Comment: Global market is big influence on local gas policy



Rising unemployment and declining manufacturing will collide with farmer-driven campaign against unconventional gas, but international markets will play the role of umpire.


The Victorian Liberal National Coalition has announced it will support an “extension of Victoria’s (current) onshore gas moratorium until 30 June 2020”.

It should be noted that the next Victorian state election is scheduled for November 2018, resulting in the policy’s effective length being 19 months (if the Coalition was returned to power).

Victoria has a moratorium on most aspects of onshore gas exploration and development, which was originally put in place by the previous Coalition Government and later expanded.

The current moratorium is so broad that it has even halted gas exploration projects that are unlikely to use hydraulic fracturing, such as Otway Basin works proposed by Lakes Oil.

Global oil prices are less than half of what they were 18 months ago, which has placed huge pressure on the US shale oil industry following its fracking-powered boom times.

Many shale projects were given the green light with an expectation that investors would be paid back from oil prices of between $USD80 to $60 per barrel.

Oil prices have spent most of this year between $USD40 and $50 per barrel.


West Texas crude oil price index - 18 months to September 30, 2015. Source:
West Texas crude oil price index – 18 months to September 30, 2015. Source:

Liquified Natural Gas (LNG) prices were a little slower to follow oil prices but their recent fall has been considerable.

Japanese market regulators even skipped the monthly issue of LNG spot prices in June this year due to “a lack of trades”, a move that was widely interpreted as a sign of “tepid” demand.

US domestic and Japanese prices for Liquified Natural Gas (LNG) and crude oil imports to August 2015. Source: US Energy Information Administration.
US domestic and Japanese prices for Liquified Natural Gas (LNG) and crude oil imports to August 2015. Source: US Energy Information Administration.

The impact of low fossil fuel prices has been felt locally as well, with Adelaide-based oil and gas exploration company Beach Energy cutting $55 million from its capital expenditure budget in January this year.

Beach Energy was also hit by the departure of US energy giant Chevron, which had been a partner for Beach’s joint shale venture in remote South Australia.

The collapse of prices has become its own market-enforced moratorium on new unconventional gas projects, though recent sharp falls in the Australian dollar may help the fledgeling industry.

Meanwhile, an 18-month campaign against unconventional gas in rural areas in the southern half of Victoria, particularly in the rich farmlands of south-west Victoria and Gippsland, culminated in a 1000-strong protest in Melbourne this month.

Wool and red meat prices are rising and so are agribusiness wages, increasing the political clout of farmers and their representative bodies.

The upcoming state by-elections in South-West Coast and Polwarth, combined with over 1700 mostly anti-gas submissions to an ongoing parliamentary inquiry, undoubtedly had a influence in the Coalition’s new gas policy.

The Coalition’s policy appears largely based on the Victorian Farmers Federation policy, which was itself recently strengthened by a conference motion brought by farmers from south-west Victoria.

However, it must not be forgotten that agricultural exports also have floating prices and are influenced by the same global economic slowdown that has helped dragged down gas prices.

If China’s slowing economy results in anxious parents in Beijing and Shanghai no longer paying $AUD60 to $100 for Australian powdered infant formula, then an entire local industry is placed at risk.

If Japan reduces its appetite for premium Australian beef, or executives in Hong Kong take the scissors to business wear budgets, then the effects will be felt locally as well.

Fossil fuels may again dominate the economic stakes thanks to their high price inelasticity, causing large swings from relatively small changes to supply or demand.

The instant economic sugar hit that gas and oil fracking can provide could also be a future godsend for state and federal governments under pressure from rising unemployment and stagnating wages.

The estimates for how long a fracking operation can produce oil or gas varies from between three years and thirty years, but for any government under siege and facing an election that represents a lifetime.

Suffering from an impeding departure of local vehicle manufacturing and uncertainty over where new submarines are to be built, South Australia appears to be hitching its wagon to unconventional gas.

