Regnan Submission to the Inquiry into the Implications for Western Australia of Hydraulic Fracturing for Unconventional Gas
Standing Committee on Environment and Public Affairs
C/- Ms Margaret Liveris
GPO Box All Perth WA 6837,
By email: Icepac@parliament.wa.gov.au
17 September 2013
Inquiry into the Implications for Western Australia of Hydraulic Fracturing for Unconventional Gas
Thank you for the opportunity to submit our views on the implications for Western Australia of hydraulic fracturing for unconventional gas to the Standing Committee on Environment and Public Affairs ('the Committee'). Our submission is made on behalf of the institutional investors Regnan represents (details below).
We recognise the significant investment potential for unconventional gas (UG), but note that rapid growth elevates risks associated with environmental, social and governance (ESG) failures given the numerous unresolved technical, regulatory and stakeholder issues. It is in the interests of investors that the risks and issues associated UG are addressed early to limit potentially negative investment impacts.
In light of significant investor concern about ESG risks for UG, Regnan developed Unconventional gas best practice ESG risk management principles and recommendations ('UG principles and recommendations'). These principles are based on analysis of current research, investor initiatives both in Australia and overseas, and initial dialogue with companies involved in UG activities in Australia. We have attached a copy of Regnan's UG principles and recommendations and explanatory document for the Committee's onsideration.
Our UG documents were developed to be read alongside IEHN / ICCR's, Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations (available at
http://www.iehn.org/publications.reports.frackguidance.php), which we also commend to the Committee's attention.
While these documents focus on UG company practices, they offer important insights into the key risks relevant to the investment case for UG, possible responses to manage risks, and the potential role for government. We draw out some of these insights below.
Levelling the playing field and raising the bar
UG companies with whom we engage sometimes note difficulty in adopting higher standards than their peers without regulatory prescription. We recommend the Committee give due consideration to the role regulation plays in enabling better practices to be adopted by maintaining a level playing field.
Historical incidents are typically explained by the UG companies we engage as being due to 'rogue' operators, whose practices are not reflective of the industry as a whole. In setting and evolving minimum standards (to prevent them falling too far behind industry leaders), Government helps maintain the reputation of the industry, benefitting all operators and increasing investment certainty.
Cumulative and regional impacts
Some UG impacts are best considered on a cumulative or regional basis. Corporate level practices, however good, may be incapable of fully addressing such risks. A number of our UG principles and recommendations could more easily and more effectively be addressed by government taking a lead role. For example, in relation to impacts on groundwater, the following recommendations (excerpted from Regnan's UG principles and recommendations) would be best pursued through active government involvement:
- Assess risk by preparing regional scale water modelling for key underground water resources, which predict anticipated impacts to water resources due to dewatering/fraccing and include cumulative impacts and state uncertainties that may influence model outcomes.
- Update water modelling when material new information arises affecting modelling outcomes.
- Develop baseline and ongoing groundwater level and quality monitoring for groundwater resources in the affected area, including neighbouring aquifers.
- Publicly state uncertainties regarding understanding of aquifer connectivity potential from fraccing and dewatering, and outline respective company, government and/or academic responsibilities and plans, including timelines and funding, to address these knowledge gaps within a reasonable time.
We note the Committee's terms of reference include consideration of the principles of ecologically sustainable development (ESD). In our view, the precautionary principle embedded in ESD is highly relevant to UG, given the emergent nature of the practices involved and incomplete understanding of impacts. We further note that experience from other locations may be limited in relevance due to differences in geologies and evolving technology. Regnan's recommendation to UG companies to apply precaution in risk management is equally applicable to government in developing industry standards and expectations.
Scope of Inquiry
We note the Committee's Inquiry is focussed on unconventional gas, in particular, as are Regnan's principles and recommendations. In practice, products produced are often a mixture of liquids and gas. Operators may rapidly shift focus from gas-rich to liquids-rich targets in response to changes in commodity prices. This has been the experience with onshore USA unconventional developments, with the industry focus shifting from gas in 2011 to liquids in 2012. This resulted in some fields (gasrich) being essentially abandoned in favour of others (liquids-rich). UG activity is likely to remain sensitive to commodity prices, with rushes of activity when prices are high and periods of near dormancy when prices are low. Environmental requirements should be developed with these operating realities in view.
Regnan's submission may be made public at the Committee's discretion and we would be pleased to receive a copy of the Committee's report when available. Should you have any queries in relation to this submission, please contact Alison George on 03 9982 6404 or me on 02 9299 6998.
Regnan Governance, Research & Engagement
Att: Unconventional gas best practice ESG risk management principles and recommendations and Explanatory document, Regnan, 2013