Australia: Coal Seam Gas And Associated Water Production - An Environmental Perspective

Last Updated: 5 October 2007
Article by Karen Trainor

The last decade has witnessed a rapid expansion in Queensland’s coal seam gas ("CSG") production industry.

Coal seam gas is held in coal by burial pressure and water. Typically, extracting CSG involves reducing the pressure by initially pumping out water with gas flowing subsequently. Thus water is a primary by-product of CSG development. While the production of water, termed associated water, will decline during the life of a CSG well, significant volumes of water can be produced - an average CSG well in Queensland’s Surat Basin can extract between 140,000 and 470,000 litres of water per day during dewatering and an average well in the Bowen Basin can extract between 80,000 and 160,000 litres a day.

Although large volumes of water are potentially available, the water is typically high in salts and other elements making it unsuitable for many uses without treatment. Additionally, the extraction of water may have various impacts such as reducing the quantity of groundwater in the area available to other users. With the current drought affecting communities in areas where CSG is produced, the beneficial use of associated water is gaining increasing acceptance among government and industry stakeholders.

In recognition of the potential value of associated water as an exploitable natural resource while paying heed to the potential impacts from its extraction and issues arising from its typically contaminated state, a complex legislative regime has emerged to regulate the management of associated water. This regime comprises the combined operation of the Water Act 2000, the Petroleum and Gas (Production and Safety) Act 2004 (PAG Act) and the Environmental Protection Act 1994 (EP Act).

Underground water rights

Previously regulated by the Petroleum Act 1923 and the Gas (Residual Provisions) Act 1965, CSG is now regulated by the regime initiated in 2004 under the PAG Act to provide mechanisms for the management of the State’s CSG resources, particularly the interaction of coal resource development and CSG development. The PAG Act also established a regime for associated water rights and for the management of the impacts caused by associated water production.

Chapter 2 of the PAG Act establishes a variety of underground water rights in relation to a petroleum tenure. Relevantly, the PAG Act gives statutory authority to a petroleum tenure holder to take or interfere with underground water in the area of the tenure provided that the taking or interfering happens during the course of, or results from the carrying out of, an authorised activity for the tenure. An example of this is where underground water is necessarily or unavoidably produced during the drilling of a CSG well or during authorised CSG production.

Associated water may be used by the tenure holder only for an activity that the holder is, under the PAG Act or the petroleum authority, entitled to carry out in relation to the authority. The tenure holder is also permitted to allow associated water to be used for domestic or stock purposes by an owner or occupier of land in the area of the tenure, or land that joins land in the area of the tenure provided the owner of the joining land is the same owner of the land within the tenure area. This represents a change from the Petroleum Act 1923 which allowed such water to be used by a landowner of land in the vicinity of the tenure. Any other taking, interference or use of associated water must be authorised under the Water Act.

A petroleum tenure holder is authorised to carry out any activity in the tenure area provided it is reasonably necessary for, or incidental to, an authorised activity for the tenure. Incidental activities include constructing and operating plant or works including, for example, water evaporation or storage ponds, tanks and water pipelines. Accordingly, where associated water is produced, it can be stored by the petroleum tenure holder for later use (provided such use is for an authorised petroleum activity), placed in a pond to evaporate, or piped elsewhere on the tenure area for use in an authorised petroleum activity.

Specific authority is given to petroleum lease holders to construct and operate water pipelines in the area of the lease. It seems that a water pipeline may be constructed anywhere on the lease, however, it may only extend beyond the area of the lease if it is extending into an area of a contiguous petroleum lease held by the same holder. The operation of the water pipeline is, however, limited to transporting water for the carrying out of an authorised activity for the lease or a contiguous lease.

Underground water obligations

The underground water rights given to a petroleum tenure holder do not come free. The PAG Act imposes fairly burdensome obligations on the petroleum tenure holder exercising its right to produce water from CSG wells. Significantly, a make good obligation is imposed on each petroleum tenure holder exercising underground water rights for the tenure, requiring it to take restoration measures or pay compensation where the exercise of its underground water rights unduly affects an existing Water Act bore. No less significant are the frequent monitoring and reporting requirements in relation to the impact of the petroleum tenure holder’s exercise of its underground water rights.

A bore will be considered unduly affected if the level of water in the bore drops to a level that is more than the "trigger threshold" for the aquifer and the bore has an impaired capacity such that it can no longer provide sufficient water for the purpose for which it was used prior to the petroleum tenure holder’s activities. The trigger threshold will be the water level drop in the aquifer that the chief executive of the Department of Natural Resources and Water considers would be a level that causes a significant reduction in the maximum pumping rate or flow rate of the existing bores in the area.

The make good obligation applies whether or not the bore is within the petroleum tenure area and even if the bore is first unduly affected after the petroleum tenure ceases. This places a considerable burden on the petroleum tenure holder to identify and monitor bores that may be affected by the exercise of the petroleum tenure holder’s underground water rights, particularly where the aquifer that is being dewatered is located within a substantially large area.

Every petroleum tenure holder is required to prepare and lodge with the chief executive an underground water impact report for approval before commencing CSG production. Additionally, throughout the life of the tenure, the petroleum tenure holder is required to monitor the effect of the exercise of its underground water rights and must lodge an annual monitoring report and, at prescribed intervals, review reports.

