Petroleum and Geothermal Energy (Energy Resources) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 30 August 2023.)

Mr PATTERSON (Morphett) (20:53): Again, it is a pleasure to speak about energy in this house. The Petroleum and Geothermal Energy (Energy Resources) Amendment Bill is slightly expanded in terms of scope and not just concentrating on gas. I indicate from the outset that I am the lead speaker and that the opposition will not be opposing the bill. It is worth going through a bit of the background on the bill and discussing how we are where we are today. At the outset, the bill seeks to make amendments to the Petroleum and Geothermal Act 2000, an act first enacted in September 2000 and subsequently reviewed in 2009.

Something that I think has held South Australia in good stead in terms of its petroleum resources in this state is that this act has been seen as an example of best practice and a regulatory framework for the industry here. Having said that, it is useful to make sure the act is current and up-to-date as we go through it, not just rest on our laurels and think it is going to remain best practice without us having to touch it.

Scrutiny makes sure it remains best practice, and to that end the former Liberal government undertook to make changes to the Petroleum and Geothermal Energy Act when it was previously in office between 2018 and 2022. The proposed changes look to maintain this act as leading practice for regulating upstream petroleum, but also noting that it takes into account carbon capture and storage as well as geothermal activities in South Australia; hence the part of the act that has 'geothermal' to its name.

Some of the changes looked at by the former government were to introduce a new provision to extend the scope of the Petroleum and Geothermal Energy Act to include the generation of hydrogen from means not already permissible under the existing act. Again, this is producing hydrogen via renewable energy and electrolysers or from natural gas using steam-methane and carbon capture—ultimately, if you want to make low emission hydrogen, having that carbon capture component.

These changes were subject to public consultation via an issues paper put out back in February 2021, and another round of consultation occurred on a draft bill back in June 2021. Reviewing the submissions made at the time, industry was widely supportive of those amendments, and that led to the Petroleum and Geothermal Energy (Energy Resources) Amendment Bill 2021 being introduced into the previous parliament in August 2021 by the then energy minister, Mr Dan van Holst Pellekaan. Unfortunately it did not progress before the change of government in March 2022, and we now see before us a bill of the same name introduced back in this place.

The reasoning behind the former government introducing that bill was to look at how to futureproof the petroleum and geothermal regulatory framework, and also to be mindful of the fact that they are not the only energy resources that may be available in the state going forward. One of the changes made to the act at the time was renaming it from the Petroleum and Geothermal Energy Act to ultimately being called the Energy Resources Act, reflecting the broader scope to include future fuels such as hydrogen. I note that the bill introduced to this parliament has renamed the act as the Energy Resources Act, a good and sensible change to what is an important act for the state.

As I said, the current government has now introduced the Petroleum and Geothermal Energy (Energy Resources) Amendment Bill 2023, and it is my understanding that, comparing the two bills, on the whole most of the administrative amendments that were consulted on in 2021 and put in place by the former Liberal government—and which, as I said, were industry supported—remain and have made their way through into this act.

One main difference is that previously the 2021 act incorporated some hydrogen generation provisions that were in that bill. They have now been moved out of this bill and, rather, included in the Hydrogen and Renewable Energy Bill that we debated last sitting week.

Having said that, it should be noted that the Petroleum and Geothermal Energy (Energy Resources) Amendment Bill still regulates naturally occurring hydrogen—both the previous bill and this amended one—and it is an opportune time to mention that as certainly there has been some welcome news this week from an ex-listed company, Gold Hydrogen. They have tenements on Yorke Peninsula, just near Minlaton.

In that same place a hundred years ago, companies such as oil explorers looking for oil performed drilling in that vicinity and, as part of their exploration, came across hydrogen. Of course, the interest was in oil so, yes, it was noted but they moved on to other areas. That is a hundred years ago that they found quite a high concentration of hydrogen. Gold Hydrogen were mindful of that and the big opportunities there could be for being able to capture natural hydrogen and actually use it commercially now.

Where maybe that was not the case a hundred years ago, they looked at the topography and looked at the potential in that area in and around Minlaton and Yorke Peninsula and did a test well and reported to the ASX this week the results from that. It is reported that they measured hydrogen at 73.3 per cent purity, as their media release states. That is quite similar, and equivalent to the test results from a hundred years ago. I think the test results at the time were stated as being 76 per cent purity of hydrogen at that same site and also at the same depth. This is very positive development for Gold Hydrogen.

Natural hydrogen, of course, is being produced overseas. It is expected to cost much less than having to produce hydrogen from renewable energy resources, up to a fifth of the cost, so it is a very economical and encouraging form of hydrogen. So these results are very informative. Hydrogen was not only found there; they also came across some helium. Again, according to their press release they said it was at 3.6 per cent levels, which relative to other sites around the world is quite a high concentration of helium.

