TOP 10 IA STORIES OF 2011
Coal seam gas mining developed increasing heat in the Australian heartland during 2011 as the horror stories emerged and people became more and more aware of the risks their Government''s were taking with their future water resources and farming industry. This illuminating April investigation by Sandi Keane has been steadily attracting readers all year.
#4: COAL SEAM GAS: IS IT TOO LATE TO LOCK THE GATE?
Hopes of a moratorium by opponents of the controversial coal seam gas mining sank last week when Origin Energy and its liquefied natural gas (LNG) partner, Conoco Phillips, signed Australia''s biggest single LNG agreement with China''s Sinopec. The deal through their joint venture company, Australia Pacific Liquefied Natural Gas, is worth an estimated $90 billion. This will be the third massive LNG plant proposed at Gladstone following federal and state approval for the Santos and BG Group’s LNG projects.
As LNG booms go, east coast Australia’s is shaping up as a Goliath to West Australia’s Godzilla. Governments of all persuasions in Queensland, NSW and Victoria are set to make a motza in royalties. Investment returns look ready to soar. But others in the community rue the day methane gas entered their lives. Methane gas? Conjures up images of dead canaries and frightened, black-faced coal miners, doesn’t it? These days, we call it CSG (coal seam gas) or the less popular name CSM (coal seam methane) or even CBM (coal bed methane). Along with its slightly different name, deadly methane has had an image makeover, a green-wash even. Its market edge is that, when burnt, it produces 40% less greenhouse gas than coal.
This cleaner burning gas was hailed as the transition fuel to clean energy, heralding a new energy source for the domestic market as well the lucrative export opportunity for LNG.
Just a few years ago, markets and investment advisers were abuzz with reports on this coming bonanza. No longer seen as a deadly gas, the Ugly Duckling had metamorphosed into the Goose that Laid the Golden Egg (apologies to H.C. Andersen). Even ethical investors, like me, got into the act: here was a chance for the eco-conscious shareholder to grab a slice of the mining boom. You could put money on it.
The stampede by Big Gas to secure a stake in the predicted boom was on. In June 2008, the BG (British Gas) Group launched a bid to acquire Origin Energy, Australia’s largest coal seam gas producer. ConocoPhillips outfoxed them with a smaller bid (US$9.1 billion to BG’s US$13.1 billion) but with a play that appealed to Australia’s savvy energy king (by name and reputation) Grant King, CEO of Origin.
Four months later, the BG Group agreed to buy Queensland Gas for US$3.4bn.
The race was also on for investors. For the small investor, you could pick one of the micro caps or start-ups at a low s/p with a 3P rating and wait for a few years (a good few even) for the magic 1P reserve rating. Or go for a higher share price, higher rating and higher international appeal. Many, like yours truly, made a mint on Queensland Gas Company shares.
Here’s a quick primer on the way coal basin reserves are classified:
1P = Proven, meaning a 90% production certainty; 2P = Proven plus Probable, 50%; and 3P = Proven, plus Probable plus Possible, 10%.
As ratings went up, so too did the s/p, along with the possibility of a take-over by another global energy giant. Pretty soon, Arrow Energy had been bought by Shell and Petro China; Kogas bought into Santos. On-line investment forums like Hot Copper reported daily on the 1P, 2P, 3P “upgrades”. We all sat back and waited for the money to roll in.
But for some community members, the Golden Goose was about to transmogrify back into the Ugly Duckling. After the staggering success of the film, Gasland, a 2010 American documentary exposing the social and environmental impact of fracking, coal seam gas exploration became a contentious issue around the world.
The extraction process of CSG draws up large volumes of underground water. Apart from the salinity problem, the sheer volume of produced water extracted, and the capacity to dispose of this produced water, are a CSG project’s primary environmental concerns.
