4th UPDATE: Australia Approves A$30 Billion Santos, BG Queensland LNG Projects

Australia approved Friday two groundbreaking gas export projects in Queensland state estimated to cost at least A$30 billion that will tap resources held in coal seams, the first time such a scheme will be attempted.

Lawmakers dismissed concerns over the impact of the projects on water supplies, but attached over 300 strict rules to ensure that no damage is done to the surrounding area where the gas will be produced.

Australian Environment Minister Tony Burke said the approvals hinge on each project meeting over 300 environmental management conditions, "allowing the jobs and investment in Queensland to go ahead".

The projects, aiming to be the first in the world to liquefy gas trapped in coal seams for export, are being built by BG Group PLC (BG.LN) and a joint venture between Santos Ltd. (STO.AU), Malaysia's Petroliam Nasional Bhd. and France's Total SA (TOT).

Receiving environmental approval removes the last hurdle for BG and Santos to make a final investment decision on their projects by end-of-2010 targets. They both hope to start shipping liquefied natural gas from 2014 to Asian customers hungry for fuel that burns cleaner than coal.

"The companies must carry out detailed planning and monitoring to protect groundwater resources, and submit management plans for aquifers, groundwater and surface water for approval," Burke said.

Rival joint ventures between Origin Energy Ltd. (ORG.AU) and ConocoPhillips (COP), and Royal Dutch Shell PLC (RDSB.LN) and PetroChina Co. (PTR) have yet to apply for federal environmental approval.

Farmers, community groups and environmentalists have expressed concern about the potential impact of exploration and production drilling of coal seam gas on water supplies.

The BG and Santos projects had already received environmental approval from Queensland's state government, conditional on meeting water management conditions. But revelations this week from Origin and ConocoPhillips that they'd discovered cancer-causing chemicals in eight exploration wells raised concerns Australia's federal government would at least delay its decision.

Few had expected the Queensland state government to block the projects, given its open enthusiasm for the state's potential emergence as a regional gas export hub and the associated jobs and revenue it would create.

Challenges thrown up by turning coal seam gas into LNG include managing water that has to be extracted from coal seams to get gas to flow to the surface. When it approved the Santos and BG projects, the Queensland government set conditions designed to prevent salt from coal seam gas water leaching into the environment.

Minister Burke said water pressure must be maintained above conservative thresholds and that water reinjection may be required if thresholds are exceeded. "Pilots for aquifer reinjection must be carried out and suitable water treatment programs must be in place to ensure that any water to be reinjected is of suitable quality," he said.

Origin and ConocoPhillips found traces of BTEX chemicals--benzene, toluene, ethylbenzene and xylene--at levels below looming state mandatory reporting standards and are investigating the source of the contamination. BTEX chemicals are commonly found in petroleum products.

The ventures are among a dozen in Australia aiming to chill gas to liquid form and export it by tanker to fast-growing Asian economies by 2014 to 2016. The other projects, based in Western Australia state and Australia' Northern Territory, will exploit conventional offshore natural gas deposits.

A BG Group spokesman on Friday acknowledged Australia's decision and said the company is reviewing the conditions.

Santos said the government approval builds momentum towards its joint venture making a final investment decision later this year and that it is "committed to implementing comprehensive environmental management plans."

The Adelaide-based company is in LNG sales talks with Korea Gas Corp. and will welcome the removal of some of the uncertainty surrounding the project's environmental approval as is attempts to wrap up the negotiations. Santos has indicated that Korea Gas may also take an equity stake in the project.

It has already agreed to sell LNG to project partners Petronas and Total, and BG has signed LNG sales agreements with China National Offshore Oil Corp. and Tokyo Gas Co. (9531.TO).

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; Ross.Kelly@dowjones.com

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