Australian Offshore Petroleum Regulation after the Varanus Island Explosion and the Montara Blowout - Drowning in a Sea of Federalism?

• Author: Tina Hunter
• Position: BA (Hons) (Syd); G Dip A (LIS) (CSU); M App Sc (LIM) (Dist) (CSU); JD (Hons) (Bond); PhD (Bergen). Assistant Professor, Bond University, Gold Coast, Australia. Gjesteforsker, Universitetet i Bergen, Norway. [Ed.note: this paper was subject to double blind referee process at the author's request.]
• Pages: 69-89

(2011) 25 A&NZ Mar L J

AUSTRALIAN OFFSHORE PETROLEUM REGULATION AFTER THE VARANUS

ISLAND EXPLOSION AND THE MONTARA BLOWOUT– DROWNING IN A SEA OF

FEDERALISM?

Tina Hunte r

∗

This paper considers the state of regulation of offshore petroleum activities since the Varanus Island Gas Explosion

in 2008, and the Montara blowout and oil spill in 2009. The regulatory arrangements that arose out of the 1980

Offshore Constitutional Settlement split the regulation of Australia’s maritime resources into two distinct zones –

those waters seaward from the baseline to three nautical miles, which is regulated by the states and territories; and

those waters seaward from three nautical miles to Australia’s maritime limit (at present 200 nautical miles),

regulated by the Commonwealth. Within these constitutional arrangements, the Commonwealth and States/Northern

Territory (NT) have regulated petroleum activities under prevailing petroleum legislation. However, there have

been two catastrophic facility integrity failures – a gas explosion on Varanus Island and a blowout and resultant oil

spill on the Montara Platform. These incidents, combined with a review of the operations of the National Offshore

Petroleum Safety Authority and an analysis of regulatory burden on the offshore petroleum sector have indicated

that Australia requires a regulatory framework that establishes a single agency as regulator for all petroleum

activities. The Commonwealth proposed two models of regulation for such a regulator agency. Both of these models

have been rejected by the Western Australian Government, which has indicated that their view is that given the local

conditions and unique nature of petroleum titles in Western Australia, the Western Australian Government should

be involved in the regulation of titles in Western Australia. This paper provides an alternative model to those

proposed by the Commonwealth. It suggests the establishment of single regulators based on geographical division

rather that governmental division. This means establishing a western basin resource regulator, responsible for

regulating all of the offshore petroleum resources in the western basins of Australia, and a national regulator, who

could regulate all of the eastern and central offshore petroleum producing basins.

1 Intro duction

The regulation of offshore petroleum activities in Australia has been a constitutional conundrum since the first show

of petroleum in the Bass Strait in the 1960s. From the first negotiations resulting in the 1967 Petroleum Agreement,

there has been tension bet ween the States/Northern Territory (NT) and Commonwealth regarding the regulation of

offshore oil and gas. Following the enactments of the Sea and Submerged Lands Act 1973 (Cth) and the

consequent ial challenge b y NSW in NSW v Commonwealth ( Sea and Submerged Lands Case),1 sovereign rights

over Australia’s territorial seas and continental shelf were vested in the Commonwealth. This heightened friction

between the C ommonwealth and States/NT regarding regulatory control of Australia’s maritime zones. However, a

negotiated settlement, the Offshore Constitutional Settlement (OCS), ushered in an era of ‘co-operative gover nance

in a sea of federalism’,2 where divisive jurisdictional posturing between the States and the Commonwealth reduced.3

Indeed, th e creation of the Na tional Offshore Pet roleum Safety Aut hority (NOPSA) in 2005 saw unpr ecedented

cooperati on in the sea of fed eralism a s the States and the Commonwealth moved toward the common goal of a

national offshore petroleum regulator.

Six years a fter the crea tion of NOPSA, coop erative feder alism appears to be in cr isis. After sev eral report s4

∗ BA (Hons) (Syd); G Dip A (LIS) (C SU); M App Sc (LIM) (Dist) (CSU); JD (Hons) (Bond); PhD (Bergen).

and two

catastrophic facility integrity failures (CFIFs), there is a call for the regulation of all petroleum activities in all

Assistant Professor, Bond Universit y, Gold Coast, Austra lia. Gjesteforsker , Universit etet i Bergen, N orway. [Ed.note: t his paper was subject to

double bli nd referee pr ocess at the au thor’s reque st.]

1 NSW v Commonwealth (1975) 135 CLR 337.

2 A phrase described by Na than Evans in N athan Evans , ‘Offshore Pe troleum in Au stralia – Cooperative Governance in a Sea of Federalism’

(2003) 26 Dalhousie Law Journal 175.

3 Ibid 176.

4 These reports include Magne Ognedal, Derek Griffiths and Bruce Lake, ‘Revie w of the National Offsh ore Petroleum Safet y Authority

Operational Activities: Report of the Independent Review Team’ (Report, Depart ment of Resour ces, Energy an d Tourism, 2008); Produ ctivity

Commission, ‘Review of Regulat ory Burden o n the Upstrea m (Oil and Gas) Sector Research Report’, (Productivity Commission, April 2009);

69

Australia n offshore pe tro le um re gulatio n – dro wning in a se a o f fed e ra lism?

