By Peter Milne
Stuart Smith has seen Australia’s offshore oil and gas industry go from an export powerhouse to a sector beset with regulatory hurdles – from court cases to plunging political and community support.
When Smith became chief executive of the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) in 2014, Chevron, Shell and Japan’s Inpex were spending $US150 billion on four enormous projects to extract gas off WA, cool it to a liquid and export it to Asia.
NOPSEMA ceo Stuart Smith says the industry knew they would always be judged on the latest science.Credit: NOPSEMA
Now new liquefied natural gas (LNG) projects using offshore gas, led by local heavyweights Woodside and Santo, are under unprecedented scrutiny from regulators, investors, the community and now the courts. According to Smith, the change in sentiment is a far cry from the industry’s previous “this sort of thing ebbs and flows, and it’ll quieten down” attitude to community opposition.
“That’s not the case now – the industry is aware that attitudes have shifted,” he said.
Perth-based NOPSEMA has also had a taste of the shifting winds, having being caught up in the most abrupt example of fossil fuel’s changing fortunes in early December, when the full Federal Court rejected an appeal by Santos against a ruling that a drilling approval from NOPSEMA for its $6.2 billion Barossa project was invalid.
As a consequence of Santos not consulting sufficiently with the Indigenous people of the Tiwi Islands south of the gas field, and then the regulator accepting its efforts, Santos is paying about $1 million every three days for a drilling rig it cannot use. Santos now has to restart the process to gain approval for drilling to keep to its schedule of exporting gas from 2025.
Smith, who was interviewed before the appeal decision and did not discuss the Barossa case, said cultural heritage was a new challenge for the regulator.
“How do we, as an agency, apply essentially white man laws to something like that and come up with a sound position that is defensible and reasonable?” he said.
So, why is what started as a safety regulator concerned about the spiritual connection that Dennis Tipakalippa, the senior lawman of the Tiwi Islands who sued NOPSEMA, have with the Sea Country around his island?
In 2014, NOPSEMA became responsible for administering the federal Environment Protection and Biodiversity Conservation Act in Commonwealth waters. The Act explicitly includes Indigenous heritage value as part of the environment to be protected.
The Act also requires the consideration of indirect consequences of any proposal, and recently that has been interpreted as including the carbon emissions produced by the customers of an oil or gas project.
Consideration of so-called Scope 3 emissions that dwarf the already massive direct carbon pollution from LNG projects is now a paramount concern.
In February Coalition resources minister Keith Pitt wrote to Smith setting out his expectations that the independent regulator ignore Scope 3 emissions and consider the “economic and commercial environment” when making decisions about safety and the environment.
NOPSEMA did not respond to Pitt before the election, but Smith is clear about his position.
“We will apply the law first and foremost, the law is going to override a ministerial expectation,” he said.
The offshore industry, which includes smaller projects and ExxonMobil’s Bass Strait assets as well as the LNG exporters, has more to worry about than a repeat of the Barossa decision striking out approval for an environment plan needed to build a new project.
Every offshore project also needs an environment plan to operate, so legal action citing lack of consultation that could threaten current production cannot be ruled out.
Projects under construction - Santos’ Barossa and Woodside’s $17.6 billion Scarborough - have additional concerns beyond whether they have consulted widely enough.
Both have high-level offshore project proposals (OPP) accepted by NOPSEMA, but that is no guarantee that subsequent more detailed environment plans required before any offshore activity happen will be accepted.
“You can get an offshore project proposal based on one set of science, which might be overtaken by new science going forward,” Smith warned.
Barossa’s project proposal is almost five years old, while Woodside’s Scarborough plan was accepted in April 2020. Since then, the case for a quicker phase-out of gas has strengthened, which could affect NOPSEMA’s assessment of Scope 3 emissions.
The International Energy Agency called for no gas projects in 2021, and a major Intergovernmental Panel on Climate Change report in April called for significant emissions reductions this decade.
And what if the gas companies start screaming ‘regulatory risk’ due to moving goalposts?
“They understand the system when they start,” Smith said. “If they don’t know, then they’re not being well advised by their staff.”
NOPSEMA’s consideration of Indigenous heritage and indirect consequences could worry Woodside due to concerns that emissions from the Pluto LNG plant where gas from Scarborough will be processed may damage the adjacent ancient Murujuga rock art.
Smith said the regulator would look at the latest scientific studies.
“Some of them will say the rock art is being eroded faster because of greater emissions, and others will say it isn’t,” he said.
“We’ll do an assessment and form a decision.”
Since the Scarborough OPP was accepted scientists led by University of WA Professor of world rock art Benjamin Smith have published two peer-reviewed papers concluding industrial emissions are damaging the rock art. However, one other study reached the opposite conclusion.
Revised environment plans for projects in production must be revised every five years and submitted to NOPSEMA for acceptance, so no projects can escape assessment against the latest science.
Smith said this could sometimes work in the industry’s favour if for example research on the environmental benefits of old infrastructure as artificial reefs could justify expensive removal when production ends not being required.
Smith, who will leave NOPSEMA in February, said the challenge for the industry was to manage these new issues without “dropping the ball” on safety and the environment, causing a major accident event - industry parlance for something that kills several workers.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.