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Regulatory Burden on the Upstream Petroleum (Oil and Gas) Sector


Research report

This research report was released on 30 April 2009.

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  • Key points
  • Media release
  • Contents
  • Oil and gas projects are large and complex. From the community's perspective, it is important that they meet reasonable requirements for the environment, heritage, land access, and occupational health and safety. It is also important to achieve these objectives without imposing unnecessary costs on companies or the broader community.
  • Currently, duplication and overlap, and inconsistent administration of the 22 petroleum and pipeline laws and more than 150 statutes governing upstream petroleum activities impose significant unnecessary burdens on the sector.
    • Project approvals are taking longer than a streamlined approval process would allow, potentially diminishing the present value of petroleum resource extraction in Australia by billions of dollars each year.
  • There is no simple, single answer to reducing the unnecessary regulatory burdens on the upstream petroleum sector. A suite of changes will be needed. The Commission's proposals fall into two broad groups: implementing regulatory best practice and reforming institutional arrangements.
  • Key recommendations for improving existing regulatory arrangements include:
    • reducing unnecessary delays (particularly for environmental and heritage processes) through setting statutory timelines, ensuring legislative objectives are clear, promoting clear guidelines on information requirements, and introducing a 'lead agency' approach for approvals
    • clarifying and clearly articulating the objectives for intervention in resource management and ensuring the costs of intervention are the minimum necessary.
  • To cut through regulatory duplication and overlap, the Commission proposes the staged establishment of a new national offshore petroleum regulator to undertake resource management, pipeline and environmental regulation in all Commonwealth, State and Territory waters (including islands).
    • The Australian Government initially would establish the new national offshore petroleum regulator in Commonwealth waters, and then provide State and Territory Governments, on a bilateral basis, the option of conferring their petroleum regulatory responsibilities. States and Territories would also have the option of conferring responsibility for regulating cross-jurisdictional onshore pipelines to this body.
    • The National Offshore Petroleum Safety Authority should remain a separate entity with an exclusive focus on occupational health and safety regulation, with its remit extended to offshore pipelines, subsea equipment and wells. Its geographical coverage should include all Commonwealth, State and Territory waters (including islands).

Many of the recommendations for 'best practice' regulation in this report repeat recommendations made by previous, yet for the most part, unimplemented, reviews. This simply reinforces that strong political will and leadership will be essential if meaningful improvement in the way this sector is regulated across multiple jurisdictions is to be successfully implemented, and sustained.

Reforms designed to remove unnecessary regulatory burdens on the upstream petroleum sector have the potential to provide significant benefits to both the sector and the broader community, according to a new report by the Productivity Commission.

The report - Review of Regulatory Burden on the Upstream Petroleum (Oil and Gas) Sector - examines Australia's regulatory framework for oil and gas projects involving more than one jurisdiction.

The report concludes that current regulatory requirements are overly complex, often overlapping and duplicative, and that collectively they impose significant unnecessary burdens.

Commissioner Philip Weickhardt observed that 'there is widespread agreement among both government and industry that cutting the time taken to approve major projects by 50 per cent is achievable and desirable, but it will require the elimination of many of the current duplicative processes between the Australian and State and Territory Governments.'

He added 'there is no 'silver bullet' for reducing delays. A suite of reforms is required.'

A key recommendation is the establishment of a national offshore petroleum regulator. States and Territories would be able to 'opt-in' and transfer their responsibilities in State and Territory waters and for pipelines.

Other proposals aim to streamline existing arrangements through greater use of statutory timelines and improved reporting of performance to improve transparency and accountability, and also by introducing a lead agency within the States and the Northern Territory for petroleum approval processes.

Given the size of the upstream petroleum sector, with some individual projects requiring investment of tens of billions of dollars, the report found reducing unnecessary regulatory burdens could provide gains to the community amounting to billions of dollars each year. These would come principally through reducing delays which increase project costs, reduce flexibility in responding to market conditions, impede the financing of projects, and defer production and revenues.

Background information

Leonora Nicol (Media and Publications) 02 6240 3239 / 0417 665 443

  • Preliminaries
    Cover, Copyright, Foreword, Terms of reference, Contents, Abbreviations and explanations and Glossary
  • Overview - including key points
  • Recommendations
  • Chapter 1 What is this study about?
    1.1 Background to this study
    1.2 What the Commission has been asked to do
    1.3 Scope of the study
    1.4 Approach of the study
    1.5 The conduct of this study
    1.6 Report structure
  • Chapter 2 The upstream petroleum sector
    2.1 Oil and gas in Australia
    2.2 Structure and size of the sector in a global context
    2.3 Exploration, development and production
    2.4 Industry structure
  • Chapter 3 What is an unnecessary regulatory burden?
    3.1 Why regulate the upstream petroleum sector?
    3.2 Sources of potential unnecessary regulatory burdens
    3.3 What is best practice regulation?
    3.4 Objective-based regulation versus prescriptive regulation
    3.5 Costs of regulation
  • Chapter 4 Regulatory overview
    4.1 Historical development of the existing framework
    4.2 Current legislative arrangements
    4.3 Regulators and other relevant bodies
    4.4 Recent Commonwealth, State and Territory reviews
    4.5 International treaties and obligations
  • Chapter 5 Resource management and land access
    5.1 Resource management
    5.2 Land access
  • Chapter 6 Environment and heritage
    6.1 Overview of environmental regulation
    6.2 Key regulatory requirements and processes
    6.3 Sources of unnecessary regulatory burden
  • Chapter 7 Occupational health and safety
    7.1 Offshore OHS regulation
    7.2 Onshore OHS regulation
  • Chapter 8 What impact are impediments having?
    8.1 Evidence of unnecessary regulatory burdens
    8.2 Inter-jurisdictional comparisons
    8.3 Economic costs
    8.4 Impact on investment attractiveness
  • Chapter 9 Models for a national regulator
    9.1 Issues with the current framework
    9.2 Models for assigning regulatory functions
    9.3 Assessment of institutional reform options
    9.4 Cost recovery arrangements
  • Chapter 10 A way forward
    10.1 Implementing best practice regulation
    10.2 Reshaping the regulatory architecture
    10.3 Concluding remarks
  • Appendix A Public consultation
  • Appendix B List of legislation
  • Appendix C International comparisons
  • Appendix D Summary of environmental and heritage requirements
  • Appendix E Estimating the economic cost of approval delays
  • References

Printed copies

Printed copies of the full report can be purchased from Canprint Communications.

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