Helium itself is quite rare and valuable as well, so the presence of that again provides another value-added opportunity for the company and will help, you would expect if the results continue, to allow for further economic investment to be made. In fact, they are looking at doing a second test well going forward to try to confirm these results. I certainly thank the managing director, Neil McDonald, and his team for keeping me updated on this exciting development and I wish them the best in their next phase of test drilling.

The other aspect of the bill that is worthy of commentary in this debate is that the bill proposes to introduce a rent for carbon capture and storage that uses the state's natural reservoirs. In Moomba, in the Cooper Basin, there are depleted gas wells where natural gas has been extracted. Of course, these gas wells can then be used to sequester carbon in them. That is what would be meant by natural reservoirs.

The bill proposes to introduce a rent for carbon capture to store regulated substances; however, there is an exemption that applies to carbon dioxide that has been produced or sourced within Australia and is not imported. As I said, this is a difference to the previous one. Previously, carbon capture was there but there was no rent to be introduced. Because of that change, it was the main area of interest from industry in relation to this bill. Certainly, in my time consulting with the industry on this bill and their appetite for it, they made comments around the carbon capture and storage rent that the government is seeking to levy.

That is proposed to be done via introducing a new part 7A, a rent for the use of the state's natural reservoirs to store regulated substances. I think part of the reason for the stakeholders' active interest in this was that originally, back in November 2022, when the draft bill was put out by the government for consultation it also looked at levying a rent for these regulated substances if they were produced or sourced outside of South Australia. From my understanding, in South Australia, if the carbon dioxide was produced in South Australia, it was allowed to be stored in the state's natural reservoirs without a rent, but if it was produced within Australia, then a rent was to be charged.

Certainly, this was a concern because there was no lead-up consultation or an issues paper around this beforehand. It was just put in as a draft and 'What do you think?' As I said before, if you look at the opportunities around Moomba and where that sits, it is certainly in quite close proximity to Queensland and New South Wales. We should definitely be alive to the opportunity that, if the country is going to undertake an energy transition, it is going to be much more economic, and it is going to be helpful as well, if we do it as a country and not try to do it with each jurisdiction standing alone.

In terms of looking at carbon capture, while it is a technology that has been around for some decades, it is a technology that really is, by virtue of the economics of it, not established. It is not mature. That is not to say it is not viable. Certainly, as more emphasis goes onto abating gas on storing carbon emissions, the economics of it will look after themselves, but there was certainly industry concern because we know Santos and Beach are trying to develop carbon capture and sequestration up in Moomba. That is going to require significant investment.

That was certainly a concern because you would have to think it is not too much of a stretch of the imagination, and I think it has been allocated in terms of their longer term planning for that carbon capture. I will touch on it a bit later on in my contribution. The first stage was looking at onsite carbon capture as part of processing the gas out of the basin and trying to capture fugitive emissions, but longer term—certainly because of what Moomba is, its geographical location and the make-up of those gas wells—there were great opportunities to store carbon dioxide not only from Moomba but from other sources as well.

You would have to think that would have been a factor in driving an investment decision in the first place. It certainly was a cause of concern from industry. As I said, Santos and Beach are certainly alive to the opportunities of carbon capture and sequestration. To have rent not applying to South Australian carbon emissions and charging it for national-based carbon dioxide, for example, was certainly cause for concern. You would have to say, if that continued on and made it into the bill we now have before us, it would have caused a lot of industry opposition to that particular facet of this bill.

Thankfully, from speaking with those stakeholders, the government has listened to those concerns, and the net effect of what we have now is that the rent will be applied only to internationally produced or sourced carbon dioxide. That is interesting. There will not be an extensive committee session, but when go into committee it will certainly be interesting to hear how that rent is to be calculated.

I thank the minister for my briefings with the department and for making them available. They were very helpful in terms of taking me through what the changes are, what the bill is, the history of the bill. The proposal to introduce a rent in part 7A is entitled Rental. In my briefing with the department, they were very careful for me to understand so that I did not misconstrue this and think it was royalty. They were at pains to say this is rental, not royalty. That brought the question: how is the rent going to be proposed? How is it going to be charged? Is it the fact that the carbon dioxide to be stored will be like how you assume the rent is: there is a yearly rate, and it continues on ad infinitum? Is it for a certain volume per year? What happens if there is carbon dioxide stored one year and not the other? They are questions there.

The industry were quite at pains to point out that royalty applies to minerals that are extracted out of the ground. It would be nonsensical to charge a royalty for storing carbon dioxide via carbon sequestration. Hence, that is where the government has arrived at this terminology around rental rather than royalty. It will be interesting in committee as to where they see that going and how that charging regime will be as well. If it was looked at being a royalty, where it is on a percentage basis, it is not too much of a stretch to then say, 'That's effectively like a tax.' That was some of the commentary that we received around the concern—was this a carbon sequestration tax?

As I said, it is a technology that has been looked at for decades, but because of economics—it is not a mature technology; it is something that will develop over time—at this stage it needs investment. We do not want to stifle investment by putting an overburdensome charge onto this, especially when in this parliament a climate emergency has been declared by this government. So they obviously see there is a necessity to reduce emissions.

