Chapter 2

Background

Coal seam gas mining

What is coal seam gas?

2.1        Coal seam gas (CSG) is the name given to any naturally occurring gas trapped in underground coal seams by water and ground pressure.[1] The most common gas found in coal seams is methane and is also referred to as coal mine methane (CMM) and coal bed methane (CBM). Chemically, CSG is virtually the same as 'conventional' natural gas.

2.2        As an end use product, CSG is identical to natural gas and can be used for the same purposes including electricity generation, domestic heating and cooking, and commercial purposes.[2]

2.3        Coal seam gas has been promoted as being a cost-effective energy supply with lower greenhouse gas emissions than coal.[3] There are however concerns over the impact of the gas extraction process on the environment, water resources, agricultural land and public health.[4]

How is coal seam gas extracted?

2.4        Coal seams store both gas and water. The water, which is under pressure from the weight of overlying rock material, holds the gas in place—when the water pressure is reduced the gas is released. In the extraction (or production) process, the water pressure is reduced when a well is drilled into a coal seam and the water is gradually pumped out of the seam. This allows the gas to flow to the surface in the well.[5]

2.5        Not all water from a coal seam is removed during the extraction process. Only enough water is removed to reduce pressure in the target seam to a level that will allow the gas to flow.[6]

2.6        Hydraulic fracturing or 'fraccing' is a process that is sometimes used in the coal seam gas production process to increase gas flow. Hydraulic fracturing of the coal seam is done by pumping large volumes of water, sand and some chemicals at high pressure down the well into the coal seam. This causes the seam to fracture for distances of up to 400 metres from the well. The sand carried in the water is deposited in the fractures to prevent them from closing when pumping pressure ceases. The gas then moves through the sand-filled fractures to the well.[7]

2.7        The fluids used in the fraccing process are stored and handled separately from the rest of the water produced from CSG mining.[8]

2.8        According to the Australian Petroleum Production and Exploration Association (APPEA) CSG exploration and production can be divided into four basic stages:

• core wells are dug to take physical samples of rocks which are then analysed in laboratories for properties such as gas content;
• seismic surveying and testing is conducted if more information is required to understand the depth and geology of the resources underground;
• pilot test wells, also known as appraisal wells, are drilled to demonstrate that gas can flow to the surface in commercial volumes; and
• production wells (both vertical and horizontal) are drilled to supply gas to customers.[9]

Coal seam gas production in Australia

2.9        Although the presence of methane in coal deposits has been known ever since coal mining began, separate commercial production of coal seam gas is a relatively recent step. Exploration of CSG in Australia began in 1976 in Queensland's Bowen Basin. Australia's first commercial operation however did not commence until February 1996 at the Moura mine methane drainage project in Queensland.[10]

2.10      In Australia, large coal resources lie in geological basins over a large area of eastern Australia, predominantly in Queensland and New South Wales. Initially CSG was mainly sought within the coal seams of the Bowen (Qld) and Sydney (NSW) Basins. However since the early 2000s CSG exploration has also targeted the relatively shallow depths of the lower rank coal seams of the Surat and Clarence-Moreton Basins in Queensland.[11] Other prospective coal basins targeted by CSG explorers include the Gunnedah (NSW), Gloucester (NSW), Galilee (Qld), Murray (NSW, Vic and SA), Otway (Vic) and Perth (WA) Basins.[12]

2.11      In 2010 the Australian Energy Resource Assessment stated that Australia's identified CSG resources have grown substantially in recent years with 16 590 petajoules (PJ) of economic demonstrated resources.[13] Queensland has 15 714 PJ (or 95 per cent) with the remaining 887 PJ in New South Wales. Australia's reserve life of CSG is more than 100 years at current rates of production. [14]

2.12       In Australia the commercial production of CSG was zero in 1995.[15] In 2003 CSG production was 40 PJ and by 2006 CSG production had doubled to 80 PJ. In 2009 CSG production was 195 PJ.[16]

