Clash over gas on the plains of western Darling Downs ...

Excerpt from The Australian:

Clash over gas on the plains of western Darling Downs

9 August 2008

The hot, dry rolling plains of the western Darling Downs are dotted with gum trees and the occasional lagoon or animal in what is at best, in a good season, average grazing country.

It's not the area's agricultural potential but what's under the surface that's exciting passions among Australia's investors.

There is, put simply, coal. It has been there for millennia, and now it is mostly being mined to fire power stations such as Kogan Creek or railed to Brisbane for export.

But about 10km out of Chinchilla there's a road on the left which leads to Kummerows Road, where among the spinifex grass there's a tall, metal structure from which, at night, a gas flame often flares.

The fate of this piece of ground was fought out this week in Brisbane's Supreme Court in a battle that will continue next week as two companies have mining leases over the property under different legislation.

The flame is the only above ground sign of underground coal gasification, a process of power generation developed in the old Soviet Union, where it still operates.

It involves producing gas by setting fire to underground coal seams. In this system, air, oxygen or steam, or a combination of the three, is piped into a deep coal seam, which is set on fire to produce fuel gas. Its proponents say UGC can use deep and low-quality coal reserves that can't be used otherwise.

The company trialling the method at Chinchilla, Linc Energy, got the technology from the Soviet Union, and still operates a plant there, in the town of Angren.

Linc is one of three ASX-listed companies trialling UCG, the others being Cougar Energy and Perth-based Carbon Energy. All say it is safe and efficient and does no harm to the environment, but Linc, the most advanced, is still several months off finalising its Environmental Impact Statement, which must be cleared by the Queensland Government.

The major environmental problem is that burning coal underground could harm the underground water system, which is no small concern as the ground under Chinchilla contains not only coal but the water of the Great Artesian Basin. There's a an even bigger problem on the Chinchilla holdings -- one that is being canvassed in Queensland's Supreme Court. While Linc is operating its pilot technology under the Minerals and Resources Act, Queensland Gas has tenements over the same land under the Petroleum and Natural Gas Act.

Multiple tenements have existed before, but the main issue in this instance is that production of coal seam methane and underground coal gasification technology are broadly incompatible. UCG involves burning the methane that is the basis of coal seam methane production.

It's exactly this dilemma that the Queensland Government has to confront. CSM is growing quickly in Queensland, and there is considerably more potential in it. It is a proven technology with existing infrastructure and would provide energy, in particular, for the fast-growing southeast Queensland area, about 300km to the east.

While proponents of UCG claim it is a proven technology with no environmental risk, the Queensland Government is being ultra-cautious in its approach. So much so that on Wednesday afternoon, after inquiries from this newspaper, it issued a statement that "the Department of Mines and Energy has no intention of granting production tenures for underground coal gasification for at least three years".

It was a short-term political fix, but when the ASX opened on Wednesday morning the share prices of all three UCG companies were slashed. Linc dropped 13 per cent, Carbon Energy dropped 35 per cent, while Cougar Energy dropped 11.5 per cent.

During the day, the state government's position changed subtly. It issued another statement, this time with no mention of the three-year moratorium. Instead, Queensland Mines and Energy Minister Geoff Wilson said the state Government "would only do what was best for Queensland in relation to underground coal gasification technology on trial in the state".

"These projects are in a pilot phase, which is why they have a conditional tenure and that gives no automatic right to a production tenure at a later point," he said.

"We're not about to give the green light to underground coal gasification projects, especially where any of them may affect the Great Artesian Basin, unless we're convinced it's in the best interests of Queensland.

"Any company carrying out trials of this new technology is doing so in the full knowledge of the state Government's stance. This should come as no surprise to anyone."

There was some recovery in share prices yesterday, with Linc gaining 8.5 per cent to finish at $3.20, not that far behind the $3.38 it had been before the state Government's statement.

The debate still has a long way to go. Linc managing director Peter Bond says it's obvious the two technologies can't exist on the same piece of ground -- "two people can't eat the same slice of cake" -- but they can exist close to each other.

"Just throw up a fence, we'll be 500 metres away, and that's fine with us," he said.

"We need a lot less ground. If there's 1000 acres, they could have 900."

The case is continuing in Queensland's Supreme Court, but this is only the start of the debate. At some stage in the next few years, the Government will have to decide which technology to back, or at the very least, how to allocate land between the two.

See - Clash over gas on the plains of western Darling Downs.