Of equal concern was hydraulic ‘fracking’, the method used to extract CSG from the coal seams underground. It involves injecting large volumes of water, sand and chemicals into the coal seam at high pressure. The fracking fluid includes chemicals, additives and biocides — many toxic to humans, animals and / or the environment. (Note: to be fair, not all CSG companies use all of these.)
Communities living and farming near the Australian coal basins started paying attention. Toxic spills could occur; drinking and irrigation water could be contaminated; productive farmland could be destroyed. Drilling hundreds of small wells and pumping out mega volumes of salty water might be OK in remote areas, but not in the designated agricultural and tourist regions like the Darling Downs in Queensland and Hunter Valley in NSW. Lock the Gate is particularly concerned about NSW, where the CSG industry currently operates outside the control of the NSW Department of Climate Change and Water, State Water & Federal Water Acts, with no obligation for them to treat the waste water before disposal.
Protest groups sprang up alongside long term, seasoned defenders of the environment: in Queensland, Friends of the Earth and Lock the Gate; and in NSW, Wollombi Valley Against Gas Extraction (WAGE), Hunter Valley Protection Alliance, Save Our Recharge Environment, the Barrington-Gloucester-Stroud Preservation Alliance and the NSW Farmers’ Association.
The most impressive and highly organised of these is the Lock the Gate Alliance Inc with 76 alliance members including community and professional environment groups. Spokesman is veteran campaigner and environmental rights crusader, Drew Hutton, who is predicting that this will be the biggest environmental fight in Australian history. A visit to the Lock the Gate you how to donate, get involved, get engaged and get informed. A real “how to” guide for the disenfranchised.
The sense of real community power in Lock the Gate is overwhelming. Unlike all the phony astro-turf climate skeptic groups funded by Big Oil and Big Coal, this one is real with real members — 100s of them. Showings of Gasland by Lock the Gate became a regular event in towns like Newcastle, Taree and Cooroy.
Best of all, has the Alliance found a loophole in the law? Freehold titles in Australia provide that all minerals are reserved for the Crown. But according to Lock the Gate’s Factsheet, the Crown must prove that there are minerals on your land. They can’t do so unless you let them in to do the preliminary exploration. Lock the Gate advises property owners to “always say NO”! You can even order a sign from Lock the Gate to go on your paddock gate!
I asked Drew Hutton how solid the legal ground was to refuse entry in Queensland.
“80% of the fight is won by putting the ‘no trespassing’ sign on the front gate. There is a High Court judgment on this (Plenty v Dillon 1991). The land access provisions of the Queensland Petroleum and Gas Act are very challengeable”
The protesters are winning serious media coverage for their campaign on hard hitting, investigative programs such as ABC’s Four Corners and head-to-head political programs like ABC’s Lateline. In March, Lateline aired the story of a showdown between a coal seam gas company and landowners in Tara, west of Toowoomba, where a blockade has been mounted to prevent drilling teams accessing their properties. The farmers say it will leave the Darling Downs a wasteland.
The month before, when ABC’s Four Corners broke the story about the lack of transparency by the industry and the impact on aquifers, the bottom had already fallen out of the riskier end of the CSG market.
But the question is: for how long? The sheer economic scale of CSG operations in Australia can’t be ignored — not after the APLNG $90 billion record export deal. Along with the known coal basin deposits in Queensland, NSW, Victoria and current explorations in Perth and Tasmanian basis, it is estimated that CSG deposits will be larger than the total gas deposit of the North West Shelf, Bass Strait and Cooper Basin. It’s hard to dispute the profound economic benefits this new boom will deliver to Australia.
The Queensland government believes the BG Group’s and Santos’ LNG Gladstone projects alone could potentially mean 18,000 new jobs in Queensland — and that was before APLNG’s announcement.
