Coal seam gas exploration and production is bound to be a long and contentious issue. It stirs passionate debate and is showing all the hallmarks associated with uranium mining and wood chipping. Opposition to coal seam gas can’t be ignored. The investment risks are as real as the protestors outside farms in New South Wales and Queensland.

Jacinta Green won’t be ignored. As president of Stop CSG Sydney and vice president of Lock the Gate Alliance, Green is in for the long haul. “We will fight this coal seam gas issue for as long as it takes,” she says. “We will not quit. What we want is a moratorium on all coal seam gas activity until a Royal Commission can investigate the environmental, social, health and economic impacts.”

Green says the plans of coal seam gas companies are shrouded in secrecy, such as Dart Energy’s plan to drill at St Peters in Sydney until it met strong community opposition. “At first, we knew nothing of the company’s plan to drill,” she says, before Dart Energy shelved its St Peters plans in May 2012. “Our major concern is CSG exploration doesn’t require an environmental impact statement. All the damage can happen to water aquifers under an exploration licence.”  She fears for the Great Artesian Basin’s future. “Most farmers use the bore water to grow their crops,” she says. “If coal seam gas drilling, which has started under an exploration licence in the Pilliga Forest, contaminates one section, it could ruin the whole basin. “Drilling is and will put our food and water at risk.

“Only 6 per cent of New South Wales is prime agricultural land and it should be off limits to exploration. We are constantly told the reason for exploration is that we need the gas. No we don’t. It’s all about exports.”   

Major energy companies, including AGL, Origin Energy and Santos, in conjunction with their joint venture partners, are investing billions of dollars in coal seam gas projects, mostly in New South Wales and Queensland. There’s a tribe of smaller firms wanting a piece of the action, including Metgasco and Senex Energy.

Brokers say investing in companies with coal seam operations adds an additional layer of risk. James Samson, of Lincoln Indicators, says coal seam gas is an emotive issue that’s not only dividing the community, but also state and federal government politicians. “Coal seam gas is fast becoming a political football,” Samson says. “Stories of people living within 10 kilometres of exploration wells and falling ill from gas leaks generates fear about coal seam gas operations. Environmental concerns linked to exploration are also a major issue. Exploration near residential areas is hardly a good look – it attracts bad publicity. Coal seam gas companies shouldn’t explore anywhere near high-dense populations. They do themselves no favours. There’s no doubt the share prices of coal seam gas companies would be punished if something goes wrong in the field. The risks of investing in coal seam gas stocks are very real and very publicised.”

While not a coal seam gas operation, Samson says he is reminded of the consequences Cougar Energy investors suffered when the Queensland Government ordered it to shut down its trial underground coal gasification plant near Kingaroy in 2010 over serious water contamination allegations, which the company denied. Samson says in May 2008, Cougar Energy’s share price was about 21 cents. On August 30, 2012 the shares were trading at less than a cent.

“That’s the risk,” Samson says.

Vince Pisani, of Shaw Stockbroking, says coal seam gas companies face risks on several fronts. Even though they may have State Government approvals, that doesn’t necessarily mean they can gain access to a site or a farmer’s land. Secondly, is the technology good enough to capture all the chemicals injected into a fracture? “That’s not proven as yet,” Pisani says. And thirdly, there’s health concerns relating to the possibility of gas escaping into the atmosphere and water aquifers.  

But with $45 billion to be invested in Queensland’s coal seam gas projects, the potential returns from exports are huge. Pisani says while there’s an element of risk with every mining project, coals seam gas companies go out of their way to comply with stringent environmental regulations. “We’re talking about 35,000 to 40,000 wells,” Pisani says. “This is the biggest drilling program in Australia’s history.”

Luke Roberts, of Shadforth Financial Group, says coal seam gas companies face the imposition of greater regulation, which is costly. “This adds a discount to the share price,” he says. Roberts says another risk to Australian companies is Qatar – which has the biggest gas reserves in the world – lifting its cap on exports. Or, the United States, which has a glut of gas, stgeloping the logistical capabilities to export to Asia, which at this point isn’t cost effective.  

“The potential from coal seam gas and LNG has generated a lot of excitement and hope among investors in Australia,” he says. “And with good reason because there’s tens of billions of dollars invested in projects to satisfy Asian demand. But potential returns have to be weighed against the risks.”          

Please note that simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of should seek professional advice before making any investment decisions.