2.13      Figures from the APPEA indicate that at the end of 2011 there were 3261 CSG wells in Queensland and 249 wells in New South Wales.[17]

2.14      Companies actively exploring for CSG include: AGL, Origin Energy, Santos, Metgasco, Arrow Energy, Eastern Star Gas, Molopo Australia and Queensland Gas Company.[18]

Environmental impacts of coal seam gas mining

2.15      The Department of Sustainability, Environment, Water, Population and Communities states that the environmental issues related to coal seam gas production largely relate to water.[19] The issues include:

• Drawdown of groundwater from coal seams which are often 400–800 metres below the surface. Related to this is the potential for impacts to aquifers and groundwater-dependent ecosystems.
• The use of coal seam gas water above ground. Related issues include the management of salts which may be produced as a by-product of treating the coal seam gas water.

2.16      Also of concern is the risk that water supplies could be contaminated by chemicals used in the hydraulic fracturing process.[20]

2.17      Coal seam gas mining may also have impacts on agriculture, public health and regional communities.[21] As mentioned in Chapter 1, the Senate Rural and Regional Affairs and Transport References Committee has examined these issues in more detail as part of its inquiry into the management of the Murray Darling Basin.[22]

Coal mining

What is coal?

2.18      Coal is a combustible rock of organic origin composed mainly of carbon (50–98 per cent), hydrogen (3–13 per cent) and oxygen, with lesser amounts of nitrogen, sulphur and other elements.[23] It also contains water and particles of other inorganic matter.

2.19      Coal is classified by rank, which is a measure of the amount of alteration it has undergone during formation. It is broadly separated into the low rank (low organic maturity) lignite or brown coal and the high rank (ultimately harder and more mature) black coals.[24]

2.20      Coal occurs as layers or seams, ranging in thickness from millimetres to tens of meters.

2.21      The major use of black and brown coal is for generating electricity in power stations, where it is pulverised and burnt to heat steam-generating boilers.[25] Some types of black coal are also suitable for coke-making and used in the production of iron.

How is coal extracted?

2.22      Coal is mined by both surface or 'opencut' mining and underground or 'deep' mining methods. The type of method used depends on the local geology of the deposit. Opencut mines account for 80 per cent of Australia's coal production.[26]

2.23      In opencut mining, rock covering the coal seam (the overburden) is blasted and removed by large draglines and/or machinery. Modern equipment allows opencut mines to be operated to depths of around 200 metres.[27]

2.24      Underground coal mining in Australia is done by either the bord method (where coal is extracted in a series of parallel tunnels) or the longwall method (large blocks of coal are totally extracted to allow the mine roof to collapse behind the working face).[28]

Coal production in Australia

2.25      Coal occurs and is mined in all Australian states. Queensland and New South Wales have the largest black coal reserves and production whereas Victoria hosts the largest reserves and the only production of brown coal.[29]

2.26      Black coal has been mined in New South Wales for more than 200 years, while significant production of brown coal began in Victoria in the 1920s.

2.27      Australia's principal black coal producing basins are the Bowen Basin in Queensland (34 per cent) and the Sydney Basin in New South Wales (35 per cent).[30] In New South Wales significant underground mining also occurs in the Wollongong-Appin-Bulli area and the Lithgow-Mudgee area. The state also has opencut mines in the Hunter Valley and at Yarrawonga near Gunnedah.[31]

2.28      Brown coal mining in Victoria is predominantly located in the Latrobe Valley in Gippsland with smaller deposits in the Bacchus Marsh, Altona and Anglesea areas.[32]

2.29      Australia is the fourth largest producer, the largest exporter, and has the fourth largest reserves of coal in the world.[33] Coal accounts for around three quarter of Australia's electricity generation.