It is evident therefore that the exercise of underground water rights places considerable burden on the petroleum tenure holder as well as the chief executive of DNRW, both scientifically and factually in relation to the impacts of the petroleum tenure holder’s activities. The obligations created under the PAG Act indicate that it is clearly concerned to ensure that the development of the CSG production industry is undertaken in way that minimises environmental and associated impacts as far as possible.

Additional water rights and obligations under the Water Act

The primary Act regulating the general management of water in Queensland is the Water Act, which vests all rights to the use, flow and control of all water in Queensland in the State. This includes water in a watercourse, lake or spring, underground water, overland flow water, or water that has been collected in a dam. Unless otherwise permitted, taking water or interfering with its flow requires authorisation under the Water Act. The PAG Act provides a separate regime for interfering with water, however, as noted above, it has limitations and outside of this Act, the petroleum tenure holder must comply with the Water Act.

Thus, where a petroleum tenure holder wishes to take or interfere with associated water for any purpose other than as authorised under the PAG Act (for example, to be on-supplied for beneficial use) it must be under an authority granted under the Water Act. For example, the Water Act provides that petroleum tenure holders are entities entitled to apply for a water licence for taking associated water or interfering with its flow.

Conditions are placed on the ability of the petroleum tenure holder to apply for such a water licence. Firstly, the water to be taken or interfered with must be associated water which is not being used or proposed to be used for an authorised petroleum activity for the tenure. Second, the petroleum tenure holder must be either carrying out approved testing for petroleum production or carrying out petroleum production for commercial purposes.

The third condition gives recognition to the interests of what is referred to as a priority group. The priority group for a petroleum tenure holder is the group of persons who have previously applied for a water licence to take underground water, but have been refused due to the exercise of underground water rights under the PAG Act or the carrying out of authorised activities under the Petroleum Act 1923. The petroleum tenure holder is required to give each member of the priority group an opportunity to provide an expression of interest about access to the water the subject of the proposed licence.

Ordinarily, applications for water licences are subject to public notification requirements. Applications by petroleum tenure holders, however, may be decided without notice of the application being published. Unlike the situation under the PAG Act, environmental impacts, amongst other things, must be considered in deciding the application.

A water licence issued to the petroleum tenure holder under the Water Act for associated water may contain conditions in relation to the volume and rate of water it must supply to members of the priority group and limiting the charge for supply to the priority group members to an amount that is no more than the cost of supply and the cost of treating the water to make it fit for the purpose for which it is supplied. An important related issue is that if the petroleum tenure holder intends to charge for the supply of water, it is required to be registered as a water service provider, requiring the approval of various management plans, regular audits and submission of an annual report (subject to certain exemptions offered to small service providers).

Additionally, if the petroleum tenure holder wishes to on-supply associated water via a pipeline for any beneficial use or any other purpose not authorised under the PAG Act, the pipeline and any associated infrastructure must be approved under the Integrated Planning Act 1997.

Environmental considerations for associated water

Given that CSG production involves extracting large volumes of water of variable quality, environmental considerations are critical in the management of the resource. Reports suggest that the life of a CSG production tenure is generally between 15 to 20 years but that the volume of water to be produced will vary from basin to basin and will decrease during the life of the production. Water management options will therefore be site-specific and will be influenced by factors such as the location of the production area and proximity to communities, industries and agricultural land, confidence in prediction of water extraction rates, water quality and sensitivity of the receiving environment.

In addition to the regulatory controls implemented under the PAG Act to address adverse impacts associated with the removal of large volumes of water from underground reservoirs, controls are imposed by the EP Act in relation to the potential end use or disposal of associated water given its likely quality characteristics. These controls include the imposition of various conditions under an environmental authority (petroleum activities) or development approval as to the use or disposal of associated water, as well as requirements associated with regulated waste.

The Environmental Protection Agency (EPA) has recently released a draft operational policy for stakeholder comment on the management of water produced in association with petroleum activities. While an operational policy does not have the force of law, it can provide guidance as to how certain issues will be dealt with by the regulators. The draft policy indicates the EPA's view that associated water is a regulated waste under the EP Act. Nevertheless, it proposes an approach for approving the beneficial use of associated water in accordance with the waste management hierarchy established by the Environmental Protection (Waste Management) Policy 2000 together with the approvals process for the beneficial use of a resource under the Environmental Protection (Waste Management) Regulation 2000.

Regulated waste is very broadly defined to mean non-domestic waste mentioned in schedule 7 of the Environmental Protection Regulation 1998 (whether or not it has been treated or immobilised) and includes for an element, any chemical compound containing the element, as well as anything that has contained the waste. Saline effluent and residue and oil water emulsions and mixtures are listed in schedule 7 and appear to be the basis for the EPA's conclusion that associated water is a regulated waste.

Ordinarily, activities associated with a regulated waste are subject to strict regulatory control under the EP Act. Environmentally relevant activities associated with waste and regulated waste will require development approval under IPA and registration under the EP Act. The EPA may, however, approve a material or substance, which would ordinarily be considered a waste under the EP Act, as a resource or type of resource where it considers it has a beneficial use other than disposal. If associated water is approved for a beneficial use, it will be excluded from the approval processes that may otherwise apply in respect of activities involving waste. While conditions as to the characteristics of the water and particulars of the industries or premises allowed to produce or receive associated water are likely to be imposed, the approvals process for beneficial use of a resource is far less onerous.

The application of associated water to beneficial uses presents a number of significant challenges for petroleum tenure holders and other stakeholders. The finalisation of the EPA’s operational policy on management of water produced in association with petroleum activities will go some way to achieving a workable solution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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