COMMERCIAL ASPECTS OF UNDERGROUND GAS STORAGE IN AUSTRALIA

Abstract

Underground gas storage is becoming increasingly important in Australia with the discovery of significant gas reserves, mostly in places distant from the expanding markets for gas.

Gas has been stored in the offshore Barracouta Field since 1971 and storage projects are either being considered or underway in New South Wales, South Australia, Western Australia and the Northern Territory.

Although not a great deal of attention has been paid to the legal, tax and administrative aspects of underground gas storage, the position is likely to change the more it becomes apparent that such storage is commercially and technically viable.

The applicable legal regime will depend on the location of the storage. Offshore gas storage on the continental shelf beyond the coastal waters of a state is subject to Commonwealth jurisdiction. In state coastal waters, it is subject to state laws. Onshore, it is subject to the jurisdiction of the state or territory in which the storage occurs.

Offshore beyond state coastal waters the Australian government has sovereign rights over the continental shelf for the purposes of exploring the continental shelf and exploiting its natural resources.

There are a number of legal uncertainties which arise from gas storage which will be of concern to financiers as well as gas storers. With certain exceptions, there is doubt as to ownership of stored gas, and the right to inject and store gas. The right of withdrawal however would appear to fall under the right which normally exists under a production lease to 'mine' petroleum, or to conduct 'petroleum mining operations'. Except in Victoria, and to a significantly lesser extent South Australia, there is very little legislative guidance on the topic and related issues.

The question whether stored gas is trading stock is the subject of Income Tax Ruling 2190 of 10 September 1985. This puts at rest, in practical terms, in any event, some of the doubts which existed as to the characterisation for income tax purposes of gas stored near the place of original extraction — the ruling concluded that 'reinjected processed gas should not be treated as trading stock for income tax purposes'.

It is concluded that there is a good case for those Australian jurisdictions in which gas storage is occurring, or is about to occur, to provide legislation to eliminate the uncertainties.