Q+A-Australia's new government and coal seam gas projects

Wed Sep 29, 2010 9:59am BST

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PERTH, Sept 29 (Reuters) - Shareholders of coal seam gas projects in Australia's Queensland state worth at least A$60 billion ($58.08 billion) are due to make final investment decisions before the end of 2010.

The projects also need environmental approval from the newly formed minority government. Environment minister Tony Burke has said he intended to stick to his predecessor's timeline of Oct. 11 for approving the projects. [ID:nSGE68Q005]

Federal approval for the projects was already delayed by three months earlier this year, with Burke's predessor saying the government needed more time to study the impact of the projects.

Following are questions and answers on the approval process:

WHAT DO INVESTORS THINK OF THEIR CHANCES OF GETTING APPROVAL?

Although analysts flagged political uncertainty as a problem that could delay projects, Total (TOTF.PA) went ahead with a A$750 million investment in the Santos project just two days after the new Labor government was formed. [ID:nSGE688011]

Total's decision indicated investors saw little real risk to the projects from the new government, despite the potential for the Greens party to lobby for stricter regulations.

WILL GOVERNMENT APPROVALS BE CONDITIONAL?

Although most industry watchers expect projects to get approval on Oct. 11, the government is likely to set some conditions including additional research on and monitoring of coal seam gas extraction impact on water supplies.

"The environmental issues are substantial and I see a repeat of the Gorgon situation whereby projects will get approved under very strict guidelines," said State One Stockbroking research analyst Peter Kopetz, referring to Chevron's Gorgon project off the coast of Western Australia.

The projects were unlikely to face highly capital intensive requirements, other analysts said.

Due to the size of the projects and the amount of state and federal revenue they are expected to generate, Burke is likely to be under pressure to allow the projects to go ahead.

"The taxes from these project are significant," said Di Brookman, an analyst with CLSA Asia-Pacific.

IS THE INDUSTRY SET TO FACE MORE STRINGENT REGULATIONS?

Some in the LNG industry have suggested that the minority government may be more likely to push for more stringent environmental rules as a concession to the Greens party, which was key in propelling Prime Minister Gillard to power.

Gillard has promised to explore ways to put a price on carbon emissions, but any scheme would not be in place before 2012 and is not seen as a factor that would delay coal seam gas projects.

While the Greens have raised concerns about water contamination and increased greenhouse gases, the natural gas produced from coal seam gas projects is a cleaner burning fuel than coal, one of Australia's top exports.

Natural gas is also seen as a transitional fuel in Australia and much of the world in introducing a carbon trading scheme, which the Greens support, and moving toward a lower carbon economy and footprint.

WHICH COMPANIES ARE WAITING?

The projects waiting for approval are:

--Gladstone LNG, owned by Santos (STO.AX), Petronas [PETR.UL] and Total (TOTF.PA).

--Queensland Curtis Island LNG, 93.75 percent owned by Britain's BG Group (BG.L)

--Australia Pacific LNG, owned jointly by Origin Energy (ORG.AX) and ConocoPhillips (COP.N).

The Santos and BG project approvals were pushed back from July to Oct. 11 by the previous environment minister Peter Garrett. Origin has said it expects to get federal environmental approval for its project in the fourth quarter of 2010.

WHAT ARE THE ENVIRONMENTAL CONCERNS?

Environmentalists say coal seam gas projects in Queensland will adversely affect the water supply from the Great Artesian Basin used for agriculture, including crop irrigation, as well as being channeled to Australia's Great Barrier Reef.

The tainting or reduction of the water supply in the Surat Basin, where several of the coal seam gas projects will be based, may also adversely impact the Darling Downs, one of the country's major farming regions, according to project opponents.

COULD ENVIRONMENTAL CONCERNS DELAY PROJECTS?

Opponents of coal seam gas say the companies have not yet adequately addressed how to protect water supplies in the region.

"I think they are nowhere near where they need to be for approval," said Drew Hutton, a spokesman for Friends of the Earth, who said the group would consider legal means to halt the project if necessary.

But so far, there is no precedent for delaying such projects after federal authorities have given approval, analysts said.

Australian mineral rights are owned by the state and thus landowners have little recourse to block mining and drilling.

Most recently, West Australian Premier Colin Barnett forcibly acquired land for Woodside's Browse gas project after talks on an indigenous land use agreement with the Kimberley Land Council broke down.

(Editing by Ed Davies)

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