Energy analyst turns up heat on new gas projects

Senior energy analyst Gundi Royle has broken ranks with her colleagues, attacking industry and regulators for failing to conduct independent regional modelling of the groundwater impacts of up to $80 billion in planned coal seam gas (CSG) development, mostly in Queensland.

Royle, an experienced energy industry executive now with US investment bank Moelis & Company, has told the Herald the coal seam gas industry is "racing ahead to establish a fait accompli, and governments have been negligent in not joining up the dots. Once the capital is sunk it will be impossible to stop the industry rolling over the country."

Up to 40,000 coal seam gas wells are to be drilled across Queensland in coming decades as companies including Santos, Origin Energy, BG Group and Shell develop four massive liquefied natural gas (LNG) projects, based in Gladstone.

The first three projects, valued at more than $50 billion, have gained all necessary environmental approvals and the proponents have reached a final investment decision to go ahead with development, but the approvals are subject to review under the Queensland government's ''adaptive'' regulatory process. Shell's Arrow LNG project has yet to lodge an environmental application and is targeting a final investment decision in 2013.

Royle, an Australian-trained hydrogeologist now based in France, says the scale of these CSG-to-LNG projects is unprecedented and "groundwater issues will take years to emerge, by which time the industry has taken out the profits, leaving the Australian taxpayer to deal with the liabilities".

Royle, 57, worked as a geologist for Esso, Santos and Ampol Exploration in Australia before joining the finance industry here and in Britain, including as managing director of Deutsche Bank in London. She says the oil and gas industry is "very, very good at reservoir modelling … but it needs to be done on a regional scale, not a project scale''.

Her concerns echo those of the National Water Commission, which sounded the alarm last year at uncertainty about the cumulative impacts of multiple coal seam gas projects that will together extract an estimated 300-plus gigalitres of salty water each year, including from the Great Artesian Basin. The commission noted coal seam gas posed a "substantial risk to sustainable water management" and called for a more precautionary approach.

The Australian Petroleum Production and Exploration Association says the industry commissioned the University of Southern Queensland to model the groundwater impacts of the four proposed CSG-to-LNG projects, which was released earlier this year.

According to the association, the study, by consultants RPS Aquaterra, shows the coal seam gas industry will have ''little impact on either the Great Artesian Basin or aquifers relied on by agriculture''. But release of the study attracted controversy in August, when the university's Professor Steven Raine, responsible for the project, disputed the industry's claims about the significance of the study, which looked at the groundwater drawdown during coal seam gas extraction.

"USQ had been asked to verify the data from a study commissioned by the coal seam gas industry and had concluded that there was little difference in the effects of large or small water drawdowns, but this did not necessarily mean that there was little impact on the environment," Professor Raine said at the time. "Further research would need to be undertaken for any substantiated conclusion to be made."

APPEA's chief operating officer, Rick Wilkinson, says the study was not intended to be the final study on coal seam gas water impacts but was another step to improve understanding of the regional impacts of coal seam gas extraction.

Wilkinson says the first two CSG-to-LNG project proponents had not assessed cumulative impacts because ''not all projects were known at the same time, and one project is still to put in its environmental impact study submission''. ''So it was not possible nor required to do a cumulative impact study of all known, potential and speculative CSG projects. When any new project seeks approval, they are required to consider cumulative impacts,'' he said.

A spokesman for the Queensland Environment Minister, Vicky Darling, says the state's Water Act was amended last year to establish cumulative management areas and ensure the coal seam gas industry was assessed as a whole.

The independent Queensland Water Commission was preparing an underground water impact report that will analyse all proposed projects in the Surat and Lower Bowen Basins, which would be released in coming months.

''This report will be used to avoid finger pointing between companies, ensure make-good agreements are in place before any possible impact on bore supply and, if unsustainable impacts are shown, will provide the information the regulator needs to change the conditions on existing approvals to ensure impacts can be avoided or mitigated,'' the spokesman says.

But Gundi Royle criticises the Queensland government's approach as an ''afterthought … considering that the CSG project approvals were given last year''.

''The industry is very good at reservoir modelling and I, as a former hydrogeologist, modelled complex aquifers 30 years ago. So why has that not been done?'' she says. ''Currently there are hundreds of wells planned but over the life of these projects some 40,000 wells will be drilled. It is the scale-up that will have unintended consequences and is rightly alarming to other land users.''

As an analyst, Royle has previously raised these concerns in her private notes to banking clients. She says she is prepared to come under pressure for speaking out against the industry. Other analysts face potential conflicts of interest, she says, where their firms raise capital for the coal seam gas companies.

The state and federal governments are focused on the revenue from the four CSG-to-LNG projects, she says.

In rough figures, she calculates each project will earn $6 billion to $9 billion in revenue a year, generating taxes of $1 billion and royalties of $100 million a year.

With production from the four projects expected to start in 2015-16, the proponents are racing to drill wells, build infrastructure and sell gas to offshore customers in a competitive global market. Royle says the rates of return are low because the gas fields were ''dry'' and do not produce condensate.

"This is a very large investment that needs to be fed,'' she says. ''Once they get going they're very cash-rich but they need to march on, to feed the LNG manufacturing plants. The industry will just roll over the country. It's too late to stop them now, in my view.

''Australian voters should know they will be carrying the can."

Industry and government failure to conduct regional and predictive aquifer modelling led Royle to "coin a new phrase for Australia: omission corruption". State governments were so enamoured with projected revenue "they cannot regulate efficiently. They have failed from the outset. They are trying to run behind the ambulance but they will not be able to catch it''.

While a massive coal seam gas expansion has already been approved in Queensland, the industry is still ramping up in NSW, and there are fears that environmental concerns could again take second priority in the rush to develop gas reserves.

Earlier this week, two University of Sydney professors told a NSW parliamentary inquiry into coal seam gas exploration that the government should require mining companies to put up high dollar-value, long-term (50 years minimum) bonds or guarantees to guard against risks to groundwater.

''Groundwater is extremely slow moving, can be very deep underground and is often under pressure,'' wrote professors Willem Vervoort and Floris van Ogtrop, from the university's hydrology research laboratory. ''There is increasing understanding that impacts on groundwater take a long time to become evident.''

On Wednesday the NSW Energy Minister, Chris Hartcher, said the expansion in Queensland had been ''ill-conceived'', and NSW would learn from the mistakes of its northern neighbour.

Royle remains sceptical, saying NSW Water Resources Commission staff had been told to stay silent on coal seam gas. A spokesman for the Office of Environment and Heritage did not comment.

TWITTER: @gpaddymanning or paddy.manning@fairfaxmedia.com.au.

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