PETROLEUM (SUBMERGED LANDS) (PIPELINES) REGULATIONS 2001 2001 NO. 314

Commonwealth Numbered Regulations - Explanatory Statements

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PETROLEUM (SUBMERGED LANDS) (PIPELINES) REGULATIONS 2001 2001 NO. 314

EXPLANATORY STATEMENT

STATUTORY RULES 2001 No. 314

Issued by the Authority of the Minister for Industry, Science and Resources

Petroleum (Submerged Lands) Act 1967

Petroleum (Submerged Lands) (Pipelines) Regulations 2001

Section 157 of the Petroleum (Submerged Lands) Act 1967 (the Act) states that the Governor-General may make regulations, not inconsistent with the Act, prescribing matters that are required or permitted to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Paragraph 157(2)(d) of the Act states that the regulations may make provision for securing, regulating, controlling or restricting the construction and operation of pipelines.

The purpose of the Regulations was to introduce an objective based system for regulation of offshore petroleum pipelines. This is consistent with Government policy already implemented in the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996 and the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999.

Objective based regulation provides an effective framework for addressing industry needs while ensuring government is able to protect community interests. In this case, it requires the company to identify potential safety hazards and risks to the integrity of a pipeline and measures to remove or reduce those hazards or risks to as low as reasonably practicable. This is consistent with international best practice for petroleum regulation.

The Regulations require an applicant to prepare a pipeline management plan which includes a description of the ongoing management of risks. Following acceptance of the plan by the regulator, the company must operate in accordance with this management plan. The plan can be revised if circumstances change but those revisions must be accepted by the regulator before taking effect. The Regulations also require companies to monitor, audit and review their pipeline management systems, including arrangements for continual and systematic improvement.

The Regulations allow companies to implement improvements in technology and management systems without the need for government to continually update requirements. As industry can implement improved practices at its discretion, the cost of complying with the regulations should be lower. The transparent and accountable acceptance and compliance processes would reassure the community that pipeline operations are being conducted responsibly.

While the requirement to undertake risk assessment and hazard minimisation and to prepare formal pipeline management plans may appear to load costs onto pipeline companies, such companies normally take these steps to manage their own commercial risks and to secure the finance that is normally required for construction and operation of offshore pipelines. Overall regulatory compliance costs are expected to reduce mainly through the additional flexibility the proposed objective-based approach offers. Guidelines prepared in co-operation with industry will be issued to assist in compliance with the regulations.

The Regulations were prepared by a Working Group established under the former Australian and New Zealand Minerals and Energy Council officials Upstream Petroleum Sub-Committee. The Working Group included members nominated from the upstream petroleum and pipeline industries through the Australian Petroleum Production and Exploration Association (APPEA) and the Australian Pipeline Industry Association (APIA), representatives from the State and Northern Territory departments with responsibility for petroleum regulation, and the Department of Industry, Science and Resources.

Details of the Regulations are set out at Attachment A. A Regulation Impact Statement is at Attachment B.

The Regulations commenced on 1 November 2001.

ATTACHMENT A

PART 1 - PRELIMINARY

Regulation 1 - Name of Regulations

This Regulation provided the title of the Regulations.

Regulation 2 - Commencement

This Regulation provided for the Regulations to commence on 1 November 2001.

Regulation 3 - Object of Regulations

This Regulation stated the object of the Regulations, which is to ensure offshore petroleum pipelines are designed, constructed, operated, modified and decommissioned in a suitable manner, with significant risks reduced to as low as reasonably practicable.

Regulation 4 - Definitions

This Regulation provided definitions of terms which are not already defined in the Act.

Regulation 5 - Meaning of validation

This Regulation defined the meaning of validation of a pipeline proposal and what it covers.

Regulation 6 - _Application of the Criminal Code

This Regulation provided that that on and after 1 November 2001, Chapter 2 of the Criminal Code, which sets out the general principles of criminal responsibility, applies to offences against these Regulations.

PART 2 - CONSENT TO CONSTRUCT AND OPERATE A PIPELINE

Division 2.1 Consent to construct

Regulation 7: Consent to construct required to construct a Pipeline

This Regulation provided that a person must not begin to construct a pipeline unless they have been granted a consent to construct.

