Coal Seam Gas Still is Heated Issue in New South Wales as Santos Receives Approval for New Project

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Researched by Industrial Info Resources Australia (Perth, Australia)--Coal seam gas (CSG), also known as coal bed methane in the U.S., is a hotly contested issue in New South Wales as gas producers such as Santos Limited (ASX:STO) (Adelaide, South Australia) look to develop more gas fields for production. Meanwhile, environmental groups lobby for tighter controls, or to ban the practice altogether.

Complicating the issue is the impending gas supply shortfall that New South Wales is facing, as existing contracts end and gas producers begin supplying the major liquefied natural gas (LNG) projects on Curtis Island.

Santos, one of Australia's largest on-shore gas producers, has received Commonwealth approval for a new CSG project in northern New South Wales, near the towns of Narrabri and Cooladdi. Santos has not yet made a final investment decision on the Narrabri CSG project, but if it continues, it will involve drilling new appraisal wells, recommencement of existing wells, and construction of associated flow lines, compressor stations, and at least one high-pressure transmission pipeline. Santos also will require a water storage and processing facility, proposed for construction at Leewood, on the edge of the Pilliga State Forrest.

The federal government and the New South Wales state government announced the approval granted to Santos and the Coal Seam Gas Exclusion Zone Policy simultaneously. CSG exclusion zones are now in force for existing residential areas across the state, as well as the northwest and southwest growth centres of Sydney. The exclusion zones will cover 2.34 million hectares in all 152 local government areas within NSW.

The CSG exclusion zones prohibit new CSG exploration and development in existing residential areas across the state, and within a 2-kilometre buffer. The policy also prohibits new CSG exploration and development in the northwest and southwest growth centres of Sydney, and within 2-kilometre buffers around those areas.

New South Wales also introduced new restrictions to the coal seam gas industry, including regulations governing CSG exploration activity and oversight by a Land and Water Commissioner, banning the use of evaporation ponds in CSG drilling and hydraulic fracturing activities and demanding an independent review of all CSG activities in NSW by the chief scientist and engineer.

Santos has delayed making a final investment decision on Narrabri amid continued protests and unclear government regulation. While environmental protests are not likely to cease in the near future, Santos may be in a position to make its decision by the first half of 2014, now that the government regulations have been announced.

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