2.30      Australia has substantial reserves of both black and brown coal. At the end of 2008, Australia's recoverable economic demonstrated resources of black coal amounted for 6 per cent of the world's total recoverable amount.[34] At the current rate of production Australia has enough economic demonstrated resources of coal to support approximately 90 years of production.[35]

2.31      According to the Australian Energy Resource Assessment, the potential for further discoveries of coal resources in Australia is significant and is likely over one trillion tonnes given that there are over 25 sedimentary basins with identified resources and significant areas that are under-explored.[36]

2.32      As at the end of 2009 there were over 100 operating coal mines and more than 35 proposed new mines and expansions.[37]

State and territory regulation

2.33      In Australia onshore mining operations, including CSG extraction and coal mining, are primarily licensed and regulated under state or territory legislation.

2.34      The states and territories are also responsible for matters such as land access to mining operations, landholder interests, waste management and regulating human health matters that may relate to coal mining and coal seam gas projects.

2.35      The Commonwealth government only becomes involved in approving and regulating mining activities when projects could have a significant impact on matters of national environmental significance protected under the Environment Protection and Biodiversity Conservation Act 1999.

2.36      In the states and territories the exploration and extraction of coal and CSG is regulated by mineral and petroleum resources legislation. The legislation is normally administered by a department of mines, minerals and energy, or equivalent, in each jurisdiction. While all states and the Northern Territory have their own laws governing mineral activities, in content and administration, they are very similar.[38]

The mining approval process[39]

2.37      In most jurisdictions anyone can lodge an application for a mining lease but holders of exploration or retention licences have a priority right. In Queensland, an applicant must be the holder of an appropriate pre-requisite tenure. Applicants must provide outlines or particulars of the mining development proposals.

2.38      Public notification of the application to mine is required in all jurisdictions except Tasmania, usually by publication in the Government gazette or in a newspaper circulated in the area.

2.39      On lodging an application to mine the applicant is also required to notify the public, including land owners and occupiers. There is provision for objection to the granting of a mining lease.

2.40      Upon receipt of the mining lease application, the relevant department forwards copies to the landowners, local councils and native title claimants for comment. In most jurisdictions consent of the owner or occupier of private land is required before mining operations can take place within 100–200 metres of residences and other improvements on private land.

2.41      Mining approvals are also subject to an environmental assessment, and details of mining proposals must be provided before mining activities can commence.

2.42      In New South Wales and Queensland all mining and petroleum production projects also require assessment under their respective environmental protection legislation.[40] In South Australia a mining and rehabilitation program must be submitted and approved by the Department for Manufacturing, Innovation, Trade, Resources and Energy before operations can begin.[41]

Commonwealth regulation

2.43      As previously stated, the Commonwealth government becomes involved only when projects could have a significant impact on matters of national environmental significance (MNES) protected under the EPBC Act. Matters of national environmental significance include nationally threatened and migratory species, wetlands of international importance, or national or world heritage places.

2.44      The Commonwealth government is also involved in approving actions that occur or may impact on Commonwealth land, or actions undertaken by Commonwealth agencies.

2.45       Such projects must undergo a thorough environmental assessment to determine whether their likely impacts are acceptable under the legislation.

EPBC Act environmental assessment process

2.46      Any proposed action that is likely to have a significant impact on a MNES must be subject to an environmental assessment process under the EPBC Act.

2.47      There are two broad stages to the overall environmental assessment process under the Act:

• the referral of the action to the minister to determine whether the proposed action is a 'controlled action' or not;[42] and
• a detailed environmental assessment process for actions deemed to be controlled actions, followed by the minister's decision whether or not to approve the action, and what conditions to attach to any approval.[43]

Referral of proposed developments

2.48      The EPBC Act environment assessment process commences when a proponent wishes to undertake an action that is likely to have a significant impact on a MNES, such as listed threatened species and ecological communities.[44]

2.49      If the action is likely to have a significant impact on a MNES, the proponent must make a referral to the minister via the department.

2.50      The minister then must make a decision within 20 business days on whether the proposed development constitutes a 'controlled action' and hence whether assessment and approval for the action is required.