As I have said before in this house, there is no point reducing emissions to zero in South Australia and think, 'That's great. There are going to be no bushfires in South Australia because there is this little atmosphere over South Australia, and it doesn't matter what carbon goes into the rest of the country. It does not matter what carbon goes into the rest of the world and what developing nations in Asia are doing. We think we are immune.' Of course, that is nonsensical, and I think most of us here understand that is not the case. That is why industry was very supportive of not having a rent royalty tax charged on carbon emissions that are generated from within the country as well.

Further to that, where the government has landed in terms of making it internationally sourced, the feedback from industry has been that certainly in the short to medium term it is highly improbable, because of the economics and because of the geography, that we would end up with internationally sourced carbon dioxide coming to South Australia, just by virtue of the fact that there are other potential gas basins that are being depleted that can be used for carbon capture in the north of Australia and in northern countries as well, Indonesia being an example.

It is just the sheer economics and the geography. Carbon sequestration is all cost compared to the existing energy systems at the moment, but it is a cost that, if it can be done at scale and economically, is certainly an opportunity for the country. As I said, going back to the potential for storing international carbon dioxide at scale, the industry is pragmatic enough, while not jumping for joy about the fact that this is in the act, to realise that in the short to medium term it is not something that they have given a lot of their attention to, and with that in mind they would be prepared to move forward on that basis.

If we go back now to Moomba itself, I talked a bit about the fact that Santos and Beach have highly prospective depleted gas wells in Moomba that are able to be used for carbon sequestration. That certainly is highly prospective for them. At this stage, their ambition is to be able to capture 1.7 million tonnes per year of methane that is naturally emitted as part of their processing and production of gas at Moomba as well.

That certainly helps those companies in terms of having a low emissions profile for themselves, but also, as I said, it allowed them back in November 2021 to make a final investment decision to proceed with that. It comes with significant cost to them, but they are doing it, as I have said in other contributions, because they understand and they have made a commitment as a company to be a low emissions company and to work towards reaching net zero by 2050.

You can see, certainly at a larger scale, that again it gets back to this commentary around the importance of gas in our energy system, the fact that it is so important, not only to electricity generation but also to manufacturing. It is used as a heat source in manufacturing. It is used to produce fertiliser for agriculture, to help in terms of steelmaking, and to help in terms of cement and brickworks as well.

Gas is important. It is a massive part of the nation's energy mix. As I said before, it is around 25 per cent of our energy mix in Australia. It is important to be able to continue to manufacture at scale, to be able to continue agriculture at scale. Unless there is a replacement, especially in these hard-to-find other energy sources that rely on gas, it will have to continue to be used. That is why carbon capture and sequestration are seen as a really important part of the energy mix, certainly, as I said, by Santos. Also, if you look at it from a worldwide basis as well, again, talking through the International Energy Agency, they have just released their world outlook looking again at what the energy mix looks like going forward to 2050. As I said previously, gas looks to have an important role in the world's energy mix as well.

At present, about 4,000 billion cubic metres are being used and, looking forward, the International Energy Agency forecasts demand for gas, depending on the scenarios, could be maintained at around that 4,000 billion cubic metres level. If further policies are enacted, it could drop to 2,500 billion cubic metres, but still there is a substantial usage there of gas. Even, as I have talked about in terms of Asia itself, Asian gas demand is forecast to grow by 50 per cent between now and 2050.

So there is significant usage of gas. We have a very stable trading relationship with some of those countries in terms of gas. Japan has invested massively in the gas production facilities here in Australia, based on long-term contracts. They are also very interested and committed to reaching net zero by 2050 to have low-carbon economies as well, but they still need gas. They are interested in forms of low-emission gas, whether that be hydrogen, which we spoke about previously, or whether that be abated gas as well.

They have invested heavily in Australia and you would like to think they have a continued appetite to do so. By having facilities that allow for abated gas, that will certainly be critical to any decisions they make around investing further into carbon capture, potentially, but certainly low-emissions gas from Australia into the future.

Going back to the International Energy Agency as well in terms of those forecasts going through to 2050, yes, while the amount of gas usage is still, you would say, either stable or reducing but not to zero—still with a substantial amount—those forecasts assume that about 70 per cent of global gas demand would be served with abated gas through carbon capture and storage. Previous commentary from the International Energy Agency certainly has included carbon capture and storage as an important technology for timely global decarbonisation efforts. They have stated:

Carbon capture, utilisation and storage…is the only group of technologies that contributes both to reducing emissions in key sectors directly and to removing CO2 to balance emissions that are challenging to avoid—a critical part of 'net' zero goals.

That is the heavily respected International Energy Agency and their views on carbon capture and storage. If you look to some of our like-minded countries that are also committed to net zero, such as the US or Europe, they are certainly pouring significant money into net zero programs we know, of course, but it includes support for carbon capture projects.