South Australian Treasurer Tom Koutsantonis, a member of a minority Labor Government, tweeted after the Victorian Coalition’s policy announcement that SA was “now the only welcoming jurisdiction for oil and gas investment supplying the Australian east coast markets”.

Should warnings from petroleum lobbyists come true, and a lack of domestic production does significantly increase local gas prices, then that could also become an election-defining issue for Victoria’s mainly urban population.

Providing that oil and gas companies have sufficient capital and shareholder goodwill, they could ride out the slowdown and return to their non-perishable oil deposits once global prices trend upwards again.

Bargain hunters have also been snapping up shares in oil and gas companies, hoping that their ‘buy in gloom, sell in boom’ strategy will pay off when the oil price rises.

For example, Kerry Stokes bought considerable Beach Energy holdings for as low as 62 cents on the dollar compared to boom times.

Potential $6 Billion Oil Deposit in SW Vic

The Hamilton Spectator – September 22, 2015 

SOUTH-WEST Victoria is potentially sitting on a $6 billion oil and gas deposit with a production capacity of 100,000 barrels per day, according to Melbourne-based industrial engineering and mining company Mecrus Resources.

Mecrus has told Victorian Parliament’s inquiry into a potential onshore unconventional gas inquiry, via a written submission, that there is a ‘shale oil’ and natural gas deposit between Casterton and the South Australian border.

The company believes the commercial prospects for this deposit are “beyond doubt” after it “invested significant money to date in detailed exploration and investigation” and commissioned an independent study.

Representatives from Mecrus are due to give testimony to a Gas inquiry hearing in Hamilton’s Performing Arts Centre on Wednesday.

“The oil shale is quite deep and it is significantly separated from any utilised groundwater aquifers,” Mecrus managing director Barry Richards wrote in the submission.

“The identified resources in our primary target area are also extremely thick and of world class in nature”.

The primary target area is comprised of two mineral exploration licence areas held by Mecrus with a combined size of about 1500 square kilometres.

The two tenements, EL5298 and EL5297, incorporate land from around Ardno, Strathdownie and Wilkin to the south, to around Lake Mundi and Tullich in the north.

The eastern border of the two adjacent tenements begins about 10 kms west of Casterton and is hemmed in by the variety of state nature reserves and Crown land between Casterton and the SA border.

The exploration licence areas EL5298 and EL5297 in south-west Victoria, held by Mecrus Resources and believed by the company to contain 'world class' shale oil deposits
The exploration licence areas EL5298 and EL5297 in south-west Victoria, held by Mecrus Resources and believed by the company to contain ‘world class’ shale oil deposits

“If the progression to the next stage from exploration to mining is successful, then it would be expected that many support companies would establish offices and service centres to support the development,” Mecrus’s submission stated.

Mecrus did not state how deep underground the oil deposit is meant to be, but other oil and gas companies have been exploring about four kilometres beneath the surface near Penola, SA.

The ‘Mecrus Group of Companies’ includes a variety of businesses focussed on groundwater management and desalination.

But its resources department is current focussed on mineral and petroleum exploration and not production.

The largest single project that Mecrus has worked on, according to public reports, is a $135 million contract to supply four giant coal-handling machines at the Abbot Point Coal Terminal in North Queensland.

Some of the company’s flagship contracts, listed as ‘case studies’ on its website, were worth between $2m and $10m.

The revelations in Mecrus’s submission could further agitate anti-gas activists and locals farmers who have joined their cause.

Landowners from south-west Victoria joined a protest rally in Melbourne on Sunday that called for the entire state to be declared “gasfield free” due to concerns that an onshore unconventional gas industry would damage agriculture.

Mecrus has also stated that, if an oil drilling project goes ahead, south-west Victoria could also be used for ‘carbon sequestration’ to held Australia meet its international emissions reduction targets by pumping greenhouse gas underground.

The Mecrus submission said the deposit as been “independently assessed” to likely contain 360 million barrels of oil as well as pockets of natural gas.