Regulation 8: Matters to be agreed before pipeline -licensee applies for consent to construct

This Regulation provided that the pipeline licensee must apply for a consent to construct only after the matters to be included in the pipeline management plan and the scope of the validation have been agreed upon by the regulator.

Regulation 9: Application for consent to construct

This Regulation covered the matters that an application for a consent to construct a pipeline must include.

Regulation 10: Deciding an application for a consent to construct

This Regulation detailed what matters the regulator must take into consideration when deciding whether to grant or refuse to grant a consent to construct. The Regulation also stated that the regulator has 28 days to decide whether to grant the consent.

Regulation 11: Construction must comply with pipeline management plan

This Regulation provided that, before beginning construction, the pipeline licensee must have in force at least part of a pipeline management plan which covers the construction.

Regulation 12: Notice of route followed by pipeline

This Regulation provided. that, within 3 months of completion of construction, the pipeline licensee must inform the regulator and the Australian Hydrographic Office of the route of the pipeline.

Division 2.2 Consent to operate

Regulation 13: Consent to operate required before a pipeline is operate

This Regulation provided that a pipeline licensee must not operate a pipeline without a consent to operate granted by the regulator.

Regulation 14: Matters to be agreed before pipeline licensee applies for consent to operate

This Regulation provided that the pipeline licensee may apply for a consent to operate only after the matters to be included in the pipeline management plan and the scope of the validation have been agreed upon by the regulator.

Regulation 15: Application for consent to operate

This Regulation covered the matters an application for a consent to operate a pipeline must include.

Regulation 16: Deciding an application for a consent to operate

This Regulation detailed the matters the regulator must take into consideration when deciding whether to grant or refuse to grant a consent to operate. The Regulation also stated that the regulator has seven days to decide whether to grant the consent.

Regulation 17: Operation must comply with pipeline management plan

This Regulation provided that, unless in an emergency or directed by the regulator, before beginning to operate, the pipeline licensee must have at least part of a pipeline management plan in force which covers the operation.

Regulation 18: Using pipeline to convey compositions of petroleum

This Regulation provided that what is conveyed through the pipeline must be covered in the pipeline management plan and be within the safe operating limits.

Division 2.3 Modifying or decommissioning a pipeline

Regulation 19: Modifying or decommissioning a pipeline

This Regulation provided that unless in an emergency or directed by the regulator, a pipeline licensee must not modify or decommission a pipeline unless this is covered in the pipeline management plan.

PART 3 - PIPELINE MANAGEMENT PLANS

Division 3.1 Acceptance of a pipeline management plan

Regulation 20: Submission of a pipeline management plan

This Regulation stated who the pipeline management plan should be submitted to and the stages of the pipeline life cycle it should cover. The Regulation also provided that a pipeline management plan may cover one or more pipelines.

Regulation 21: Time limit for accepting or not accepting a pipeline management plan

This Regulation provided that the regulator must accept or refuse to accept a pipeline management plan within 28 days, or provide written notice of the proposed timetable for consideration of the plan.

Regulation 22: Acceptance of a pipeline management Plan

This Regulation detailed what matters the regulator must take into consideration when deciding whether to accept or refuse to accept a pipeline management plan. If the regulator is not reasonably satisfied with the plan, the regulator must give the pipeline licensee a reasonable opportunity to resubmit the plan. The regulator can also choose to accept part of the plan.

Division 3.2 Contents of a pipeline management plan

Regulation 23: Contents of a pipeline management Plan

This Regulation detailed what matters should be included in a pipeline management plan.

Regulation 24: Description of safety policy

This Regulation provided that the pipeline management plan must include a description of the pipeline licensee's health and safety objectives for the pipeline.

Regulation 25: Description of pipeline

This Regulation provided what matters the pipeline management plan should include with respect to the description of a pipeline.

Regulation 26: Description of pipeline management system

This Regulation provided that the pipeline management plan must include a description or assessment of the risk of significant pipeline accident events and the measures which have been put in place to reduce those risks to as low as reasonably practicable.

Regulation 27: Statement of standards

This Regulation provided that the pipeline management plan must include a statement about the relevant Australian and international standards which are used in the design, construction, operation, modification or decommissioning of the pipeline.

