Environmental Concerns over LNG Projects

Friday, November 19 2010

In the lead up to environmental approvals for CSG to LNG projects, we were concerned around the market™s lack of attention on the environmental impacts of CSG drilling. We felt not much consideration was given to the environmental issue and potential impact on the share price. The negative risk if problems arise would be severe so we undertook research and looked at independent studies and identified a number of issues to keep us concerned.

 

High levels of salt in CSG water.

Coal seam gas water typically contains significant concentrations of salts that have the potential to cause environmental harm if released to land or waters through inappropriate management.

 

Impacts to the Great Artesian Basin.

Coal seam gas drilling can impact the water resources and water quality of the Great Artesian Basin and a lack of scientific knowledge can make it hard to know of the full impacts.

 

Moratorium on CSG and fracking in US.

The New York State Senate voted 48 to 9 (6/8/2010) to issue a moratorium on a type of natural gas exploration that uses hydraulic fracturing (a process involved pumping chemicals in the well to increase gas flow rates). The moratorium will be put in place to give time for a comprehensive review of safety and environmental concerns, the moratorium will prevent new drilling permits from being issued until May 15, 2011 at the earliest.

Concerns on how to dispose excess water from CSG drilling

  • Evaporation ponds can no longer be used to get rid of excess water: Most of the 6689.6 ML of CSG water produced in the Surat Basin in the 2008 calendar year (DME2009) was disposed of in evaporation ponds ranging from one to 100 hectares in area. However, in light of current Queensland government policy (cannot use evaporation ponds anymore), a range of other options must now be used.
  • Use of treated CSG water for irrigated cropping and tree crops: Small scale trials found that use of raw CSG water for irrigation was not sustainable because of its moderate salinity and high sodium absorption ratio (SAR) (Raine and Ezlit 2007).
  • Water for coal washing is minimal: While the volumes of CSG water potentially required for coal washing and mining operations is of the order of 30 000 ML per year, this only comprises approximately 25–30% of the annual production of CSG water should the LNG industry develop to its potential in the QMDB.
  • Supply to power stations for cooling water. This only comprises a relatively small percentage of CSG water since modern power stations, particularly gas fired power stations are water efficient, using less than 1000 ML each per year.
  • Direct discharge of treated CSG water to streams: Government policy is that CSG water is a waste even if it is treated and its discharge to streams is the least preferred option for disposal of treated CSG water.o Treatment of CSG water for urban supply: So far no CSG water is used for urban water supply in the QMDB. A number of studies have been done into the feasibility of treating CSG water by reverse osmosis to augment the water supplies for Miles, Chinchilla and Dalby.
  • Irrigation: Watertables to rise. Leakage of irrigation water past the plant root zone can contribute to a rise in watertable levels. Rising watertables also mobilise any salt that is stored deeper in the soil profile, increasing the salinity of the groundwater. When water levels get within a few metres of the land surface, capillary rise and evaporation can move salts to within the root zone of plants, and even to the soil surface. Associated effects include increased salt washoff. Obviously, if irrigation water containing salts is applied, the situation is exacerbated. The problems of rising watertables and salinisation of soils are endemic in irrigation schemes worldwide (Charman and Murphy 2007).
  • Poor crop growth: There are a number of ways that crop growth can be negatively impacted under irrigation.

There is enough evidence to suggest more work needs to be done to prevent environmental damage. The Queensland Government is undertaking studies, with a CSG water feasibility study underway which is not expected to be released until June 2012. This is concerning as the 4 CSG to LNG projects will have already been approved. The Queensland Government refers to its coal seam gas feasibility study as its insurance to be sure that the consequences of coal seam gas extraction do not lead to environmental damage.

The CSG to LNG projects will bring economic benefits to the country and this will need to be balanced against the potential to result in irreversible environmental harm, and cause long-term problems for soils, waters, vegetation, ecosystems, crops and future land use. Companies will need CSG water management strategies that are comprehensive enough to determine that they are adequate in preventing environmental impacts.

From a portfolio management perspective we have spoken to both AGL and Origin on their water management plans and they treat environmental concerns with the utmost importance. AGL have substantial gas acreage predominately in NSW and they have plans to feed domestic gas supply. AGL work closely with landowners and hold regular community hall events. AGL operate two reverses osmosis plants (separates salt from the water) and are using the water for irrigation purposes. They undertake strict testing on the quality of the water. Origin, in partnership with US energy player ConocoPhilips, plans to feed their coal seam gas into the Australia Pacific LNG project. Similar to AGL, Origin uses two reverse osmosis plants to treat the water and is rigorously tested. The water is being used for irrigation on a tree which produces a nut rich in oil which can be used to create a bio-diesel product. Origin has worked extensively with the Queensland Government on environment consultation and have done significant work on water assessment models and looking at the cumulative impacts of all proposed CSG to LNG projects. Origin are also exploring alternative methods of disposing the CSG water such as water re-injection.

We believe these companies are better placed than peers to handle the environmental consequences of CSG.

 

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