In the United States, for example, the Inflation Reduction Act's aim is to drive investment into low-carbon investments. Because of the massive dollars involved, it is attracting significant and large capital inflows into the country. Some of those low-carbon investments are going into abated gas projects in the US. The effect is that that is actually increasing gas supply, it is growing their LNG industry, and having an increased supply is helping to lower gas prices in that country. So energy prices are reducing, and at the same time that is helping to reduce emissions in the US while also supporting industry.

The reason for labouring the point is just to emphasise the support for carbon capture and storage throughout global economies that are looking to decarbonise. Certainly, I think we should be alive to that here in Australia. As I said previously, there are certain groups, most notably the Greens, who look to vilify gas and to eliminate it from the outset and to not give these companies that have stated goals and actual pathways to reduce their emissions the ability to do so. Certainly, that is something to be mindful of.

Further to that, in April 2023, the International Energy Agency released its Australia 2023 Energy Policy Review, which stated:

Australia is well-suited to large-scale deployment of CCS to facilitate CO₂ abatement and support regional emissions reductions.

Again, you have a respected body seeing the opportunities in Australia. No doubt, as part of that review, they would have seen the opportunities that South Australia has in Moomba in terms of carbon sequestration. It gives the state the opportunity to have a natural competitive advantage in abated gas because of the large storage resources that are up there in Moomba.

I have talked a bit about what Santos and Beach are looking to do there. They have invested heavily into stage 1 of that project, having made a final investment decision back in November 2021. The ambition is to capture 1.7 million tonnes of carbon dioxide per year in that project. There is the potential, in the network of basins there that span both South Australia and Queensland, for an injection of over 20 million tonnes of carbon dioxide for more than 50 years. That is a massive at-scale ability to abate carbon dioxide. From the South Australian perspective, I think in the latest report into what the state's CO₂ equivalent emissions are, it is hovering around 24 million tonnes per annum. So you can see that those basins there are effectively quite similar in terms of the ability to absorb nearly all of the state's carbon dioxide emissions.

That crystallises, and gives a sense of scale, what the opportunities are there. Those opportunities are also able to be taken up in other parts of Australia. As I said, there is no point in South Australia operating as an island, or other states operating as an island: by allowing the country to work together there are great opportunities there as well.

To that point, regarding Australian Energy Producers, I joined the minister recently as they changed their name from APPEA to Australian Energy Producers to recognise—similar to this act—moving away from just a sole concentration on petroleum as an energy source and looking to span all energy resources. They are certainly very mindful of the opportunities that carbon capture can play and how it will be essential at a national level. They are pushing for the creation of multiple carbon capture hubs throughout the country to allow for industry to be clustered around those hubs and to help industry collectively reduce their emissions. The reason for saying that is to look to have a national approach and hence the reason for industry's objection to rentals being applied to carbon dioxide emissions that have been generated within Australia.

That gives a bit of a reflection on the consultation process that has been worked through as the bill has come before parliament. As I said in earlier contributions around the National Gas Law, I again reinforce the importance that gas plays in the state's energy mix, the importance it plays in an orderly energy transition in the electricity system and mindful of the fact that is not the only part of the South Australian economy that needs to be decarbonised. In fact, the percentage of emissions from other sectors now exceed the electricity system, so there have to be opportunities for them to decarbonise in an orderly way because we need to keep the economy strong in South Australia as we go forward and not have it weakened by bans and victimisation of an energy source that really has an important role to play in the coming decades.

Certainly with their commitments going forward around decarbonisation, it will help an orderly transition in industry and manufacturing, it will help an orderly transition in the agricultural sector and help an orderly transition in the construction sector as well. As has been stated by our leader, the Liberal Party has a commitment policy around net zero by 2050 and we are very mindful that it is a large-scale task and needs to be done with all technologies available, and that includes gas and the opportunities that abated gas through carbon capture present, or through renewable gas or through hydrogen.

We know there is a commitment by the gas industry to reach net zero by 2050 through the use of technologies, as I have explained before, including carbon capture and sequestration and the opportunities that South Australia has to continue to make the most of its competitive energy advantages, and allowing gas to be a strong contributor in a smooth and sensible transition to lower carbon economy in the future will allow the state's economy to prosper and maintain South Australia's standard of living.

In conclusion, the bill before us is amending the Petroleum and Geothermal Energy Act. It is based heavily on the work done by the former Liberal government. I commend the work done by the former energy minister, Dan van Holst Pellekaan, to ensure that the regulation of energy resources in South Australia is both best practice and contemporary.

Mr PEDERICK (Hammond) (21:33): I rise to speak to the Petroleum and Geothermal Energy (Energy Resources) Amendment Bill 2023 and acknowledge the work of the member for Morphett in regard to the bill. I note that the proposed amendments will maintain this act as leading practice for regulating upstream petroleum, carbon capture and storage and geothermal activities in South Australia. The amendments also look to introduce a new provision to extend the scope of the act to include the generation of hydrogen from means not ordinarily permissible under the existing act—for example, with renewable energy.

