the case in Tasmania , but I would suggest that is worth examining if it is not the case. The other chemicals that are used are household products and things that you would use in your swimming pool. They are soaps, acids and material like that, so they do not represent a threat to the environment. That is the short answer.
CHAIR: But, correct me if I am wrong, what we are talking about with shale gas is that you introduce water and then you also take that away and need to treat it. Obviously there are commercial considerations about whether all that stacks up, but that is what would happen with this. The water would be taken away and treated separately anyway.
Dr Pigram : That is correct, but you are not producing extra water. The water that you put in is the water that you recover.
CHAIR: That is with shale gas. It is different with coal seam gas, I understand.
Dr Pigram : That is correct.
CHAIR: But with shale gas whatever you put in that water theoretically you will retain control of.
Dr Pigram : You will recover most of it, and then you will treat it and use it, presumably. Water treatment is a common practice. It is a standard practice. We are well versed in it. This is our society and engineers are well versed in handling that kind of water.
CHAIR: Are any of the chemicals that are used that you have just described particularly problematic in treating it?
Dr Pigram : No, not at all.
CHAIR: Go on then. I interrupted you.
Dr Pigram : The other concern is whether or not that fracking will introduce an earthquake. As I said, we are talking about very shallow depths and creating very small fractures. A typical fracture length is about 300 metres. So the kind of earthquake you are likely to generate is in the order of one to two on the Richter scale. What is a two on the Richter scale? If you were standing at the well head you might feel it, but it would not do any damage to built infrastructure. Last time we were here a senator asked me whether or not I would be comfortable with that process happening within a suburban environment and I said, 'Yes, because it does not represent a threat.' It is shallow; you are not putting enough energy in the ground to create problems for built infrastructure.
My view—and this has been, as you would appreciate, an issue for some time in the community—is that the concerns around fracking are unwarranted. They do not represent a problem for the community by and large. The concerns around water can be managed. Produced water is a much bigger challenge depending on the volume. Coal seam gas has that issue and it is being dealt with. The other concerns are really around access and the community finding a way to do it in a way that is sensitive to the other users of the environment in which it is operating.
CHAIR: When I read through some of the CSIRO fact notes, I think some of them suggested that there is the potential to research being able to access it with fewer wells and fewer impacts that might cause land use conflict.
Dr Pigram : Yes, minimising the footprint and the potential impacts.
CHAIR: Those are the sorts of things they were recommending. Just to recap, previously I have asked you about the prospectivity. I think you indicated that there was something like 400 years of gas that appears to be available at current domestic usage within Australia. Has that advanced at all? Have you got any updated figures on that?
Dr Pigram : We have not—
CHAIR: Because Tasmania was not—
Dr Pigram : It was not included, no. We have not assessed the potential of Tasmania. But what we have been able to do in recent times is tighten up the assessment in the Cooper Basin where we have better control. So we have a better understanding of what the potential is there. You have probably seen in a lot of correspondence or reports in the papers recently that the Cooper Basin is attracting a lot of interest and a lot of additional investment. That is because it has something called basin centred gas. Basically all of the sediments in that basin are saturated with gas and this new technology will be used to exploit that. The effect of that on the Cooper is to extend the life of that basin. It will continue to be an important source of gas particularly for eastern Australian markets. I have not got a number on what the reserves might be.
CHAIR: But it is increasing?
Dr Pigram : It will tighten up. As I think I said last time, the 400-year figure was plucked out of the air. It was done on the basis of analogies rather than drilling and hard facts. But, again, that drilling has not taken place in a lot of the basin, so we do not have a lot of tight information. One of the challenges we have in putting a tight number around it is that at the moment the state legislation does not require the companies to release production figures. If we could get production figures, we could see what the performance of individual wells were and extrapolate that on a basin-wide basis for what the resource might be.
CHAIR: Which would be useful knowledge for future energy planning.
Dr Pigram : It would be very useful for planning, but at the moment we are not able to collect it because they are not required to submit it and the companies regard it as commercial-in-confidence information and are not prepared to share it.
CHAIR: That is something for maybe the minister to take note of and pass on as part of deliberations for future COAG arrangements or something like that. This is a relatively new industry. It is probably only in the last 10 or 15 years that it has been commercially viable. But we are coming to the table after other countries. Are there lessons to be learned for us from the US in particular where it has gone ahead pretty strongly and other countries in terms of how they have managed not just community perception but the reality of environmental issues?