Regulation 28: Arrangements for documents

This Regulation provided that the pipeline management plan must include arrangements for securely storing pipeline management plans for five years.

Regulation 29: Arrangements for reporting

This Regulation provided that the pipeline management plan must include arrangements for reporting to the regulator, no less often that annually, about the design, construction, operation, modification and decommissioning of the pipeline.

Division 3.3 Revision of a pipeline management plan

Regulation 30: Revision because of a change, or proposed change, of circumstances or operations

This Regulation described the situations where a pipeline licensee must submit a revision of a pipeline management plan.

Regulation 31: Revision on request by the Designated Authority

This Regulation provided that the regulator may request a revision of the pipeline management plan from the pipeline licensee, but must give grounds for the revision. The pipeline licensee has 21 days to make a submission to the regulator saying why the proposed revision is not needed.

Regulation 32: Revision at the end of each 5 years

This Regulation provided that a pipeline management plan must be re-submitted to the regulator every five years, including any changes to the plan.

Regulation 33: Form of proposed revision

This Regulation provided that a revision to the pipeline management plan may be a revised pipeline management plan or a revised part of the management plan.

Regulation 34: Time limit for accepting or not accepting a proposed revision

This Regulation provided that the regulator must accept or refuse to accept a revision to a pipeline management plan within 28 days, or provide written notice of the proposed timetable for consideration of the revision.

Regulation 35: Acceptance of a proposed revision of a pipeline management plan

This Regulation provided what matters the regulator must take into consideration when deciding whether to accept or refuse to accept a revision to the pipeline management plan. If the regulator is not reasonably satisfied with the revision, the regulator must give the pipeline licensee a reasonable opportunity to re-submit the revision. The regulator can also choose to accept part of the revision.

Regulation 36: Effect of non-acceptance of proposed revision

This Regulation provided that if the revision is not accepted by the regulator, then the pipeline management plan in force prior to the revision being submitted remains in force.

Division 3.4 Withdrawal of acceptance of a pipeline management plan

Regulation 37: Withdrawal of acceptance of a pipeline management plan

This Regulation detailed the grounds on which a regulator may withdraw acceptance of a pipeline management plan.

Regulation 38: Steps to be taken before withdrawal of acceptance

This Regulation provided that the regulator must give the pipeline licensee at least one month's written notice before withdrawing approval, along with the reasons for withdrawing approval.

Regulation 39: Withdrawal of acceptance not affected by other provisions

This Regulation provided that even if the regulator has withdrawn its acceptance of a pipeline management plan, the pipeline licensee may still be convicted of offences under the Act or these regulations on the same or other grounds as those on which the acceptance was withdrawn.

PART 4 - INCIDENTS, REPORTS AND RECORDS

Regulation 40: Reportable incidents

This Regulation provided that the pipeline licensee must notify the regulator of a reportable incident as soon as practicable, but within two hours, after the incident occurs or is detected by the licensee. The licensee must then provide a written report of the incident to the regulator as soon as practicable, but within three days after the incident occurred or is detected by the licensee unless the regulator specifies, in writing, a different period.

Regulation 41: Dealing with documents

This Regulation provided that the pipeline licensee must deal with documents and records in accordance with arrangements for documents under the pipeline management plan.

Regulation 42: Reporting to Designated Authority

This Regulation provided that the pipeline licensee must report to the regulator in accordance with his or her pipeline management plan.

PART 5 MISCELLANEOUS

Division 5.1 Requirements about workers

Regulation 43: Competence of workers

This regulation provided that each person working on the pipeline must be competent and have the necessary skills, training and ability to carry out tasks and respond appropriately in an emergency.

Regulation 44: Awareness of legislation

This Regulation provided that each person working on the pipeline must know about the effect of legislation that is relevant to in the areas of the pipeline, safety and environment protection.

Regulation 45: Involvement of workers in pipeline management plan

This Regulation provided that the regulator may ask the pipeline licensee to demonstrate that, in the development or revision of a pipeline management plan, that there has been effective consultation with people working on the pipeline.

Division 5.2 Providing information

Regulation 46: Notice of contact details

This Regulation provided that the pipeline licensee must maintain the currency of his or her contact details with the regulator.

