Environmentalists rejoice as AGL Energy pulls out of NSW CSG project

Environmentalists and residents in the Gloucester, NSW region are ecstatic after AGL Energy Ltd (ASX: AGL) abandoned its Gloucester coal seam gas project, north of Newcastle.

AGL had planned to build more than 300 wells at the project, at a cost of around $1 billion, but falling oil and gas prices and lower than expected production volumes made the project uneconomical.

AGL will hand its petroleum exploration licence back to the NSW government and will ‘commence a comprehensive decommissioning and rehabilitation program for its well sites and other infrastructure in the Gloucester region’.

The company says it will establish a $2 million Independent Trust Fund and will work with the Gloucester community to identify investment options to deliver ongoing economic benefit to the region.

AGL will also cease production at the Camden Gas project in South West Sydney in 2023, 12 years earlier than previously proposed. Without the Gloucester project going ahead, the company says there are limited opportunities for scale and efficiencies, and the Camden site and wells will be progressively decommissioned and the site rehabilitated.

There is large public support to stop coal seam gas (CSG) projects going ahead, and the NSW state government has ruled large areas of land off-limits for CSG drilling, including potential for those zones to be expanded. However, AGL Energy had warned that the regulations would wipe $2 billion off the NSW industry and put thousands of manufacturing jobs at risk because of rising gas prices.

Santos Ltd (ASX: STO) could be next in the firing line, with its plan to drill for CSG in the Pilliga State Forest in northern NSW. The company has anticipated that it could one day supply 50% of NSW’s gas needs but the NSW Opposition has vowed to ban CSG production in the state forest.

Metgasco Limited (ASX: MEL) shareholders voted last year to accept the state government’s offer of $25 million to buy back the company’s three Northern Rivers CSG licences, in another win for enviromentalists and groups opposed to CSG drilling.

Victoria has totally banned unconventional gas exploration including coal seam gas since 2012, but that could change pending the outcome of a review later this year.

Foolish takeaway

Environmentalists can mostly thank falling oil and gas prices for AGL’s decision to exit CSG, and it’s likely that the current low prices will stop many CSG projects from advancing.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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