It has been noted this bill was formerly introduced into the parliament by the former Minister for Energy and Mining, the Hon. Dan van Holst Pellekaan, in August 2021, but it did not progress before the change of government in March 2022. The bill has been reintroduced and has been prepared, and includes the majority of the administrative amendments that were consulted on in 2021.

I want to concentrate a bit on the proposals around carbon capture and storage. I think this offers a major incentive for Santos, who have been doing a lot of preliminary work, a lot of work heading into carbon capture and storage and utilising depleted gas wells in the Cooper Basin and surrounding areas. There is the potential to go out through the Ballera region into Jackson in Queensland as well and right throughout the basin. The work is to store regulated substances. As the shadow minister has indicated, they are talking about rent for essentially imported carbon, if that happens, but an exemption will apply to carbon dioxide that has been produced or sourced within Australia.

There has been quite a bit of discussion around the bill. It provides a number of amendments to the act, the most significant being the name change to transfer it over to the Energy Resources Act and an amendment to introduce a statutory security to ensure that the Crown has first priority over a licensee's property in such an event as bankruptcy. It has benchmarking penalties—a number of maximum penalties have been reviewed, benchmarked against the reformed Mining Act and modified accordingly.

The definition of 'environment' will be revised to better capture and regulate social and economic impacts, in keeping with the principles of sustainable development. I note that there will be improved stakeholder engagement in regard to this legislation, with amendments that will explicitly require stakeholder engagement by the licensee in preparing their environmental impact reports and statements of environmental objectives, with one amendment being introduced to mandate a 30-day public consultation period for those environmental assessments as part of the department's approval process.

There is also a new provision being introduced for a ministerial approval before a change in controlling interest in the holder of a licence. This provision will be in line with a similar approval regime that was recently inserted into the commonwealth Offshore Petroleum and Greenhouse Gas Storage Act 2006.

There is also the concept of ministerial determinations, as provided for under the recent Mining Act review, which is being introduced to allow for greater flexibility and effectiveness in clarifying and guiding regulatory requirements, particularly for reporting provisions. Also, around transmission pipelines, there will be an amendment for the definition of a transmission pipeline under the existing act to allow for imported gas to be transported unhindered via licensed transmission pipelines under the act to access such markets as required.

As has been discussed, there has been the discussion around the proposed rent on carbon capture and storage but noting that Australian producers will be exempt. That all comes under part 7A, use of the state's natural reservoirs to store regulated substances. As I have indicated, an exemption will apply to carbon dioxide that has been produced or sourced within Australia and is not imported, so what will happen here is that this will ensure that the rental does not—

The Hon. A. Koutsantonis: Disincentivise.

Mr PEDERICK: —that will do—the storage of Australia's direct carbon dioxide emissions, obviously like the ones that have been coming from the Moomba gas processing plant for many decades now. They will be stored at the Moomba Carbon Capture and Storage facility, which is currently in construction by Santos, and with Beach involved in that project as well.

I think carbon capture and storage is a great project that Santos and Beach are involved in. It is the process of capturing carbon dioxide and safely storing it deep underground, often in the reservoirs that previously held oil and gas in place for tens of millions of years. Carbon capture and storage technologies have been in operation since the seventies and are proven as a large-scale CO₂storage solution.

There are currently more than 20 large-scale carbon capture and storage projects in operation around the world, and they are storing about 40 million tonnes per year of CO_2. This is equivalentto almost all of the annual carbon emissions of the entire Australian passenger vehicle fleet. The International Energy Agency has included carbon capture and storage as an important technology for timely global decarbonisation efforts, stating that:

Carbon capture, utilisation and storage is the only group of technologies that contributes both to reducing emissions in key sectors directly and to removing CO₂ to balance emissions that are challenging to avoid—a critical part of 'net' zero goals.

In April 2023, there was a report released, an Australian 2023 Energy Policy Review, which stated:

Australia is well suited to large-scale deployment of carbon capture and storage to facilitate domestic CO₂ abatement and support regional emissions reductions.

In regard to the Santos Moomba Carbon Capture and Storage Project, it is expected to capture CO₂ already separated from natural gas in the Moomba gas plant. It also provides an opportunity to launch further projects to allow other sources of CO₂, such as from direct air capture, and it enables low-carbon hydrogen production.

Previously, under the term of our former Liberal government as part of the design phase of this project, Santos successfully completed a CO₂ injection trial in 2020. They progressed in November 2021 for stage 1 of the Santos Moomba Carbon Capture and Storage Project with the ambition to capture 1.7 million tonnes of CO₂ per year. Subsequent stages envisage the project to capture 20 million tonnes of CO₂ per year.

This is an exciting development for the Cooper and Eromanga basins in South Australia and Queensland, and it has the potential for injection of over 20 million tonnes of CO₂ per year for more than 50 years. This capacity is equivalent to taking half of Australia's passenger vehicles off the road every year. In 2020, South Australian greenhouse gas emissions were approximately 24 million tonnes of CO₂ equivalent.