Regulation 47: Designated Authority may decline to consider application or submission if information is not given

This Regulation provided that if the pipeline licensee has not supplied contact details, then the

regulator may refuse to consider an application until the details are supplied.

Regulation 48: Service, delivery and lodgment of documents

This Regulation provided that a document or required notice is taken to be given when it is delivered to the person.

Division 5.3 Transitional

Regulation 49: Application of regulations to licences granted before the commencement of these Regulations

This Regulation provided that current pipeline licensees have five years from the date of commencement to comply with these regulations.

ATTACHMENT B

PETROLEUM (SUBMERGED LANDS) (PIPELINES) REGULATIONS 2001

REGULATION IMPACT STATEMENT

1 Problem

The challenge for government is to ensure that offshore petroleum pipelines are constructed, operated and decommissioned safely and their integrity maintained over their operational life.

The Commonwealth Government has jurisdiction over offshore petroleum activities more than 3 nautical miles from the Territorial Sea Baseline (the low water mark or straight lines closing certain bays or fringing islands) through the Petroleum (Submerged Lands) Act 1967 (PSLA). Safety, integrity and fitness for purpose of offshore petroleum pipelines is currently addressed through provisions of the PSLA and conditions attached to pipeline licences granted under that Act.

There is a strong community perception that the Government has a responsibility to ensure the integrity of offshore pipelines and the safety of their operation. Failure to do so could also result in significant adverse impacts on the environment from possible contamination through failure of pipeline integrity.

Government could be also liable for the consequences of environmental degradation caused by operators if standards set out in pipeline licence conditions were proven inadequate, and resulted in rupture of a pipeline.

2 Objectives

The aim of the offshore pipeline regulations is to ensure that offshore petroleum pipeline operations are performed in a way that maintains the integrity of the pipelines and minimises safety risks to affected persons, to as low as reasonably practicable over the life cycle of the pipeline.

3 Options

Four options were considered for implementation. These options include retaining the status quo; industry selfregulation; reliance on prescriptive regulations; and reliance on objective based regulations. An analysis for each option is below.

Status Quo

Pipeline licence conditions are currently approved along with the grant of a pipeline licence by the Joint Authority (normally the Minister of a State or the Northern Territory authorised under the law of the State or the Northern Territory to perform functions under the PSLA (the Designated Authority) and the relevant Commonwealth Minister).

These pipeline licence conditions tend to be prescriptive in nature, and limit flexibility by pipeline operators to respond to changes in circumstances or technology. Pipeline licence conditions are approved along with grant of the licence and as such are not subject to parliamentary scrutiny. Being prescriptive in nature, pipeline licence conditions do not permit industry to utilise best practice in pipeline management, or implement innovative technologies as continual improvement.

Maintaining the status quo would remove scope for improved outcomes. Industry does not support retaining the status quo. It does not offer operators the opportunity to pursue an integrated best practice approach to all their operations, including pipelines, nor does it support their efforts to pursue continuous improvement in those operations.

In view of the general opposition, there has been no further analysis of this option.

Industry Self Regulation (no regulation)

The Government intervenes in the petroleum exploration and development industry from a safety and environmental perspective to minimise negative externalities arising from the exploitation of petroleum reserves. Potential externalities associated with construction, operation and decommissioning of pipelines include personnel safety and the environmental consequences of a rupture of a pipeline where there has been a failure to maintain pipeline integrity.

Self-regulation does not provide a framework capable of providing assurance to the community that the industry can operate in a manner that is likely to provide community acceptable outcomes. The risks associated with the activity mean that such a framework is essential, otherwise the potential for disputes between operators and opponents of the offshore petroleum industry will increase, as there are continuously changing issues of contention.

Self regulation was not supported by employee or environment groups during the development of safety or environment regulations as it is seen as abrogating the government's responsibility to protect employee safety and the environment. Industry also does not support this option because of the inherent uncertainty and potential for costly delays, and interruption of operations.

The removal of the framework within which industry, government and the community work could have negative consequences on industry efficiency and outcomes. In view of the general opposition, there has been no further analysis of this option.

