Australia steps up gas fracking bans despite supply crunch

8/30/2016

(Reuters) Victoria state has gone further than any other in Australia to block shale and coal seam fracking. The state has announced a permanent ban on gas due to concerns from farmers and green groups on health and water risks, despite a looming natural gas supply crunch.

The state's Labor government, however, left the door open to allow onshore conventional gas drilling after 2020.

A new Labor government in the Northern Territory is also likely to ban fracking until it is satisfied the drilling technique does not harm farming or Aboriginal sites.

The bans come despite a large portion of eastern Australia's gas being produced from Queensland and New South Wales coal seam developments. They deal a blow to manufacturers that have been clamoring for more gas production to help keep prices down.

"Victorians have made it clear that they don't support fracking and that the health and environmental risks involved outweigh any potential benefits," Victoria state Labor Premier Daniel Andrews said in a statement.

Farmers and environmental groups are worried that groundwater reserves could be depleted or contaminated by both conventional and unconventional onshore gas drilling.

A pipeline networks association said, though, that shale and coal seam gas would be key to supporting Australia's shift to cleaner energy and replacing aging coal-fired power.

"This ban ... will have nationwide impacts for Australia's energy system," said Energy Networks Association CEO John Bradley in a statement.

Domestic gas supply has become an issue following the opening of three LNG export plants in the state of Queensland, which together are set to triple gas demand in eastern Australia by 2018 from 2014 levels.

The Australian Petroleum Production and Exploration Association said there is no environmental reason to ban onshore gas exploration and development, as long as it is done with the appropriate safety measures in place.

"The decision today is short-term politics that will leave Victoria exposed to unnecessarily high energy prices," APPEA chief executive Malcolm Roberts said in a statement.

Andrews said Victoria, which gets most of its gas from offshore fields in the Bass Strait, would extend a moratorium on onshore conventional gas drilling until 2020 while it evaluates the risks and benefits of allowing it.

Victoria has banned fracking since 2012 under Labor and conservative governments. Tuesday's move makes that permanent.

The company that will be hit the hardest by the ban is Lakes Oil, which found unconventional gas in Gippsland in 2004 but has yet to produce any. Its shares were on a trading halt on Tuesday, pending a statement from the company.

Lakes' chief executive, Roland Sleeman, was not available to comment.

In the Northern Territory, companies like Origin Energy , with acreage in the Beetaloo Basin, will be impacted, but among the worst off will be Armour Energy, which estimates it holds potential resources of 30 Tcf of unconventional gas.

Armour had been hoping to work with US shale gas pioneer Aubrey McClendon, through an affiliate of his firm American Energy Partners, but following McClendon's death in March this year, the US firm reneged on the deal and this month gave back the assets and shares it was supposed to acquire.

Armour CEO Robbert de Weijer was not available to comment on the pending fracking moratorium in the Northern Territory.

Reporting by Sonali Paul; Editing by Richard Pullin and Tom Hogue