Q+A-Regulating Australia's coal seam gas sector

PERTH Fri Aug 26, 2011 3:01am EDT

PERTH Aug 26 (Reuters) - Opposition to Australia's coal seam gas industry, which is due to sink around $70 billion into projects in the eastern state of Queensland over the next few years, appears to be growing with calls for new legislation to regulate the industry.

A recent poll released by Australia's Greens party, which is strongly opposed to the industry, showed that 70 percent of respondents want coal seam gas mining banned in urban areas, while 68 percent want a moratorium on coal seam gas in Australia until the effects on the environment are more fully known.

Here are some questions and answers about the industry:

WHAT ARE THE CONCERNS AROUND COAL SEAM GAS AND "FRACCING"?

Coal seam gas production involves pumping large amounts of water out of the ground to release gas trapped in coal seams. Opponents say the process could cause the water table in key farming areas to drop.

A gas drilling technique known as hydraulic fracturing, which involves blasting large amounts of water mixed with sand and chemicals into shale rock or coal seams to free trapped gas, has also been the subject of criticism. The process, also known as "fraccing", is used primarily for shale gas production, as well as some coal seam gas production.

Opponents say fraccing could pollute groundwater, that the expansion onto prime agricultural land will hit farmers, and the extensive dredging required to build the projects could harm sites including Australia's Great Barrier Reef.

Industry groups deny that fraccing affects water quality and say the industry can co-exist with farmers.

WHAT ARE LANDOWNERS' RIGHTS IN AUSTRALIA?

Under Australian law, landowners have surface land rights, but the government owns mineral rights.

Coal seam gas companies have said they prefer to make voluntary agreements with landowners rather than force their way onto farmland to gain access to resources and companies typically negotiate land access agreements with landowners.

The terms of these agreements are typically confidential, but Queensland AgForce, a group which represents agricultural interests, said anecdotal evidence suggests compensation varies widely, ranging from A$500 ($522.77) to A$5,000 a year per well.

WHAT ARE THE RESTRICTIONS ON GAS DRILLING AND PRODUCTION?

Both Queensland and New South Wales have banned the chemical combination known as BTEX, which has been used for fraccing in the United States. These states have also ruled out using evaporation ponds to dispose of the extremely saline water produced by coal seam gas production.

Other restrictions vary from state to state.

In Queensland, State Premier Anna Bligh recently banned mining and coal seam gas exploration within 2 km of urban areas with populations over 1,000. Farmers have pushed to get the ban extended to farmland, but experts say Bligh is unlikely to do so, given the huge amount of investment and jobs involved.

New South Wales, where the coal seam gas industry is still relatively new, has extended an existing moratorium on fraccing through the end of this year.

ARE THERE PROJECT-SPECIFIC ENVIRONMENTAL CONDITIONS?

Yes. Individual projects must get state and federal environmental approvals, which are often contingent on meeting environmental conditions.

Coal seam gas projects approved so far have been subject to meeting conditions that focus on protecting underground aquifers and disposing of the salty water that the projects produce.

Analysts have said the conditions attached to coal seam gas projects, although numerous, were not extremely onerous or likely to present significant obstacles to development.

However, some experts have said that the unknown costs associated with disposing of brackish water and salt could be unexpectedly high.

WILL THE GOVERNMENT IMPOSE ANY NEW LAWS ON GAS DRILLING?

The Australian Greens party is currently leading the charge to impose more stringent regulations and this week introduced legislation that would allow farmers to refuse to have coal seam gas drilling on their land.

Opposition leader Tony Abbott, who heads a conservative coalition of pro-business and pro-farming parties, made statements earlier this month indicating that farmers should have a right to deny coal seam gas companies access to their land, but later tempered those comments, saying he will not back the Greens' legislation.

The minority Labor government strongly opposes changes to land access.

WILL CURRENT COAL SEAM GAS PROJECTS BE IMPACTED?

Analysts say the recent tightening of regulations in Queensland is unlikely to affect projects significantly, but have flagged the growing opposition to the coal seam gas sector as a factor that could impact the industry down the road.

"While the immediate impact of the new rules on the sector will be modest, and will not set back progress on the three major CSG projects already underway in Queensland, it does highlight the broader risks the coal seam gas sector, in particular, could face as an increasing number of projects move forward and if land and water management issues lead to a stronger backlash from local populations," Eurasia Group wrote in a note.

There are currently three coal seam gas to liquefied natural gas (LNG) export projects including Santos' Gladstone LNG, BG Group's Queensland Curtis Island LNG, and Origin and ConocoPhillips' Australia Pacific LNG, all expected to come online around 2015.

Royal Dutch Shell (RDSa.L) and PetroChina also plan a project, but have not yet moved forward with a final approval.

In a recent note on coal seam gas producer Santos, Macquarie analyst Adrian Wood indicated that further regulatory changes cannot be ruled out.

"It appears that state politicians (particularly in New South Wales) are increasingly siding with the farmers rather than the miners. While the Federal government remains resolute, Santos may yet find that the fiscal, environmental or regulatory goal posts could be retrospectively moved," Wood wrote. ($1 = 0.956 Australian Dollars) (Editing by Ed Davies)

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