Following her 2012 interim report on hydraulic fracturing (‘fracking’), which found that the risks associated with fracking can be managed effectively if ‘operational best practices’ are used and enforced by regulation, the Parliamentary Commissioner for the Environment has today released a second report which considers the complex system of laws, agencies, and processes that oversee and regulate the oil and gas industries.
The report, “Drilling for oil and gas in New Zealand: Environmental oversight and regulation” concludes that current regulation in New Zealand is insufficient for managing the environmental risks associated with oil and gas drilling. Significantly, the Commissioner notes that this would be the case even without the industry’s recognised potential for rapid growth in New Zealand.
The report concludes that the rapid expansion of oil and gas extraction made possible by fracking is a greater cause for environmental concern than the process of fracking per se. The potential for cumulative effects appears to weigh heavily on the Commissioner’s recommendations. The Commissioner considers that because fracking is used to tap into ‘unconventional’ (in a historical sense) and less concentrated oil reservoirs which do not yield as easily as conventional oil sources, many more wells are typically required in order to extract oil in commercial quantities. The report notes that overseas, this has led to ‘pockmarking’ the landscape with thousands of wells; indeed, the Commissioner notes that this phenomenon has developed so rapidly in some parts of North America and Australia that legislators have been left “scrambling to catch up”. Now that oil extractors are looking beyond Taranaki to other domestic sites (including in particular the East Coast Basin, in Manawatu, Gisborne and Hawke’s Bay), the Commissioner considers New Zealand may find itself in a similar position.
In light of these findings, the report recommends 6 actions to tighten the legislative reigns on fracking. More specifically, it proposes that:
The Government (assisted by the Environmental Protection Authority (‘EPA’)) should develop a national policy statement (‘NPS’) regarding ‘unconventional’ oil and gas. While lessons learned from fracking experiences in Taranaki cannot be entirely extrapolated to other regions (due to differences in rock formations, climate, seismic risks and reliance on aquifers), the Commissioner suggests that an NPS could give clear directions to councils on how they should deal with the oil and gas industry, including provision in district and regional plans, and standardising consent conditions and terminology. The Commissioner suggested that New Zealand has the opportunity to learn from overseas experience and establish consistent rules to protect the environment, given that it is still mainly in the ‘exploration’ phase. The report found that the ‘Guidelines’ document published recently by the Ministry for the Environment assists little further than describing the status quo. In the Commissioner’s view, the Crown has a particular obligation to support, guide and direct local councils who bear chief responsibility for managing the environmental impacts of oil and gas expansion. However, the Minister has already been reported as rejecting this recommendation.
Regional council plans should be revised to include better rules for dealing with oil and gas wells. Currently, the Commissioner considers most regional plans do not distinguish between drilling for water and drilling for oil and gas. The Commissioner recommends that regional plans should also acknowledge the impact the cumulative effect of many wells on a landscape. For those local councils currently revising their plans, the Commissioner considers this to be an ideal opportunity to propose new rules and to seek public feedback from individuals, public interest groups and representatives of other sectors who have concerns. The Commissioner noted that the drilling of exploratory oil and gas wells in Manawatu, Gisborne and Hawke’s Bay was able to begin without giving other parties the opportunity to comment, because the requisite resource consents were not publicly notified. Further, because drilling of oil and gas wells in these regions is a ‘controlled’ activity (and ‘permitted’ in Taranaki), councils cannot decline applications where they meet the conditions in the relevant plan. This, in the Commissioner’s view, severely limits councils’ ability to consider the location of wells. The report therefore recommends that regional plans classify the drilling of oil and gas wells as a ‘discretionary’ activity, to allow councils to consider all relevant environmental effects, impose conditions appropriate to the location, and if necessary to decline applications.
Wells need to be designed to minimise the risk of leaking into aquifers. The Commissioner notes that the WorkSafe New Zealand High Hazards Unit is responsible for protecting workers, whereas regional councils are responsible for protecting the environment. In practice however, the Commissioner suggests that councils have taken different approaches to well integrity, with some relying on the High Hazards Unit, while other councils commission consultants to provide specialist advice on well integrity and to specify design and construction standards in consents. The Commissioner notes that the High Hazards Unit cannot be relied upon to protect the environment when it comes to ensuring a well is adequately cased when it passes through freshwater layers – which is crucial for protecting aquifers. The Commissioner therefore recommends either amending the Health and Safety in Employment (Petroleum Exploration and Extraction) Regulations 2013 to require that environmental protection be included in the assessment of well design, or, that regional councils include the protection of freshwater layers as a condition in consents for drilling oil and gas wells.
Clearer and better processes are required to determine who should pay if something goes wrong. Due to the potential consequences of an incident, the Commissioner recommends that while wells are active, companies should hold public liability insurance sufficient to cover the cost of cleaning up the damage caused by an incident such as a blowout, or a leak. In some cases overseas, operators pay a levy into a fund that is then available for cleaning up leaks from abandoned wells, and the report considers this system should also be implemented in New Zealand. In addition, the Commissioner suggests abandoned wells need to be monitored for leaking (especially as they age). The report identified a lack of monitoring as one of the chief ways in which New Zealand is out of step with international ‘best practice’.
Regulations on hazardous substances at well sites need to be better enforced. Currently, the EPA sets controls designed to prevent the leaking of hazardous substances at well sites, but relies on inspectors from WorkSafe New Zealand and its High Hazard Unit to enforce them. The report notes that these inspectors primary focus on the safely of workers pursuant to Health and Safety in Employment legislation. Regional councils are legally able to enforce the controls on hazardous substances when they visit well sites to check compliance with the conditions in their resource consents, but in practice this does not tend to happen. The Commissioner therefore recommends that the High Hazard Unit delegate some of its functions to local council staff, who are able to visit well sites much more frequently.
The practice of ‘landfarming’ (disposal of waste from wells by spreading it on farmland) needs review. This currently occurs, particularly in Taranaki, and the Commissioner cites that there have been instances of farm animals grazing these areas before the breakdown of hydrocarbons is complete. The perception of contamination can be as damaging to export markets as the reality of it; and regardless of the food safety risk, the Commissioner notes that the idea of drilling waste in production paddocks gives rise to public discomfort.
The report does not endorse the expansion of the oil and gas industries in New Zealand-that is self-evident from some of the recommendations. Curiously, the Commissioner also emphasises that she would prefer to see a focus on ‘green growth’ as part of a broader response to the impact that burning fossil fuels has on the global climate. While that is an admirable aim, it does seem to cloud the germane issues which the report intended to address. With the Minister moving at lightning speed to rule out a NPS, it seems that the recommendations will not translate to policy as quickly as the practice of fracking appears to be spreading.