(2011) 25 A&NZ Mar L J

offshore jurisdictions to be regulated by a single agency, incorporating resource management, environment and

safety regulation.

This paper examines the regulation of offshore petroleum activities in a post facility-failure landscape. Firstly, it will

outline the current arrangements for the regulation of Australian offshore petroleum activities. It will then analyse

the current issues that befall the current regulatory arrangements, especially that of regulatory burden and facility

safety integrity. This will necess arily inclu de the Varanus Islan d gas pipe explosion an d the Montara Well blowout

and oil spill, and the recommendations of the Montara Commission of Inquiry (MCI). Finally, it will focus on an

analysis of the offshore petroleum regulatory landscape post facility failure. Not only will this paper examine the

legislative changes to date in response to these critical incidents, but will also look at future regulatory reform. In

particular, this paper will examine whether the establishment of a National Offshore Petroleum Regulator (NOPR)

controlled by the Commonwealth will calm the seas of federalism, or see offshore petroleum regulation drowning in

a sea of federal ism.

2 Re gulatory arra ngeme nts conc erning Austra lia n offshore pe troleum ac tivities at

the time of the Monta ra blowout

The legal framework regulating offshore petroleum activities in Australia is a unique constitutional arrangement

arising out of the OCS concluded in 1979,5 in order to address substantial constitutional issues pertaining to

Australia ’s Maritime Zones .6 Under this agreement, the regulation of Australia’s offsh ore maritim e zone, and

therefore of fshore petrol eum activities, is divided between the States/NT a nd Common wealth G overnmen ts.7 It was

enacted at State and Commonwealth level through mirror legislation (Commonwealth and State Petroleum

(Submerged Lands) Acts).8 In addition, a plethora of other necessary legislation was enacted to enable the

implementation of the OCS, thus conferring on the states a virtually unfettered ability to make laws up to three

nautical mi les.9

Under the agreed terms of the OCS, the States/NT are responsible for regulating the waters wholly within the State,

such as bays an d estuaries (State Water s). The States/ NT are also respon sible for waters the first three nauti cal miles

seaward from the mean low water mark (Coastal Waters). Th e Commonwealth is responsible for the waters seaward

of three nautical miles to the outer edge of Australia’s maritime zone (Commonwealth Waters). This outer edge is

either the Exclusive Economic Zone, 200 nautical miles from the mean low water mark or the edge of the

Continental Shelf, as decl ared under Articl e 77 of the United Nations Convention on the Law of the Sea).

This agreement remains in force today, with the States/NT and Commonwealth jurisdictions outlined in section 5(2)

of th e Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (‘OPGGSA’).

The States an d the NT share, in the manner provided by the OPGGSA, in the administration of the Commonwealth

offshore petroleum legislation.10

and K Bills and D Agostini, ‘Of fshore Petr oleum Safet y Regulati on: Better Practice an d the Effec tiveness o f the Nationa l Offshor e Petroleum

Safety Authority’ (Report , Department of Resources, Energy and Tourism, June 2009).

In addition, all governments are required, as far as practicable, to maintain common

5 Attorney General’s Department, Offshore Con stitutional Settlement: A Mile stone in Co-operative Federalism (Australian Government

Publishing Service, 1980).

6 For an excellent historical consideration of constitutional issues that required an agreement between the States and Commonwealth under the

OCS, see Stuart Kaye, ‘The Offshore Jurisdiction of the Australian States’ (2009) 1(2) Australian Journal of Maritime and Ocean Affairs 37 and

Michael Crommelin, Governance of Oil and Gas Resources in the Australian Federation (Working Paper, University of Melbourne Law School

Research Series No 8, 2009).

7 Attorney General’s Department, above n 5, 6-8.

8 Petroleum (Submerged Lands) Act 1967 (Cth); Petroleum (Submerged Lands) Registration Fees Act 1990 (WA); Petroleum (Submerged Lands)

Act 1982 (Vic); Petroleum (Submerged Lands) Act 1982 (Qld); Petroleum (Submerged Lands) Act 1982 (SA); Petroleum (Submerged Lands) Act

1982 (Tas); Petroleum (Submerged Lands) Act 1982 (NSW); Petroleum (Submerged Lands) Taxation Act 1967 (NSW), as outli ned in Michael

Crommelin, ‘The Legal Character of Petroleum Production Licences in Australia’ in Terrence Daintith, The Legal Character of Petroleum

Licences: A Comparative Study (University of Dundee, Centre for Petroleum and Mineral Studies, International Bar Association, 1981) 62.

9 Required Acts include Coastal Waters (State Powers) Act 1980; Coastal Waters (Northern Territory Powers) Act 1980; Coastal Waters (State

Title) Act 1980; Coastal Waters (Northern Territory Title) Act; and Offshore Minerals Act 1984 (Cth). These are outli ned in s 5(3) of the

Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (‘OPGGSA’). Refer to R Cullen, Federalism in Action: The Australian and

Canadian Offshore Disputes (Federation Press, 1990), especially 108-110.

10 OPGGSA ss 56 and 66.

70