Dr Pigram : I think there are. The example of banning the BTEX chemicals is a good one. The Australian government has moved very quickly on that one, and I think that is commendable. The other lessons are interesting in that in a sense in eastern Australia—and you see the contrast between Queensland and New South Wales and Victoria—the horse has bolted from a scientific or technical point of view. We understand fully what the technical risks are, I think, but the community has not accepted that and the community does not seem to be receptive to the scientific evidence. People have formed their views and they are hardening rather than being open and listening to what I would argue are sensible arguments. Both governments have had reviews and sought to get that information on the table and provide a more balanced view around what the net benefits or otherwise to society are. So I think it is really a communication and social issue where trusted sources of information are not taken as fact when provided. This agency prides itself on being an independent adviser on these issues, but even then I have been involved in community consultation processes with the minister where the information still is not accepted and people are not prepared to accept that what I say is factual. Instead, they think I am taking a position in support of the industry. I am not. My view is that the risks are genuinely known and manageable. Certainly there are issues around the footprint and the impact on farmers and so forth, but they are all things that can be negotiated and managed.
CHAIR: Obviously I have asked you questions about this over previous estimates. I have a general interest, but it has been piqued recently by the fact that in my home state—
Dr Pigram : In your own backyard.
CHAIR: it is looking to start. So I am very keen to try to get a factual understanding of what the real risks are so that I can enter the debate in an informed way.
Dr Pigram : Clearly you have read the CSIRO fact sheets. I think they are very good. They are factually correct. They are accurate and they are a good basis on which to start.
Senator PRATT: Dr Pigram, I wanted to ask you about the impact of budget cuts and revenue streams on your activities. It has been reported in the press that cash flows from other government departments have declined substantially. Are you able to outline for us what those revenue streams were and what activities they covered?
Dr Pigram : Certainly. Let me explain. The organisation exists to provide geoscience services and information to the rest of government. We have worked very hard over the last decade to ensure that we are well placed to be able to do that. We currently have agreements with 17 other departments for the provision of information. Usually when we put figures in the forward estimates we have to finalise those well before our budget is actually finalised, so we do not always know what our section 31 revenue will look like going forward. Some of it turns up during the year and some of it gets adjusted. So we have historically been very conservative around predicting what those numbers might be.
You would be aware at the moment that there is a great deal of uncertainty around budget. We are not sure precisely what the full budget will look like for the government going into 2014-15, so we have taken a conservative approach and said that we think our section 31 will decline. To explain that, our typical sustained level of section 31 is around $40 million a year. Last year we had $62 billion, but a significant proportion of that was money that basically went through, so it was money that we managed on behalf of another government department, mainly to acquire data—so, to do offshore seismic surveys or onshore work. So it was a big chunk of money. We managed the contract, but it does not stick, so it inflates the number. Our solid number was around $40 million. In the forward estimates we are anticipating that I think we can see something like $25 million at the moment, so we think we will only have about $35 million. So it is a significant decrease. But we are not sure yet whether or not that is a solid figure.
Senator PRATT: What are the underlying drivers behind that? How much of it would indicate, for example, a decline in mining exploration or—
Dr Pigram : It is not likely to be in those resource sector spaces, because we do not take money from the resources sector—we do not take money from the private sector—and the funding we have—
Senator PRATT: But you do from the department of resources?
Dr Pigram : That is correct.
Senator PRATT: But the department of resources is still going ahead with the same level of research and inquiry that they have previously?
Dr Pigram : We do not know that at this stage and we probably will not know that until May. They are one of our partners, obviously, within that portfolio.
Senator PRATT: What proportion of that $40 million is the Department of Resources, Energy and Tourism?
Dr Pigram : This year, when we had the $62 million, they were a significant proportion in the sense that we were doing carbon capture and storage programs offshore. So there was a big data acquisition program. Of that flow-through money they were probably a large proportion of it. The other large proportion of that—and I am talking in the order of $20 million—came from our state and territory partners under the National Geoscience Agreement for airborne data acquisition and seismic work. So those two areas are part of the uncertainty. Some of the other uncertainty stems to work we do at the Department of the Environment. We are not sure exactly what their future program will look like. We are doing a lot of work with them on the bio-regional assessments, which essentially is groundwater work related to coal-seam gas. We think that will continue, but again we do not have that locked it, but it looks good. In raising these numbers with staff all I am doing is being a prudent manager indicating that we have some potential risks going into next year. We cannot go with our current cost structure. We have to make some adjustments and we will deal with the issues as they arise.
Senator PRATT: There is a reason you do the work you do—namely, that it provides fairly vital data underpinning for agencies to do their jobs properly. It would strike me as alarming if the Department of the Environment was making decisions about water tables for environmental mining approvals, for example, without the appropriate data. Is it up to the agencies themselves? Do you say to them, 'The amount you are paying us for this is not going to be adequate to your requirements'?
