The Northern Territory government is about to make fracking companies pay for groundwater use, but water economists say the fee is far too cheap and will leave taxpayers out of pocket.
Key points:
- The NT government will charge gas companies a $3,000 flat fee for groundwater licences for fracking
- Water economists say the flat rate is too cheap to cover the costs of monitoring the companies’ water use
- A department spokesman says the fee is an “interim measure” while a new water charging framework is prepared
For decades, water had been free for major industries operating in the NT, unlike elsewhere in Australia where charges apply.
That changed in October when the NT government announced it would start charging the oil and gas industry for its water use from this year.
The NT government has amended water legislation to introduce an annual flat fee of $3,000 for groundwater extraction licences used for “petroleum activity that includes hydraulic fracturing”, or fracking.
The fixed cost means gas companies will all pay the same amount, regardless of whether they are taking a massive amount of water or only a few megalitres.
It’s the latest step by the NT government to make way for a fracking industry in the Beetaloo Basin, about 500 kilometres south-east of Darwin.
But Jeff Connor, a water economics professor at the University of South Australia, said the NT government’s water charge was so cheap that it was essentially “gifting” a public asset to private companies.
“I would say that the $3,000 charge is not anywhere near the recommended pricing level,” he said.
“There will be costs experienced locally — there’ll be degradation of waterholes, groundwater-dependent ecosystems … and that cost will be borne by people who depend on water locally.”
Erin O’Donnell, a senior lecturer and water policy specialist at the University of Melbourne, said the flat fee could also incentivise companies to use more water than they needed.
“If you’re a very small body user, you’re still paying $3,000, which could be substantial if you’re not using very much,” Dr O’Donnell said.
“But if you’re using a lot, then that’s vanishingly cheap.”
A Pepper Inquiry recommendation
In Australia, charging for water helps pay for regulation of water use and is a core commitment of the National Water Initiative, agreed to by all states and territories.
It is also a recommendation of the Pepper Inquiry, which the NT government accepted in full when it lifted its ban on fracking in 2018.
In one scenario outlined by the Pepper Inquiry’s final report, about 2,500 to 5,000 megalitres of water could be needed per year for drilling and fracking wells in the Beetaloo Basin.
The report’s authors wrote that gas companies should pay for this water.
“The panel is firmly of the view that the Water Act should be amended to require shale gas companies to acquire and pay for water extraction licences for their activities,” the authors wrote.
“For example, assuming that permanent licences for 3,000 to 5,000 megalitres per year of water are needed for the Beetaloo Sub-basin shale gas operations, at a possible cost of $1,000 per megalitre, this would raise $3 to $5 million for the government.”
Professor Connor said this money could be used for ensuring responsible water management and potentially for “job creation” in the territory.
“That [money] goes into the public coffer and is used for public benefits,” Professor Connor said.
“It’s a public asset that belongs to everyone in the Northern Territory.”
Money needed for monitoring
Quentin Grafton, UNESCO’s chair in water economics and trans-boundary water governance, said the NT government’s groundwater charge ought to at least cover the costs of monitoring water compliance at fracking sites.
“[Water monitoring] takes time, it takes effort and requires skilled people and technicians,” he said.
“This is in a fairly isolated part of the world, so it’s going to cost a lot more to go and do your inspections.”
Professor Grafton, an economics professor at the Australian National University, said he would be “shocked” if the $3,000 fee covered all the costs of monitoring a company’s water use from fracking.
“The NT government, presumably, is going to be doing the monitoring, and the costs of that monitoring should be paid for by the companies doing the exploration,” he said.
“It shouldn’t be a charge to the NT taxpayer.”
Flat fee an ‘interim measure’
In a statement, a spokesman for the NT’s Department of Environment, Parks and Water Security (DEPWS) said the $3,000 flat fee was an interim measure.
“The $3,000 charge is an annual regulatory management charge that applies to onshore gas activities only — introduced in accordance with the hydraulic fracturing inquiry recommendations — from January 2023,” he said in a statement.
“The NT government is working on a water charging framework for all licensed users, which is a proposed commitment under the soon-to-be-finalised Territory Water Plan.”
David Slama, the NT director of the Australian Petroleum Production and Exploration Association (APPEA) said he welcomed the NT government’s progress implementing the recommendations of the Pepper Inquiry.
“This proactive, temporary measure helps provide passage for one of the world’s lowest carbon content, natural gas fields to be developed,” Mr Slama said, in a statement.
“It would only be fair for other industries tapping into similar water sources while developing and proving projects to also be charged when the permanent scheme is devised.”
NT Environment Minister Lauren Moss was approached for comment.