2.51      The minster may decide that approval is not required as the proposed action will not have or is not likely to have a significant impact on a MNES. No restrictions are placed upon the proposed development. The minister may also decide that an action is not a controlled action provided the project is undertaken in a particular manner.[45]

2.52      If the minister decides that an action will have or is likely to have a significant impact upon a MNES, the minister may declare the action a 'controlled action'. The controlled action must then be subject to an assessment and approval process.

Assessment of proposal and decision to approve

2.53      Under the EPBC Act there are several methods for assessing a proposed development which has been determined to be a controlled action. An assessment may be conducted by using:

• a state/territory assessment process accredited under a bilateral agreement;
• an accredited assessment process (case by case);
• referral information;
• preliminary documentation;
• an Environmental Impact Statement (EIS);
• a public environment report or
• a public inquiry.

2.54      In general, once an assessment by one of these methods has occurred the department must prepare a recommendation report for the minister.[46] The minister must then make a decision whether to approve, approve with conditions or not approve the proposed action.

2.55      On receiving final documentation, the minister must make this final decision within:

• 40 business days for assessments by public environment report, EIS, preliminary documentation or public inquiry;
• 30 business days for assessments by a state or territory assessment process; or
• 20 business days for assessments by referral information.[47]

2.56      Ultimately the minister may decide to approve an action subject to conditions or in rare circumstance, may decide not to approve the proposed development.

Commonwealth responsibilities under the Water Act 2007

2.57      The Commonwealth Water Act 2007 relates to the management of water in the Murray Darling Basin (MDB). Under the Act, a Basin Plan is being developed that will set sustainable diversion limits, or limits for water 'take' from the MDB water resources by users, including mining operations, within the overall sustainable diversion limit.[48] In the MDB state water resource plans will have to comply with limits in the Basin Plan.[49]

2.58      Under section 255AA of the Water Act an independent, expert study must be undertaken prior to licenses being granted for subsidence mining operations on floodplains which have an underlying groundwater system that is part of the MDB inflows.

Coal seam gas projects approved by the Commonwealth

2.59      Three coal seam gas projects have been approved under the EPBC Act to date, all of which are in Queensland. The three projects are the:

• Gladstone LNG Project, undertaken by Santos (approved 22 October 2010)—this project includes the construction of coal seam gas production fields, a gas transmission pipeline, an LNG processing plant on Curtis Island, and associated marine facilities;
• Queensland Curtis LNG Project undertaken by British Gas and the Queensland Gas Company (approved 22 October 2010)—this project includes the construction of coal seam gas production fields, a gas transmission pipeline, an LNG processing plant on Curtis Island, associated marine facilities and shipping activities; and
• Walloons gas fields project undertaken by Australia Pacific LNG (22 February 2011)—this project includes developing, constructing, operating and decommissioning the coal seam gas resources in the Walloons gas fields within the Surat Basin with up to 10 000 CSG wells.[50]

2.60      Prior to the minister approving the projects, the Department of Sustainability, Environment, Water, Population and Communities commissioned Geoscience Australia to analyse the potential risks of coal seam gas projects on ground water in the Surat and Bowen Basins.[51] This research recommended precautionary measures to mitigate the potential impacts on groundwater.[52] The cumulative impacts of all known likely coal seam gas proposals in southern Queensland were considered in approving the projects.[53]

2.61      In response to the report and other relevant advice, the minister approved the developments with approximately 300 conditions imposed on each project. The conditions imposed include:

• limiting the maximum number of production wells to be drilled;
• limiting where infrastructure may be placed within the permit area;
• developing species management plans for any threatened species or ecological community that may be affected by the project (which must be approved by the minister);
• the provision of offsets for matters of national environmental significance that are impacted by the project;
• developing detailed plans for water management and monitoring which outline how impacts on aquifers, groundwater and surface water will be minimised;
• creating drawdown limits for water extraction; and
• developing detailed plans of constituent components and toxicity of any hydraulic fracturing agents and other reinject fluids.[54]

2.62       The conditions also require the projects to be implemented in stages with detailed management plans to be approved by the minister before the commencement of each stage.[55]

2.63      There will be continuous monitoring of developments throughout the life of the project to ensure any potential risks are managed.