Dr Pigram : It is always a discussion around what is sufficient and what is essential for them to be able to undertake the tasks they are undertaking. They live in the same environment we do. If funds are tightened they have to prioritise and decide where they wish to focus their activity and, consequently, what sort of evidence base they might want for that. So it is very much, on our part, providing them with information around what we can do, and it is very much an issue on their part of what they can afford to buy from us. It is a typical partnership where we will always have a view that you could provide a gold-plated service, and we would love to be in a situation where people can fund that, but we have to be pragmatic and practical and provide the minimum essential information to enable sensible decisions to be made in the policy context.
Senator PRATT: I clearly do not want departments to have to make regulatory decisions in the absence of data, because they were not able to afford that data to start with.
Ms Beauchamp : We are talking very closely with the Department of the Environment and other agencies involved in research and development, and one of the things we are wanting to look at is making sure we better target our research and development efforts around the government's priorities. Geoscience Australia, CSIRO, the Australian Institute of Marine Science and a number of other agencies are involved. We are looking at the prioritisation, as Dr Pigram said, in terms of supporting the evidence base we need to deliver on the government's priorities, including regulatory arrangements.
Senator PRATT: Yes. To my mind it is not just a question of priorities. Although I respect the fact the government will have priorities, to my mind as a legislator there are accountabilities our agencies have and I want to make sure they are properly resourced to fulfil.
Ms Beauchamp : We will be doing the due diligence on those sorts of regulatory arrangements, but in this area too there are peaks and troughs around particular projects. That happens annually and has to be managed. I think Dr Pigram has put in place plans to manage those peaks and troughs.
Senator PRATT: I know the Department of Industry will have an interest in the next generation of exploration that needs to take place, particularly at a time when you have a downturn in people going into production mode and when we are quite concerned about where that next generation of exploration comes from. To my mind it does put a particular emphasis on the work that you do to make sure that that does not drop off. Are you confident in your relationship with the Department of Industry that that is the case?
Dr Pigram : Yes, we are very well placed at the moment. This is one area where the government is very clear. They are going to introduce a tax incentive for the smaller explorers to take them into greenfield space—so those companies that do not have income. To complement that we have a greenfields program. So we are doing the precompetitive work in those areas under cover. There are extensions of the known provinces and so forth that go out under the plans, where we know there is the same potential; but, at the moment, the great barrier is that cover, and the fact is there is a lack of information. To complement the tax incentive we are doing the frame work work with our colleagues in the states and territories to provide an evidence base and a geological frame work to enable those companies to make decisions about where they might explore and where they might put their effort and investment. So we are very conscious of the fact that exploration activity, particularly in greenfield space, has declined.
To be honest with you, right now is the first time the agency has been funded in a countercyclical way in that we are doing it at a time when things are declining rather than when there is a big boom and you do not need to encourage people to do things. We, as a provider of precompetitive information, will not turn that around, because it is primarily driven by commodity prices, but the reality is that, when the industry rebounds—and that will happen; we know what the cycle is like—Australia will be very well placed on both an information base and a tax frame work to be far more competitive than perhaps it has been in the past, particularly in greenfield spaces.
Senator PRATT: You indicated a decline in revenue coming from the states. Could you go back to that and highlight what that is?
Dr Pigram : The only revenue we obtain from our colleagues under the national geoscience agreement is around data acquisition. We have completed some very large programs on their behalf, and there are some continuing. We have, for example, just completed a seismic survey that extends all the way along the railway line across the Nullarbor that started in WA and ends up just north of Adelaide. That was cofunded by WA, South Australia, another agency and us. That team is moving up to North Queensland, where they will undertake some work. Knowing exactly what the future program is in that space is a little uncertain, but the good news is our colleagues in the Northern Territory, New South Wales and Queensland all have new initiatives. They are in very healthy states. WA is seeing a little bit of a wind-back in their funding, but they have had very good funding under Royalties for Regions in recent years, so we have done a lot of work there. South Australia, Tasmania and the Northern Territory are facing some financial pressures and are not as well funded as they have been. So, again, it is that kind of uncertainty; until they get their budgets, we will not know what they have and whether they will want to come with us to partner and manage some of those programs. But I can assure you we have excellent relationships with all of the agencies involved and, if the opportunity arises, we will work with them to address their issues of concern.
Senator PRATT: Thank you.
Senator Ronaldson: I note that appropriation after efficiencies and savings measures have been applied will reduce by $6.1 million in 2014-15 and a further $3 million in 2015-16. That includes, I understand, a temporary increase in the efficiency dividend imposed in August last year by the former government. It was one per cent in 2014-15, 1.25 per cent—these are the increases—
Senator PRATT: We can always rely on you for political interjections.
Senator Ronaldson: in 2016-17, and one per cent in 2017-18. I thought it was important that that was on the record.
CHAIR: Thank you, Minister. It is much appreciated. And thank you, Dr Pigram and the other officers, for your time and attending today. We will now adjourn and return with outcome 1 of the Department of Industry.
Proceedings suspended from 12 : 00 to 13 : 04