But the community protest movement is making huge inroads into the collective psyche of voter-land and the government can no longer ignore the negatives of the industry. National Toxics Network (NTN) is calling for a moratorium on the use of drilling and fracturing chemicals until they have been independently assessed by the federal regulator. Internationally, NTN has represented Australian and global NGOs at the OECD Chemical Joint Meetings and is actively involved in the Intergovernmental forum on Chemical Safety. Governments ignore such internationally recognized regulatory bodies at their peril.
Lock the Gate and its leader, Drew Hutton, are hailed as national heroes by farmers in Queensland and NSW. And who would have thought we’d see rusted-on National-supporter farmers getting into bed with the Greens, the only political party supporting the campaign?
The staggering success of the campaign has driven major changes to regulatory laws. The Queensland Government is listening, at least, if not delivering on each of the Alliance’s demands to date. It has made a good start by trying to balance landowner’s, farmer’s, environmental, social and economic interests by funding a new $3.5 million training program to help landholders negotiate with coal seam gas companies.
The program’s aim is to establish “a successful coexistence of the coal seam gas industry and the agriculture sector”. The new LNG Enforcement Unit with 36 officers is a single point of contact for anyone with safety, land access and environmental concerns.
CSG producers in other states are taking note: Premier Bligh’s Environmental Management Plans, Coal Seam Gas Water Management Plans and restrictions on which compounds can be used in the fracking process could become a mandatory template throughout Australia. It certainly will if Lock the Gate and other community groups have anything to do with it. At the federal level, Environment Minister, Tony Burke, has imposed strict water drawdown conditions on the Environment Protection and Biodiversity Act in his approvals for the Gladstone LNG project (Santos) and Curtis Island LNG project (BG Group) and now the APLNG project. Hands off of the Great Artesian Basin, he also warns.
The BG Group, with its listing on the London Stock Exchange, is moving to reassure investors by announcing that it will spend over $1 billion on CSG water to bring it up to drinking standard. We’ll see other global energy players act to shore up their s/ps. This is not the USA and there are no "Halliburton loopholes" allowing drilling companies to conceal their cocktail of chemicals in the fracking fluids. But there has been precious little research done on those used and little in the way of regulation here, hence the call for a moratorium. The Queensland government has already moved to ban the worst of them, BTEX - benzene, toluene, ethyl benzene and xylenes — and the new NSW government is expected to follow. One thing we can be sure of (thankfully) is that eco-warriors out there like Lock the Gate have shown themselves to be formidable adversaries.
Where does this issue leave people like me — the ethical investor? Hutton’s advice to me is to:
“…read the research by Cornell Uni''s Robert Howarth….there’s nothing clean and green about gas. It is one of the biggest con tricks being played on this country.”
My financial advisor at Ethinvest recommended an article in the December 2010 edition of Eco Investor entitled: “Is Coal Seam Gas Still a Winner”.
According to the report, not all bad publicity was merited. Many media reports had confused CSG mining with regular coal mining or underground coal gasification, a far less eco-friendly technology. Not all CSG companies were drilling in agricultural areas either and not all were unwelcome. The report cites the example of Eastern Star Gas in the Narrabri area of NSW, where the Chairman of Eastern Star Gas recently told shareholders that the home-grown Narrabri company had strong support throughout the community.
Having examined the pros and cons, the report warns coal seam gas companies to act responsibly it they want to attract potential ethical investors:
“Overall it is still early days for these coal seam gas issues and coal seam gas companies have not yet committed anything that can’t be rectified or managed. But if they do not act responsibly, the question for environmental investors will become how to get exposure to the upside in the coal seam gas sector without compromising their environmental standards?”
The article concludes with a shareholder message from Origin Chairman, Kevin McCann. When summing up the dilemma at the company’s annual general meeting, he told the audience that the broader community required energy companies to find cleaner forms of energy, including gas, but that these large projects would also impact some local people. “Large projects therefore involve trade-offs between the interests of different members of our community,” he said.
Meanwhile, at the time of writing, the People’s Blockade at Tara in the Western Darling Downs was entering Day 43 with no sign of retreat as yet.