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15 Oct 2020

IPC grants Santos' Narrabri Gas Project "phased approval"

By Claire Smith, Lauren Smith and Cloe Jolly

The Independent Planning Commission has approved Santos' Narrabri Gas Project, subject to stringent conditions on matters including groundwater and greenhouse gas emissions.

On 30 September 2020, the Independent Planning Commission (IPC) granted a "phased approval" to a state significant development application for the Santos Narrabri Gas Project (Project) which consists of 850 coal seam gas (CSG) wells in the Pilliga region of NSW. This is another key decision of the IPC where it has engaged directly with a project's contribution to greenhouse gas (GHG) emissions as part of determining whether or not to grant the approval.

The IPC's decision adds new consent conditions to those already suggested by the Department of Planning, Industry and Environment (DPIE) when it recommended approval of the Project earlier this year. In total, the approval is subject to 134 stringent conditions on matters including groundwater and GHG emissions. Santos is required to meet specific requirements before the Project can progress to each stage of development, being ongoing exploration/appraisal, construction, production and rehabilitation. The IPC did not approve some elements of the proposal, including the construction of a gas-fired power station at Leewood, a workers' accommodation facility and some infrastructure that would allow gas flaring.

Groundwater impact modelling

The IPC acknowledged the concerns raised about the uncertainty in the groundwater model and the fears expressed that the Project will cause drawdown on existing bores and jeopardise the water security of the region. However, the IPC stated that it was satisfied these issues could be effectively managed and that Santos' groundwater impact modelling was "fit for purpose" for this approval.

Despite this finding, the IPC has imposed conditions requiring Santos to undertake further modelling to reduce the level of uncertainty as well as the preparation of a Groundwater Management Plan based on at least three years of baseline monitoring data. If Santos do not prepare this plan or if the improved groundwater model predicts an exceedance of "water management performance measures" (as described in table 7 of the state significant development approval), then Santos will not be permitted to proceed to Phase 2 of the Project and establish gas production wells.

The IPC has placed the burden of proof on Santos to demonstrate that any adverse and direct impact to a water supply is not due to the Project and strengthened Santos's obligation to supply compensatory water or provide other compensation for water supply impacts attributable to the project. Santos must also establish a Water Technical Advisory Group prior to the commencement of Phase 1 of the Project that must meet twice a year and advise on project-related water management issues including the preparation and implementation of the groundwater model, the water management plan and the field development plan.

Climate change concerns

Barristers for Santos and the North West Alliance (NWA) had made submissions to the IPC on whether it is appropriate for a consent authority to approve fossil fuel developments. NWA’s key concerns were that the contribution of GHGs from the Project to climate change, fugitive emissions and the carbon dioxide content of the gas produced from the target coal seams, had been underestimated in the Environmental Impact Statement.

The IPC ultimately concluded that the Project is in the public interest and any negative impacts can be effectively mitigated with strict conditions. One of the justifications for the approval of the Project was the lower GHG emissions produced when compared with coal projects. Substantial exceedance of the predicted Scope 1 carbon dioxide and methane emissions would undermine this. Accordingly, the IPC determined that the Project should not be permitted to exceed its predicted Scope 1 and 2 emissions and imposed Conditions B20 and B21 to require exceedances of the predicted Scope 1 and 2 GHG emissions to be fully offset in accordance with a national government program concerning the offsetting of GHG emissions. This is the first time the IPC has imposed such a carbon offset requirement. Santos will also be required to establish and consult a Greenhouse Gas Emissions Advisory Group in regards to measuring, monitoring, minimising and reporting these emissions, including the preparation and implementation of an Air Quality and Greenhouse Gas Management Plan (Condition B19).

The IPC did not specifically deal with Scope 3 emissions in its conditions because the IPC determined that these emissions are outside the direct control of Santos and therefore not able to be reasonably conditioned. This is a different approach to that which was taken by the IPC last year in regard to the United Wambo mine expansion where the IPC imposed an export restriction condition as a way to regulate indirect Scope 3 emissions, stating that "While the principal responsibility for the mitigation and management of Scope 3 GHG emissions rests with the downstream consumer… the cost of such emissions is arguably the responsibility of each party that operates in the relevant supply chain".

In regard to submissions that the Project goes against Australia’s international commitment to reduce GHG emissions, the IPC made note of the expected emissions advantage of CSG compared to coal for electricity generation and the Government's intent through the Commonwealth's endorsement of the Paris Agreement. The IPC also considered that the expected emissions are justified because of the strategic alignment of the Project with the NSW Gas Plan and NSW Energy Package Memorandum of Understanding (31 January 2020) to improve gas security in NSW.

Santos said in a statement on 30 September that it had accepted all of the 134 conditions imposed by the IPC and will now seek final environmental approvals under the Environment Protection and Biodiversity Conservation Act 1999.

Implications

How decision-makers balance the need for resources, energy security and protection against the adverse impacts of climate change is a developing area for operators and future applicants to consider carefully if seeking to expand, modify or develop a project that could result in direct or indirect GHG emissions. Notably the IPC has considered the Project’s conformity with broader policy including on energy security. It has also shown a willingness to strictly control GHG emissions through conditions, even in circumstances where the IPC accepted modelling provided. However, it has stopped short of conditioning Scope 3 emissions acknowledging the difficulty of imposing lawful conditions in this regard.

Further, the fact that the IPC has conditioned the development approval in a way that will prevent the project from proceeding if the water management performance measures predicted by the groundwater model are not met, is illustrative of the importance the decision-maker places on consideration of predicted environmental impacts and achieving anticipated performance measures to protect the environment.

For more information on the impacts this IPC decision may have on future project approvals, please contact Claire Smith.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.