The deposit is believed to have a lifespan of 40 years and could produce more than $600 million in royalties for the Victorian Government during that time.

Given that oil royalty rates in Victoria are usually about 10 per cent of net production value, the economic value of the deposit could be as high as $6 billion.

If the project ever goes ahead it could, at peak production, create a yearly economic output larger than Iluka Resource’s Hamilton mineral sands separation plant or the Portland Aluminium Smelter,

Mecrus Resources notes that the “financial expenditure for such projects is extremely large” but says that it would bring “massive flow on effects for local communities”.

“If the progression to the next stage from exploration to mining is successful, then it would be expected that many support companies would establish offices and service centres to support the development,” Mecrus’s submission stated.

“This also will have a positive impact on the employment of local citizens through support functions to a new industry.”

The company says its exploration results indicate “there is a significant Oil Shale reserve and associated hydrocarbons contained within these Oil Shales” in the Otway Basin.

Mecrus has submitted ‘commercial in confidence’ documents to the parliamentary gas inquiry, including work and operation plans, an environmental management plan and groundwater contingency plan.

The managing director offered to give MPs a confidential briefing on request and stated in its submission that the aboveground impact from oil drilling in its exploration licence areas would be about one hectare in total.

Mecrus will probably have to use the controversial hydraulic fracturing, AKA ‘fracking’, technique to improve yields from any oil and gas deposits found in south-west Victoria.

Fracking involves pumping a mixture of water, sand and chemical underground to break up rock layers; the technology has been a major source of opposition to unconventional gas from farmers.

Mecrus has also proposed to fill the remaining underground void with carbon dioxide to cash in on the search for ‘carbon capture and storage’ facilities.

Brown coal power stations are a major contributor to Australia’s high per-capita carbon emissions.

A recent advertising campaign by the Mineral Council of Australia, promoting coal as “amazing”, has talked up the possibility of carbon capture to improve the economic and environmental virtues of the fossil fuel.

There is only one functional carbon capture operation in the world, located in Canada, but there are plans to use the technology to store emission from coal power stations in Victoria’s Latrobe Valley.

Mecrus has successfully completed a number of large construction and maintenance projects since the company was formed in 1999, but it has never started or delivered a mine or oil production site.

Mecrus established its mining and resource division in 2009 and was awarded its first exploration licence in 2010.

The collapse of oil and gas prices over the past 12 months has proven to be a challenge for Australia’s petroleum exploration and production companies.

South Australia’s Beach Energy, which holds a number of onshore gas exploration licences in south-west Victoria, was forced to slash capital expenditure after oil prices dropped and its share price plummeted.

Mecrus is a privately owned company with a much lower profile than its publicly traded competitors and it does not have to publish its annual reports.

The Victorian Parliamentary submission by Mecrus represents a rare insight into the company, as its latest press release was issued in August 2011 and its last four-page newsletter came out in late 2013.

Backing up what the company told Victorian MPs in 2011, the July 2015 submission states that “we do not believe there is any commercially viable Coal Seam Gas reserve” in the Otway basin.

The company wants any future oil activity to be governed under Victoria’s Mineral Resources Sustainable Development Act, rather than the Petroleum Act.

This could see oil and gas projects go ahead in Mecrus’s south-west Victorian exploration licence areas even if the Victorian Government decided to extend its current moratorium into onshore gas exploration and fracking.

Mecrus argued that treating south-west Victorian oil extraction under mining legislation would “strengthen regulatory safeguards and prevent delays to development of the industry”.

Mecrus also urged MPs to take note of a report published by the US Environmental Protection Agency that downplayed the potential effects of hydraulic fracturing for oil on drinking water resources.



Western Victoria’s aquifers and surface water face a “low” risk from fracking


The Hamilton Spectator – August 08, 2015 

WESTERN Victoria’s aquifers and surface water face a “low” risk from onshore unconventional gas fracking, according to a State Government report that has been harshly criticised by The Greens.


