Why Australia Can’t Get at Its Huge Gas Reserves

In the tight-knit Outback town of Narrabri, the cold-shoulder treatment farmer Peter Gett has felt over the natural gas wells on his property has shown him that promoting Australia’s energy security comes at a cost. 

The fifth-generation wheat grower opened gates and cleared tracks to smooth a path for exploration of the gas reserves beneath his farm. Seven years after allowing three wells to be drilled, he says enthusiasm for the gas project run by Santos Ltd., Australia’s third-largest energy producer, isn’t shared by the majority of his neighbors worried that extracting methane from between layers of coal could ruin the town’s precious water wells.

“People who aren’t directly involved are skeptical and wary,” Gett said. Anti-drilling placards have been nailed to boundary fences by activists and even farmers who support the project have left the signs up, fearful of being ostracized. “It’s close to a fifty:fifty split,” the 60-year-old said. “Some farmers don’t want to get on the wrong side of businesses who oppose the project. They keep quiet instead.”

Others have been more vocal, even locking themselves to machinery to stop drilling operations, and 45 protesters were arrested last year. Gas has divided the 13,000-strong community in Australia’s cotton-growing heartland, making it a microcosm of a national debate. Land users and environmentalists are pitted against companies and conservative-government politicians wanting to secure Australia’s energy needs.

That’s meant a plan by Santos to drill 850 wells in the farms and forest surrounding Gett’s property has been mired in red tape, delaying the project by at least two years. The company has only 16 wells operating around Narrabri six years after its purchase of a controlling stake in the venture made it the largest holder of gas reserves in the state.

A decade after the shale revolution transformed the U.S. energy landscape, Australia — poised to overtake Qatar as the world’s biggest exporter of liquefied natural gas — is experiencing its own quandary over natural gas.

While the country is endowed with some of the world’s largest reserves of the fuel, a drive to export gas to energy-hungry customers in Asia has spawned a crisis at home. As it currently stands, Australia’s most-populous eastern states won’t have sufficient gas to power their own generators next year.

The gas pinch at home is now so acute that plans have been hatched to build a terminal which can receive imports of LNG so customers aren’t caught short at peak periods. It would be cheaper to buy supplies from Western Australia or Papua New Guinea than relying on the domestic pipeline network, analysts at Credit Suisse Group AG wrote in a report Tuesday.

Read More: Why Resource-Rich Australia Can’t Keep The Lights On

Santos, based in Adelaide, South Australia, is at the core of the dispute. Because its gas fields have under-performed, the company has needed to buy supplies from the domestic market to help cover its export commitments, worsening the prospects for a local shortage. Developing the project in Narrabri, 520 kilometers (320 miles) northwest of Sydney in New South Wales state, would help plug the shortfall.

The town and surrounding district could supply as much as half of the state’s gas needs, according to Santos, which has promised that none of the gas will be siphoned off to lucrative export markets.

For Gett, cashing an annual paycheck of A$30,000 ($23,000) is a bonus from living above productive gas fields. About a third of eastern Australia’s gas is now supplied by coal-seam gas.

The concern for farmers is that, by drilling through layers of rock and sandstone to tap the gas, the hydro-geological structures that maintain vast aquifers used to supply water for livestock and irrigating crops could be compromised, leading to water loss or contamination for farms sharing the resource. There are also questions over the disposal of hundreds of thousands of tons of salt the project will produce.

A 7,000-page environmental impact statement received feedback from community and indigenous groups, environmental activists, and the cotton industry, the state government said in a statement Wednesday. Most of the almost 23,000 submissions objected to the project.

The coal seams that Santos is targeting have fractured naturally beneath Narrabri, meaning it won’t need to undertake any hydraulic fracturing, which involves injecting a mixture of water, sand and chemicals to crack open formations to help release gas, the company said. It plans to drill first vertically, and then horizontally to intersect the natural fractures. In addition, Santos says it is using layers of steel and cement in wells to protect aquifers.

Still, Narrabri farmers have been spooked by the experience of their counterparts 530 kilometers north in Queensland state. In the town of Roma, where Australia’s first gas field was discovered in 1900, landowners have told stories of gas leaks, contamination, and corporate bullying to bus-loads of curious Narrabri locals over the past few years. Santos is the operator of one of Queensland’s three liquefied natural gas projects.

Sally Hunter, who owns a farm 48 kilometers from Narrabri, grew up in Roma and says she harbors a deep mistrust of the petroleum industry. “That’s where my skepticism comes from,” she says. “People didn’t think they had any option back then.”

Others have been swayed by activists drawing on missteps and fears in both Queensland and the U.S. to oppose the project. Narrabri resident Tanya Charlton saw scenes from the 2010 anti-fracking film “GasLand” and was concerned about the health impacts for Narrabri if the project proceeds, she said.

“I know what happened up in Queensland and I know what happened over in America, and I’m worried about that happening here,” Charlton said.

Bruce Clement, the Santos executive in charge of the Narrabri venture, acknowledges that the project is divisive. The 134-year-old town, whose name is derived from the Aboriginal word meaning “big creek” and “forked sticks,” is best known for the cotton fields that zigzag across its surrounding plains.

Clement, a former Exxon Mobil Corp. executive who spent part of his childhood in the sleepy rural town and went to school with farmer Gett’s wife Helen, says part of the public’s mistrust of the gas industry comes down to ignorance.

“I talk to quite intelligent people — tertiary-educated people in Sydney — who just say coal-seam gas is bad,” Clement said. “I ask them what is coal-seam gas and they actually don’t know. For a tertiary-educated person, you think that’s bloody stupid that you have formed an opinion without any knowledge.”

Laden with US$3.5 billion of debt and a stock price hovering just above a two-decade low, Santos is under pressure to turn the project into a money-making endeavor. It’s invested A$1.5 billion, including the cost of buying former operator Eastern Star Gas in 2010.

Clement says the Narrabri project could have been handled better before its acquisition by Santos, describing Eastern Star Gas’s attempts to “exploit an opportunity early” as leaving a number of “legacy issues.” 

Polluted water spills in 2013 from coal-seam gas production under Eastern Star Gas heightened distrust in the community. Clement, who is reluctant to apportion blame, says Santos is confident with its environmental monitoring. “The government to some degree allowed what was being done, but that’s not going to be our approach,” he said.

In an area overlooking three existing water ponds not far from the site of the 2013 pollution, Clement holds up a chart showing how drilling for coal-seam gas extends far beneath Australia’s largest groundwater system: the Great Artesian Basin.

Gett, the farmer paid by Santos for three gas wells, said it was economics that won out in his case.

“In all fairness, if this company came onto my land and I got nothing from it, none of us would be for it,” he said in an interview on his farm. But, with no evidence of harm to his water supply and limited impact on his land, Gett is willing to accommodate more gas wells.

“If they want to do 12 wells on my property, I will take them,” he said. “I can’t see a problem with it.”

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