There has been much consultation with this bill, and I am really keen to see how these carbon capture projects move on into the future. It is interesting, when you look at what has happened with the development at the Cooper Basin and the surrounding fields as well as other oil and gas projects in Australia or just offshore. With the development of these fields for the last 50 years—certainly in the Cooper Basin—most if not all of those wells have been fractured, most conventionally but there would be a lot of unconventional fracturing taking place as I speak.

The beauty of that is that with the development of those wells that are now depleted—that fracturing process, the perforating that I used to operate 40 years ago with Gearheart Australia, when Halliburton would then come through and pump the fracked sand and fluid down—opening up those wells and those reservoirs gives far more capacity for the storage of carbon. That will be a great thing moving into the future.

I do get concerned with the future of gas. As has been indicated, people like the Greens hate gas, but gas will be a transition fuel for decades to come. We will need gas to transition to a cleaner energy future, and that is why companies like Santos and Beach are doing this major work with carbon capture and storage. However, I am concerned with big offshore projects like the Santos project off the Tiwi Islands, with the Barossa project, as well as Woodside's multibillion-dollar project. The Santos project, which would be a multibillion-dollar project, and Woodside Petroleum's major project off Karratha, the Scarborough project, which are both under threat from legal challenges, would bring much wealth and much energy into the country to be used into the future.

That area off Karratha in Western Australia is a quite high production area for offshore gas. One of my friends worked up there in a project recently. He worked in the Cooper Basin all those years ago and he comes back online with Halliburton when they really need him. He was involved in a 1.2-kilometre perforation of an unconventional well. Obviously, the technology has moved a long way from when we used to shoot vertical wells 40 years ago, but what is interesting is the amount spent to realise the potential of gas wells either on shore or offshore around this country.

I wish all the companies involved, especially Santos and Beach locally, in these carbon capture projects all the best as we go into the future. It will be a vital part of our transition, because we do need gas as that transition fuel into the future. May it go ahead as unhindered as possible, because we have to face the reality of generating energy but also transitioning as we go. I commend the bill.

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (21:49): I thank members for their contributions and their support of this bill. I note that both members talked about this bill being developed under the previous government and being completed by August 2021, but I do point out that the parliament was sitting between August and December of that year so I am surprised it was not put to the house. Perhaps members opposite were not as confident as I am now of its passage. I commend the bill to the house.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

Mr PATTERSON: In regard to this bill and the consultation on the 2023 version of the bill, can the minister outline the consultation process that led to this being introduced into parliament and the stakeholders that were involved?

The Hon. A. KOUTSANTONIS: My understanding is through the YourSAy website. Obviously there was a process that was conducted by the previous government. We went back out to YourSAy again after there were amendments made by this government. There was also industry consultation with operators in South Australia. All the industry associations were consulted. That is the advice I have. There was a lot of feedback and we considered that and placed it all before the parliament.

Mr PATTERSON: Most noticeably in terms of the rental clause, which we will get to later, in terms of that being consulted on was there an issues paper released around that to get a feel of should it be the state, an Australian or international, leading into a draft bill, leading into this bill? If not, was there a different process and, if so, could you outline what that was?

The Hon. A. KOUTSANTONIS: In regard to the rental process, no. My advice is that the aquifers are owned by the state, so the idea that the national government could charge a rent on South Australian assets does not make much sense. These aquifers are appropriately utilised by the South Australian people. The consultation process on the rent was pretty clear.

I believe it would have been a disincentive to charge a fee for people to store carbon if it was carbon captured in Australia, but if there is a foreign subsidy in place to capture carbon and then store it in Australia, fees should be payable because obviously they are proponents who would be importing the carbon and would have received a subsidy repayment from a foreign source. Given that we are storing the carbon, it is inappropriate for a fee to be charged and I think that there is a general understanding amongst proponents that the South Australian government is well within its rights to do so.

The debate was about whether rent should be charged for Australian carbon capture storage. My very strong view is that it should not be. It would be a hypocritical position to hold that carbon should be priced and then charge a fee to have it stored once you get it out of the atmosphere, but if there is a foreign subsidy involved that is a very different situation altogether.

Mr PATTERSON: If we just break it down, and concentrating on the feedback around charging a rent for carbon capture, comparing feedback around a state-only approach—so a rental waiver, effectively, for carbon emissions generated within South Australia compared with emissions charged within Australia—the feedback I received was that there was pushback certainly from industry around a rent being charged for emissions generated within Australia because of that need for a country-wide approach. Maybe the minister could elaborate more on stakeholders and their submissions, or their feedback and their views on soaring Australian carbon dioxide emissions in South Australia for no rental charge.

The Hon. A. KOUTSANTONIS: My very strong view is that Australian proponents who collect carbon within Australia should not be charged a rent. The government is not doing that. It was very clear from the evidence that they gave us and our consultation, and we were obviously very keen to make sure that they were taken care of.