Prescriptive Regulations

This option would provide a framework similar to the one currently operating, except that it would produce even less flexibility than conditions attached to pipeline licenses and that the legislative instrument would be subject to parliamentary scrutiny. Prescriptive regulations are not acceptable to industry members, who have indicated they would prefer a regulatory system that does not preclude them from adopting better, more cost effective practices in a timely manner.

Prescriptive regulations impose a burden on governments, as they must be constantly monitored to ensure that changing practices, standards and technologies are reflected. Such changes require that regulations be updated periodically, and this process consumes significant resources. Being subject to parliamentary scrutiny, resources from the Commonwealth, States, the Northern Territory and industry would be needed for the drafting, consultation and implementation processes. Furthermore, compliance monitoring and enforcement consume resources after the regulations have commenced.

Prescriptive Regulation would not be as effective as the current system. The safety and pipeline integrity outcome would initially be in most cases the same, but regulatory requirements would be less able to be tailored on a case by case basis as at present through title conditions. However, responsiveness to improvements in pipeline management practices would be slower, as the regulations would need to be amended through the legislative process (title conditions are amended administratively). This would mean that resources would have to be committed to the drafting of and consultation about the revised regulations, as well as their implementation. Also, prescriptive regulation would reduce the potential for changes in management systems applied to existing pipelines, and enhanced outcomes over time that could flow from such changes.

Prescriptive regulations would also contradict government policy to move to regulate offshore petroleum activities through objective based regulations.

Objective Based Regulation

Objective-based regulation is the preferred option and Government policy. Management of safety on offshore petroleum facilities and protection of the environment are now subject to such regulation (the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996 and the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999). The move to objective based regulation has its roots in the findings of the 1988 UK Piper Alpha disaster in the North Sea which claimed 167 lives. The disaster was found to be mainly the result of management failure.

Objective based regulation provides an effective framework for addressing industry needs while ensuring government is able to protect community interests. It requires the company to identify potential safety hazards and risks to the integrity of the pipeline and measures to remove or reduce those hazards or risks to as low as reasonably practicable. The objective based regulations also require the company to prepare a pipeline management plan which includes a description of the ongoing management of those risks. Upon acceptance of the plan by the regulator the company is required to operate in accordance with this management plan. The plan can be revised if circumstances change but those revisions must be accepted by the regulator before taking effect.

Objective based regulation is supported by government, industry, employee and environmental groups.

Further benefits flowing from objective based regulation include:

� improved pipeline management systems;

� streamlined regulatory process;

� parliamentary scrutiny of pipeline regulations;

� improved pipeline safety and pipeline integrity outcomes;

� economical use of resources;

� legislative framework responsive to industry and community demands for best practice pipeline management and continuous improvement in all aspects of a company's pipeline operational performance;

� current pipeline reporting requirements streamlined and integrated under an improved regulatory regime; and

� the requirements of government and the expectations of the community in regard to pipeline management clearly communicated to industry.

4 Impact analysis

There will be an impact on the petroleum industry (operators and regulators) and the community from changes in the regulatory regime. Petroleum consumers could also benefit through enhanced reliability of supply.

The objective based regulations also require companies to monitor, audit and review their pipeline management systems, including arrangements for continual and systematic improvement. This approach, over time, drives improved safety and pipeline integrity outcomes. Industry is bound by law to achieve agreed risk and hazard removal or minimisation measures as described in the accepted pipeline management plan and can do so in the most effective manner. Improvements in technology and management systems can be implemented by industry, relieving government of continually updating regulations. Government does not need to change regulations to reflect changing practices. As industry can implement improved practices at their discretion, the cost of complying with the regulations should be lower. The transparent and accountable acceptance and compliance processes would reassure the community that pipeline operations are being conducted responsibly.

The management plan requirements of this approach can be met mainly by cross-referencing existing company management documents which often form part of a company's procedures for reducing its overall risk profile. This can significantly reduce company regulatory compliance costs.

Under the proposed regulations, the enforcement function of the Designated Authority will change, as there will be greater emphasis on auditing than on site inspection, and this change is expected to result in cost savings over time. The approach adopted in these proposed regulations is similar to that applied under the Petroleum (Submerged Lands) (Management of Safety on Offshore Facilities) Regulations 1996 and the Petroleum (Submerged Lands) (Management of Environment) Regulations 1999.

