While the Queensland economy continues to slide, the State Government has pinned its hope for recovery on collecting a significant portion of royalty income from the resource sector.

Coal income for mining companies has sunk to double digit figures, a drastic reduction in price from the heady days of $400 or more a tonne for spot prices.

As a result Treasury is set to become dependent upon the emerging coal seam gas industry and royalties generated by export sales from the recently constructed $24.4 billion Curtis LNG (QCLNG) plant at Gladstone.

But just what is in it for the far north?

Plans by Perth-based exploration company Mantle Mining to drill for coal seam gas on the Mt Mulligan coalfields west of Mareeba have caused great angst among indigenous landholder groups and indeed the general public when 150 people turned up to register their opposition at a recent CSG information day held at Mareeba Racecourse.

Scenes of several thousand protestors at a CSG blockade in the Bentley district of northern New South Wales became big news two weeks ago forcing the State Government to cancel its planned police riot squad intervention.

In what has been termed a modern day Eureka Stockade by Lock the Gate Alliance, the government backed down and cancelled the exploration permit issued to mining company Metgasco.

Coal seam gas extraction from shale beds by the ‘fracking’ method seems to have got up the noses of protestors and perhaps when analysed, they have a just cause.

This natural gas consists mainly of methane, which builds up in layers of coal as a result of the decomposition of ancient, buried organic matter.

CSG is held in the fractures and pores of the coal seam by underground water pressure.

When a well is drilled into the seam and water is removed the gas is able to come away from the coal and be collected.

At the surface the gas is purified by removing water and other gases, compressed and piped to consumers or in the case of the Central Queensland gas fields, to the Curtis Island LNG plant for export.

Hydraulic fracturing or ‘fracking’ is the most controversial aspect of CSG extraction which has attracted the ire of the Australian Conservation Foundation and other environmental groups.

The ‘fracking’ process requires the injection of a fracturing fluid into a gas well at relatively high pressure which is designed to create cracks or fractures in rocks and shale that holds natural gas (and oil) allowing the gas to flow more easily through the rock and into the well casing for collection.

The fracturing fluid normally consists of water and sand (97 – 99 per cent) and a range of chemical additives, some of which, according to the anti-gas lobby, are quite toxic.

Depending on the permeability of the rock, between 10 to 40 per cent of wells in Queensland need fracturing, industry sources claim.

While this figure seems reasonable, should gas prices rise it could become lucrative to fracture more wells to increase production.

The National Water Commission has been so concerned about fracturing in coal seams it issued a position statement outlining concerns about aquifer leakage.

“Should an adjacent aquifer be inadvertently breached it could lead to the draining of the breached aquifer into the coal seam, contamination of the breached aquifer with salty water from the coal seam, contamination of the breached aquifer with gas and contamination of the breached aquifer with chemicals used in the fracturing process.”

Landowners on the Darling Downs believe their aquifers have already been breached, when 12 months ago continuous streams of gas bubbles began appearing in parts of the Condamine River, west of Dalby.

An inherent facet of CSG extraction is the need to reduce subterranean water pressure to allow gas to come away from the coal seam. In a similar manner to agricultural water bores every CSG bore pumps out water.

According to CSIRO, an average CSG well in Queensland draws about 20,000 litres of water per day from the coal seam.

For example in a typical Central or Western Queensland gas field with up to several hundred wells, many millions of litres of water are drawn each day.

This water usually is quite saline and has to be treated on site to remove the salt and other impurities, resulting in large residues of salt which have no commercial or other use.

After treatment, regulations require this water to be put to good use or re-injected into a suitable geological formation.

Industry estimates that in ten years salt stockpiles across the state will be in excess of one million tonnes.

CSG extraction and expansion are inextricably linked to export

Without export, further development of CSG would be limited, occurring only to supplement existing and relatively low-priced natural gas from the Cooper Basin and off the Victoria coast.

It is important to recognise the largest negative economic impact of CSG has been a significant increase in domestic and industrial gas prices rising from around $3 – $4 per GJ up to $18.

As far as economic returns go, CSG has the potential to exceed coal and other mineral royalties within five years.

The Bureau of Resource and Energy Economics has estimated export returns from the QCLNG plant over the three operators, Queensland Curtis LNG, Gladstone LNG and Asia-Pacific LNG range from $5.7 billion in 2014 to $15.2 billion by 2018.

Nationally, the CSG industry could earn up to $52 billion in exports by 2018.

These stunning returns represent actual export income for largely overseas-owned corporations and not royalties received by government.

The actual royalty revenue to State governments and potential income from the Petroleum Rent Resources Tax for the Commonwealth is unknown at this stage, however should the export projections by BREE be correct then it will be substantial.

The distribution of royalties by the State Government has come into question in recent times with allegations of pork barrelling the south east corner and paying a pittance to the communities that actually host big mining.

The Royalties for the Region scheme was designed to fairly apportion royalties by way of roads and other infrastructure funding but a recent protest by the Mt Isa community has left other parts of the state in wonderment.

The Member for Mt Isa Robbie Katter accused the State Government of short changing the district of millions of dollars in royalties generated by mining activities.

He said the large north west mining industry based at Mt Isa contributed more than $90 million to State coffers last year yet the government offered only half a million dollars to the city in return.

Based on the southern CSG activities, Mt Mulligan could become the far north’s only CSG field leaving local land holders guessing how the gas will be of benefit to the region.

There are no pipelines connecting the Tablelands to southern fields so the most logical plan to cash in on local gas would be to construct a LNG plant which could ship out gas by road tanker, but being 1000 kilometres from the nearest terminal it would be an expensive exercise.

Local industry could purchase this gas but would have to compete with high export prices.

Depending on the size of the facility, in the initial construction phase of a plant, local jobs would be created as well as earthmoving and engineering contractors being engaged.

Because gas exploration and production is a specialist industry it has a transient workforce, in some cases using only experienced fly-in-fly-out operators.

In the production phase the facilities are largely automated. Few permanent staff is required.

The Tableland’s community has a long way to go to make up the $100 million or so owed to more than 800 creditors after the collapse of Kagara Zinc at Mt Garnet.

If proven, it would seem the development of the Mt Mulligan CSG reserves will do little to re-invigorate the health of far north business.

Particularly when environmental hazards are taken into account.