National approach to coal seam gas and coal mining

2.64      On 21 November 2011, the Prime Minister, the Hon. Julia Gillard, announced details of a new national plan to build community confidence in coal seam gas and coal mining that is based on scientific evidence.[56] According to the Prime Minister the new framework is intended to:

...provide certainty for regional communities around coal seam gas and large coal mining developments, jobs and investment, as well as protection of water resources.[57]

2.65      The framework includes:

• funding of $150 million to establish a new Independent Expert Scientific Committee (IESC) to provide scientific advice and research to governments about relevant coal seam gas and large coal mining approvals where there are significant impacts on water;
• establishing a new National Partnership Agreement with the states through the Council of Australian Governments (COAG) agreeing that the Commonwealth and state governments have to take into account the advice of the Independent Expert scientific committee in their assessment and approval decisions; and
• providing $50 million in incentive payments to the states to deliver this outcome.[58]

Interim committee

2.66      On 27 January 2012, the Minister for Sustainability, Environment, Water, Population and Communities announced the establishment of the Interim Independent Expert Scientific Committee on Coal Seam Gas and Coal Mining.[59]

2.67      The interim committee was put in place pending formal establishment of the IESC under legislation. The interim committee is intended to continue until it hands over to the IESC on 1 July 2012.

2.68      The current members of the interim committee and their areas of expertise are:

• Professor Craig Simmons (Chair) (hydrogeology);
• Professor John Langford (agricultural engineering, water);
• Jane Coram (hydrogeology);
• Associate Professor David Laurence (mining engineering);
• Professor Chris Moran (natural resources, water management); and
• Emeritus Professor Peter Flood (geology).[60]

2.69      The terms of reference of the interim committee are similar to the functions that the IESC would have if established.[61]

2.70      The interim committee is supported by the Office of Water Science, a section of the Department of Sustainability, Environment, Water, Population and Communities.[62]

National Partnership Agreement

2.71      The National Partnership Agreement on Coal Seam Gas and Large Coal Mining Developments (the agreement) came into effect on 14 February 2012.[63] The agreement is signed by the Commonwealth government and the governments of Queensland, New South Wales, South Australian and the Northern Territory.[64]

2.72      In signing the agreement, the Commonwealth, states and territory governments recognise they have a mutual interest in:

• the long term health, quality and viability of Australia's water resources; and
• the sustainable development of coal seam gas and coal mining industries, given their potential contribution to Australia's energy security and balance of international trade.[65]

2.73      As part of the agreement the Commonwealth government has agreed to:

• provide a financial contribution to the states to implement the agreement;
• monitor and assess performance in the delivery of actions under the agreement;
• establish and maintain the IESC;
• consult with the states regarding the membership of the IESC;
• provide input to the IESC's research agenda; and
• seek advice from IESC at appropriate stages of the approval process for a CSG or coal mining development likely to have a significant impact on water and which the Commonwealth is intending to make a decision.[66]

2.74      In the agreement the states have agreed to:

• provide input into the IESC's research agenda;
• amend relevant laws, regulations and guidelines as necessary so that they provide the following outcomes:
• coal seam gas or coal mining developments that are likely to have a significant impact on water resources are referred to the IESC for advice; and
• decision makers on applications which have been referred to the IESC take account of the IESC's advice in a transparent manner; and
• seek advice from the IESC at appropriate stages of the approvals process for a CSG or large coal mining development.[67]

2.75      The Commonwealth government has agreed to establish the IESC by 1 July 2012. The signatory state governments have agreed to amend relevant legislation, regulations and guidelines by 31 March 2013.[68]

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