Following a transitional period, the proposed regulations will supersede conditions currently attached to existing pipeline licences issued under the PSLA.

5 Consultation

A two-pronged consultative approach ensured comprehensive consultation with the main affected parties.

A small working group of Regulators and Operators met regularly to discuss the proposed regulations and accompanying guidelines. Consensus agreement was sought on all issues.

The Australian Petroleum Production and Exploration Association represents industry on the working group. The Australian Pipeline Industry Association was also represented informally on the working group. Both organisations support the regulations as proposed. The core working group also includes delegates from five individual petroleum companies and one firm of pipeline consulting engineers. Companies proposing offshore pipeline projects in Australia during the development of the regulations were also consulted. These delegates support the proposed regulatory approach.

The resource departments of South Australia, Victoria, the Northern Territory and Western Australia are represented on the working group. Activity in offshore petroleum exploration and industry is most significant in these States. They also support the regulations as proposed.

Consultation with industry will continue following the commencement of the proposed regulations.

6 Conclusion and recommended option

A brief summary of the assessment of the options considered unsuitable is provided below:

Status Quo

The status quo does not have the support of government or industry. It restricts companies' flexibility to reduce risks over time, possibly resulting in sub-optimal outcomes.

Industry Self Regulation

This option is unacceptable to industry and the community. It does not provide a framework under which industry can consistently achieve high quality outcomes.

Prescriptive Regulations

Prescriptive regulations are not supported by government or industry. Government bears the responsibility of directing how standards are achieved and monitoring compliance. This places a greater cost burden and liability on government than other options. These costs include drafting, maintaining, implementing and enforcing the regulations, as well as liability for injuries or deaths and the consequences of failure of pipeline integrity caused by operators if the prescriptive regulations were proven inadequate. Prescriptive regulations do not encourage innovation, they prevent operators from implementing improved systems and they are cumbersome to adapt to reflect improved technologies or methodologies.

Preferred Option

Objective based regulation is the preferred option, as it offers efficiency, increased industry responsibility and the encouragement of continually improving management practices. Regulations are also subject to parliamentary scrutiny.

Objective based regulation provides a framework within which the government, industry and the community can work to ensure the risks from exploiting Australia's petroleum resources are reduced to and maintained at as low as reasonably practicable, and a framework that is efficient and adaptable to the changing needs of the industry. It provides individual companies with flexibility to tailor their pipeline management plans and systems to their specific circumstances and corporate cultures while ensuring capacity for continuous improvement and adjustment to changes in circumstances and technology. It also provides, through regulator acceptance procedures, and through audit against accepted plans, a high level of assurance that community desired outcomes will be achieved.

The community will benefit through enhanced employee safety, particularly in the construction of pipelines; through reduced risks of environmental consequences of loss of pipeline integrity; and through increased reliability of supply of crude oil and natural gas.

The preferred option has the capacity to provide a high level of assurance to the community that acceptable outcomes will be consistently achieved at a lower overall long-term cost than the other options.

7 Implementation & review

Section 157 of the PSLA provides for the imposition of regulations. The proposed regulations will operate concurrently with the conditions for a specified period, at the end of which all projects will be required to comply with the proposed regulations, and the conditions will be amended.

Industry's options for operating pipelines will be more flexible than at present. Operators will be able to meet the risk minimisation objectives set in the Pipeline Management Plan using the best possible technology and methodology. At present, prescriptive requirements suppress innovation. Adaptability and flexibility in industry's response to pipeline management matters will be enhanced, with accompanying guidelines covering any problems that industry may have addressing the regulations.

Small business is not directly involved in the exploration and production of petroleum. Costs for industry are expected to be reduced, as it will be able to integrate pipeline management into its overall management systems for reducing risks.

Effectiveness of the regime will be assessed using the monitoring, audit and reviewing aspects of the proposed regime, which is a requirement of the objective based regulatory system.

The regulations will be reviewed periodically by the Commonwealth-State-Territory Upstream Petroleum Sub-Committee as a matter of course. The Sub-Committee will consult with industry on an as needs basis to review the effectiveness of the regulations.