However, I stand by my remarks that international carbon capture, which returns carbon dioxide to South Australia, should be charged a rent. It will be reviewed again in 10 years' time to see how it is working. I listened to your remarks with interest about what you think the prospect of the import of carbon is. I tend to agree with you; however, I think it would not be wise for the state to proceed on a process where we would charge rent for any carbon capture in South Australia or, indeed, Australia.

Clause passed.

Clauses 2 and 3 passed.

Clause 4.

Mr PATTERSON: This clause changes the act's name from 'Petroleum and Geothermal Energy' to 'Energy Resources', and there are very sensible reasons for doing that. Maybe the minister could elaborate on the reasons why, but also what energy resources are envisaged that fall outside of petroleum and geothermal energy.

The Hon. A. KOUTSANTONIS: We want it to be as broad possible—so geothermal energy, carbon capture storage, naturally occurring hydrogen. We want to give the regulators the maximum flexibility to regulate these operations, rather than a narrow scope. What I am attempting to do, again, is minimise the need to continually open up this act. We are at a point in time now where there is a level of bipartisanship on this legislation, which I think can give the industry a bit of stability for the long term—at least for a decade—where we can give them a broad scope of potential gases and activities that can be regulated under this piece of legislation.

My remit to the department was to be as broad as possible: think of the future, stabilise this industry, give them the regulatory certainty that they need, and we will come back in a decade with whoever is in office under statute to review the rental requirements. Then obviously, with whoever is in office, if there has been anything missed or it needs a freshen up, it can be done so then. This is giving us some long-term certainty and stability in the sense that it is much needed.

This sector has had a lot of instability in South Australia over the last four years. The industry had a ban placed on it. It had a partisan election campaign over its industry and its applications, which has never occurred in South Australia before. I point out that in the 1980s the Labor Party did that with uranium—that was very divisive—and in the 2018 election the Liberal Party did it with gas. That is destabilising.

What I am attempting to do here is lay a foundation for the next decade that allows a bit of stability into the issues. I saw the consequences of what the Labor Party did with uranium and Olympic Dam, and that is to our shame, and it is to your shame what the Liberal Party did in 2018 in terms of politicising the extraction of gas rather than leaving it to the science to determine what is safe and what is unsafe.

So I want some stability, and I am giving them a broad scope. It is not a criticism of the current shadow minister, because I know he is someone who is thinking long term about this industry. You can tell from his remarks that he understands the industry, and I can tell that he is interested in its future and interested in what it can give South Australians, so it is not a criticism of him or the current opposition. It is a criticism of the previous government, and I make a criticism of the former Bannon opposition about the way they conducted themselves. I think it does not suit the resources sector to have that type of partisanship inserted into it. What I am attempting to do is give a broad base to allow the regulators to go about their business appropriately and such that the parliament has given them certainty over the long term.

Clause passed.

Clauses 5 to 26 passed.

Clause 27.

Mr PATTERSON: Just in terms of the rental payable for utilising a natural reservoir for storage, can the minister give a broad explanation of how this rental will be calculated?

The Hon. A. KOUTSANTONIS: It is a good question. This is not a royalty. We will not be charging on molecules. What we are doing is renting, basically, a room. We are renting volume. We will be regulating this—it will be out to regulation—and we will consult with the industry about how best to do this. Obviously, I would like the opposition to be involved in that consultation as well as the appropriate industry associations and the proponents.

What we will be doing is creating a rental fee on the void, on the cavity that will be used. That is the best description I can give the house, but obviously the devil will be in the detail, which will be developed through the regulations, and obviously we commit to consult on those regulations and talk to industry about that. This industry is well supervised by its own government relations individuals, and no doubt if there are any concerns about what we have to do or say the opposition will be informed of it by the appropriate bodies.

But we want to consult with them, because I think the nation is basically looking at this, because there are a couple of opportunities around the country for this. We want to make sure we get it right. One is it could be nationally consistent: we want to set the benchmark. We want to be the leaders in this. We want to incentivise it, so we do not want to be ridiculous about what we are able to capture, but at the same time this is a very profitable area for a lot of these companies, and it is important that the South Australian people get a benefit for the greater good from what they will be using our land for.

Mr PATTERSON: In terms of the rental, it is a rental fee for the cavity, and we have explained it like rental for any other space. Would it be the case that that rental fee by volume will be on an annual basis so it will be continually applied or any other alternative?

The Hon. A. KOUTSANTONIS: That is certainly what we are considering. It could be an annual fee. It could be an arrangement for a period of time. These are all the things that the consultation will flesh out, which they will develop through the regulations. So these are the things we try to contemplate. Again, this is a new form of charge that has not necessarily been considered by this industry, so we are in new territory.