The report explored “hypothetical onshore natural gas development scenarios”, including a wide band of shale gas west of Casterton and three coal seam gas areas between Casterton, Merino and Dartmoor.

Another hypothetical coal seam gas field was modelled in the prime dairy region between Macarthur and Koroit.

Unconventional gas development involves, to varying degrees depending on the type of gas, the controversial extraction method of hydraulic fracturing or ‘fracking’.

Water, sand and chemicals are pumped underground at high pressure in order to ‘frack’ a gas well and the process has been depicted by activists as dangerous to the environment and human health.

Though the main body of the report presented unconventional gas as low risk, its introduction made candid statements about the proposed industry.

“Gas extraction depressurises the gas-bearing formation and may cause a decline in groundwater level, which could impact water users and ecosystems,” the report stated.

“Groundwater level decline may also cause land subsidence.

“Hydraulic fracturing can increase gas yield, but may unintentionally contaminate water supplies with hydraulic fracturing fluids and induce seismicity (earthquakes).”

Victorian Greens Leader Greg Barber has rejected a water table report’s main findings as “flawed” and accused the consulting company that produced it of having a commercial interest in seeing the fracking moratorium lifted.

“If the government is backing these findings, they seem to be saying that drilling in Western Victoria will be a lot lower risk than other places,” he said.

“I’m just not buying it.”

“There’s no actual evidence provided that the water table will only fall by 2 to 10 metres from gas drilling and extraction. All their other conclusions follow from that.

“That impact could be devastating enough to fragile farmlands and sensitive ecosystems, already stressed by drought and climate change.”

The Spectator has sought comment from Western Victoria Labor MP Gayle Tierney but she did not respond before publication deadline.

The ‘Otway region synthesis report: overview of the assessment of potential impacts on water resources’ was one of four submissions made by the Victorian Government for the State Parliament’s inquiry into unconventional gas.

The inquiry is due to report its findings to Parliament in December, and the recommendations could see the State Government lift or extend its current moratorium into most onshore gas exploration activities.

The water report stated that gas development in the Otways and Western Victoria would have a “low” impact on the water table with water flow changes and aquifer depressurisation “within historical ranges” and “the potential for chemical contamination of groundwater from hydraulic fracturing fluids is low”.

Lowan Nationals MP Emma Kealy repeated her party’s pledge to not approve any gas development that would pose a threat to agriculture.

“The Coalition has a strong history in unconventional gas, banning the use of dangerous BTEX chemicals, introducing the gas exploration moratorium, and commissioning extensive water and environmental studies and entering into a broad community consultation process,” she said.

“This is in stark contrast to Labor, who recklessly issued 72 gas exploration permits and 23 extraction licenses with no studies into the impact of fracking on our land, environment and water.

“This report forms just one of the submissions to (Parliament’s) Inquiry into Unconventional Gas. I await the final recommendations of the Inquiry with interest.”

The water report’s authors used test drilling results to estimate the water table impact of hypothetical shale and coal seam gas development in the Otways and Western Victoria regions.

Though much of south-west Victoria is covered by shale and tight gas exploration licences, The Spectator has only found one coal seam gas exploration licence that was granted in Western Victoria in previous years.

The private company that owned the licence, Mecrus Resources, “has ruled out CSG” according to a separate State Parliament report.

The current report found that “shale gas…is expected to exist in the Casterton Formation at depths greater than 2500m.”

“Prospective shale gas resources could be located near the South Australian border.”

Doctor Payment Plan Defended


The Hamilton Spectator – August 01, 2015

HAMILTON Medical Group has defended its new ‘pay on the day’ policy for GP appointments, which was announced last Saturday and will take effect on September 28.

The clinic has pointed to a freezing of Medicare rebates to GPs since November 2012, under both Labor and Coalition Governments, as a partial reason for its payment policies.

A statement from Federal Health Minister Sussan Ley said doctors should not use the rebate freeze as an excuse to unfairly increase prices.

