Australian Coal-Seam Gas Ban Puts Projects at Risk

SYDNEY - Lawmakers in Australia's New South Wales (NSW) Tuesday tightened restrictions on the production of coal seam gas (CSG), prompting an angry response from energy companies planning a host of new projects in the state. 

CSG drilling will be banned within 1.2 miles (2 kilometers) of residential areas in Australia's most populous state, the conservative Liberal government said, adding that bans would also apply to land containing vineyards and horse studs. 

The moves may constrain the activities of companies including AGL Energy, which has significant CSG drilling projects planned in state. 

"The New South Wales government has listened to community concerns about CSG," Premier Barry O'Farrell said in a statement. "These new measures build on what are already the toughest controls in the country." 

The government's stance is in stark contrast to neighbouring Queensland state, where companies including ConocoPhillips and Total are spending more than $60 billion combined to liquefy CSG for export to Asia. The decision illustrates the difficulties facing companies attempting to replicate the U.S. boom in unconventional gas production in other parts of the world. 

U.S. unconventional gas production has accelerated thanks to the advent of "fracking technology" that allows access to gas trapped in dense rock formations using high-powered bursts of water, sand and chemicals. The product obtained through this method is known as shale gas. 
Some countries, including France and Bulgaria, have banned fracking, while other E.U. nations have raised environmental bars high enough to discourage the practice. 
The extraction of CSG carries in particular the risk of water contamination, as salt water mixed in with the gas is sucked up to the surface from the rock in which it is embedded. Some more experienced CSG producers have claimed their wells are safe because they're cased in concrete to prevent leakage, while contaminated water is collected at the surface and treated. 
On Tuesday, the chief industry body representing Australia's oil and gas producers said the New South Wales government's bans "ignores science". It added that the planned export of large quantities of coal-seam gas from neighbouring Queensland would push up domestic energy prices. 
"We are concerned that the decision today will have serious ramifications for households and businesses given that New South Wales imports 95% of its natural gas from interstate," said Rick Wilkinsonan, an official at the Australian Petroleum Production & Exploration Association. 
The company most likely to be affected by the rules, AGL Energy, said it was seeking an "urgent meeting" with Premier O'Farrell. 
AGL has proposed three large CSG in NSW, including the expansion of its existing Camden project, located in a residential area about 37 miles (60 kilometers) southwest of Sydney. The company last week suspended the expansion, estimated to supply 580,000 households, as it attempted to address community concerns over safety. 
AGL also has a proposed project in the Hunter Valley that has sparked widespread criticism from the area's established wine and horse-breeding industries. Its third project, Gloucester, is located in a more remote part of the state. 
Santos owns CSG properties in the Narrabri region, in the north of the state. A spokesman for the company said it was too early to say whether its development plans would be affected. 
"We need further details around the proposed measures, to better understand the potential implications," he said. 
Smaller developer Metgasco said the decision could have a "significant impact" on its Northern Rivers CSG operations, while Dart Energy said the restrictions would put thousands of jobs at risk and drive the industry out of the state. 

Copyright (c) 2012 Dow Jones & Company, Inc.


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