I am open for suggestions from the opposition because this is going to be a long-term thing. I suspect carbon abatement will be a long-term industry. I agree with members opposite that gas is not going anywhere fast. It needs to be a transition fuel, and carbon abatement is going to be a big part of it. If carbon capture and storage can be proven to work successfully and safely and long term, there needs to be a revenue stream for the states that host it, especially if it is carbon dioxide that is abating other economies.

Mr PATTERSON: Let me finish that question off, because you are right, there is no point doing carbon capture and capturing carbon dioxide for a year, five years, and then the company says, 'I am not paying any more. I've got to release it.' Effectively, Santos—and Beach in this case because of Moomba, and maybe there are other basins within South Australia—is saying, 'We will accept your carbon dioxide,' knowing that that is, effectively, going to be sequestered forever. It is certainly a long enough period of time that it could assimilate and effectively never be released into the atmosphere.

I suppose this is more a comment than a question, but it would have to be taken into account. The assumption is that it is being charged up-front, and that volume of the cavity is effectively not able to be used again going forward, which would lend itself to being an up-front charge as opposed to an annual charge. Otherwise, you would imagine the charge that is levied by the companies that are sequestering it would have to factor that in, saying, 'We are going to have to be paying rent for 50 years, 100 years. Ergo, you pay up-front because I can't guarantee you are going to pay it in 100 years' time.'

The Hon. A. KOUTSANTONIS: You are absolutely right. This is a relatively immature market with an immature process and rigour around payments that are made to the people who are storing the carbon. The legislation is new and still fragile in the United States, Korea, Japan and the European Union. These laws are not settled, so, yes, I agree with you. There is no use us trying to have an annual charge. If someone stops paying the rent, what, are we going to release the carbon dioxide? Of course we are not.

But that carbon dioxide could have a value, and there could be contractual arrangements in place. So we will look at the contractual arrangements made with the proponents who wish to store the carbon dioxide, and we will build our regulatory framework around it. If it is a big lump sum fund paid to them, that means we are able to receive an up-front lump sum fee. If the fees are paid to them from a foreign source, such as a government or whatever it might be, to give them this regulatory certainty to store the carbon, we could charge an annual rent and have rights over that, despite the ownership of the credit or whatever it might be. We will have to wait and see and build that regulatory framework as this industry matures and develops.

Mr PATTERSON: The clause refers to carbon dioxide that has been produced or sourced within Australia and is not imported. We are talking about having a rent for internationally sourced carbon emissions. The idea is that, if a country puts it on a boat, brings it over to Australia and then sequesters it in a South Australian reservoir, an alternative approach to using these basins is direct air capture. Potentially, it is having technology in situ, so potentially up in Moomba, where they can take carbon dioxide out of the air and then sequester it underground.

How would this system allow for that, where potentially an agreement could be struck hypothetically with an international company that says, 'Okay, we will take your gas, use it to power our generators overseas in our country and that will emit a certain amount of carbon dioxide'? Would you be able to strike an agreement that says, 'Well, okay, we will capture the equivalent amount of carbon dioxide out of South Australia's air, sequester it underground, effectively abating that gas in such a way that it doesn't have to be captured overseas and transport it back here, so therefore we are getting carbon dioxide captured here in South Australia.' Would that attract a rent and, if so, why?

The Hon. A. KOUTSANTONIS: Yes, because that foreign proponent would be receiving some form of government credit for trading in some sort of carbon market that would be regulated by its source country. If you are company X, operating in the United States, Canada or in Europe, and there is a mature carbon market where carbon trading is occurring, regulated by the EU or by a sovereign nation, there are carbon credits being generated and there is a value to it.

No-one that I know is paying to have carbon sequestered or abated without there being a government regulation, fee or charge in place, so there is a revenue source. So, yes, that would attract a rent. But if it is a South Australian company or an Australian company, and some future Liberal government fulfills John Howard's promise of a carbon price or an emissions reduction target—what did he have; he had some form of carbon price—then it would obviously not be charged.

Mr PATTERSON: I am not disagreeing with that, because it would seem a loophole otherwise, but how does subsection (3)(b) state that? My reading of it is:

(b) carbon dioxide that has been produced or sourced within Australia and is not imported.

From what you are saying, I am interested to see how the writing of that subsection would cater for that direct air capture example.

The Hon. A. KOUTSANTONIS: Subclause (4) of new section 45A allows me to, in prescribed circumstances, define a regulated resource. The advice I have is that that is the clause we would be using if that was the offset being used by a company to a source. With the working draft I have here, we are on clause 27, so a section later is 45A subsection (4):

(4) The Minister may reduce or waiver rental payable by a licensee under this section—

(a) in respect of a regulated substance or a regulated resource prescribed by the regulations; or

(b) in prescribed circumstances.

The advice I have is that that allows me to use those resources to be able to prescribe a substance that attracts a rental.

Clause passed.

Remaining clauses (28 to 71), schedule and title passed.

Bill reported without amendment.

Third Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (22:14): I move:

That this bill be now read a third time.

Bill read a third time and passed.