The clinic’s announcement was heavily criticised on Facebook and it also reignited a long-running debate about the local availability of bulk bulling for GP visits.

The clinic stated via an advertisement in The Spectator that “in view of the Government freezing of the Medicare rebate, in order to sustain a medical service and attract doctors to come and work in Hamilton, the Hamilton Medical Group will be changing its billing policy.”

From Monday, September 28, 2015 full payment will be required for all consultations on the day of service

“Rebates can be paid directly into your account on the same day.”

At the time of publication, 158 comments had been posted on the ‘I’ve Lived in Hamilton, Victoria’ Facebook page listing issues with Hamilton Medical Group’s payment policies.

There were also messages in support of the clinic, including one popular comment that asked locals to consider “how lucky are we to live in a country that allows us to access medical treatment for many issues”.

Prior to the ‘pay on the day’ policy announcement, The Spectator had asked users of its own Facebook page about their opinion of bulk billing.

A number of users said the non-bulk billed cost of repeated GP visits, often because of having multiple children or a chronic illness, was a major issue.

Hamilton Medical Group board chair Dr Dale Ford told The Spectator that the new payment policy would have exceptions for financial hardship and was not the only medical clinic to adopt similar measure.

“We are going to try to move to a ‘pay on the day’ policy,” he said.

“The reason for that is: as a result of what happened in recent months and years the amount of money outstanding has increased significantly and we are trying to move to have ‘pay on the day’ whenever possible.

“We understand that sometimes it’s not going to be possible, but that will also be part of the policy.”

For many families facing multiple GP visits, there has always been calculation of whether it would be cheaper to drive to Penshurst, Coleraine, Portland or Warrnambool rather than attend a non-bulk billed appointment in Hamilton.

One woman who contacted The Spectator said she considered herself to be one of the “working poor” and was battling the cost of GP visits while managing a chronic illness.

“I have many friends with young children who simply can not afford to go (to the doctor),” she wrote.

The Hamilton Medical Group states on its website that it is “a private medical practice, not a bulk billing clinic.”

Dr Ford said that despite this policy there was a “significant percentage of consultations that are bulk billed” as the option was at the discretion of doctors.

“Bulk billing is becoming far less common in the medical community because there has been no increase in any bulk billing rebates since November 2012,” he said.

“And that has been the stated intention of this Government that there is no increase in rebates from now into the distant future.

“The issue with that, for not just this practice but every other practice, is that costs clearly continue to increase.

“Our rent, the utility fees, the wages, insurance, materials, accreditation go up in the medical sector by an average of 10 per cent per year, and that’s been the case since November 2012.”

Dr Ford said the clinic wanted to “be a part of the community” and make arrangements for people in difficult circumstances.

“We do our best to look after those people that have issues, but at the same time we don’t want to abandon our approach to be a quality practice, which means getting the best doctors that we can to work here and delivering the best standard of care we can,” he said.

Dr Ford described the cost impact on poorer people of managing a chronic illness as a “national issue”.

“Is there a better way of trying to organise it? I’m sure there is but we don’t get to make the rules, we have to live by them,” he said.

“If the rebates had continued to keep pace with inflation since 2012 this may be a different story.

“This has been a political decision that I can only see as being an attempt to reduce the amount of bulk billing.”

The Spectator asked Wannon Federal MP Dan Tehan to comment on bulk billing issues in Hamilton but he referred the query to the Federal Health Minister’s office.

A statement from Ms Ley said the ‘temporary GP rebate pause’ shouldn’t provide an excuse for any unfair “sneaky price increases”.

Ms Ley’s statement said Health Department modelling suggests the rebate for GPs would only be $0.65 lower in 2015/16 and $2.10 lower in 2017/18 under the freeze.

“At the end of the day, doctors are in control of what they charge patients and I expect vulnerable and concessional patient to continue to be protected” Ms Ley said.

“I have also made it clear that I am open to reviewing the rebate indexation pause in the future as part our ongoing work with doctors and patients to reform Medicare.”