SYDNEY, Jan 28 (Reuters) - An Australian state government on Wednesday suspended AGL Energy Ltd's licence to operate a pilot coal seam gas field after banned chemicals were found in water supplies.
The New South Wales state government has launched an investigation into the energy company's operations after it announced on Tuesday it would voluntarily suspend work at its Waukivory Pilot Project.
AGL said it had detected BTEX chemicals in flowback water from two of its four wells at the site and in an above-ground water storage tank. It attributed the presence of the group of toxic chemicals benzene, toluene, ethylbenzene and xylene to natural sources, saying it had not used them in its fracking operations.
Hydraulic fracturing, or fracking, is a drilling technique that farmers and landowners fear may contaminate water supplies as it uses high-pressure water, sand and chemicals to extract gas trapped in rock.
The use of BTEX chemicals in fracking was banned by the Australian government in 2011, but communities living near coal seam gas projects continue to express concern.
Origin Energy, in charge of coal seam gas drilling for the Australia Pacific liquefied natural gas (LNG) project, last year stopped work at 12 sites in Queensland state after asbestos was found in drilling fluids it was using.
The NSW Environment Protection Authority said it was "very concerned at AGL's lack of timeliness and transparency in informing us of these results", noting the company knew about the presence of BTEX chemicals almost two weeks before Tuesday's announcement.
AGL said its monitoring of groundwater and surface water had shown no evidence of changes in water quality since it started the pilot programme.
AGL's shares were down 2.1 percent at A$13.89 ($11) in midday trade, against a broadly lower Australian market.
($1 = 1.2513 Australian dollars)
(Reporting by Jane Wardell; Editing by Joseph Radford)
Copyright 2016 Thomson Reuters. Click for Restrictions.
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