Farmers wary of CSG Partnerships

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A mate called me the other day and asked about CSG. She was worried about an absentee neighbour who could get an offer from a gas company and this got me thinking.

“What worries me, is that if a farmer accepts a percentage of a well head he immediately becomes a beneficiary.  Down the track all the beneficiaries can be held responsible for water contamination, devaluation of property, water depletion etc .”

Getting into bed with CSG could be more than you bargained for

She is right. If you put in a financial incentive, the science and risk will be lost in the rush for short term gain at the expense of our future generations. This policy has unintended consequences, from divided communities right through to legal class actions – farmers against farmer.

The threat of legal action is already part of working on the land. For example farmers are responsible for the chemical damage done to crops, water and the environment from spray drift, and this has worked well for the benefit of everybody. You’ve got to do the right thing and it is difficult to see how possible contamination from CSG operations would be different.

A nasty environmental incident such as the BP Gulf Oil Spill or the Brantos CSG Mud Volcano in Indonesia show that the damages can run into the billions. A long running class action as a co-defendant could see legal costs go beyond the financial capacity of the partnering farmer. It is likely the company could sustain some of the losses, but a land owner could be wiped out for a paltry $250 – $1500 per well per year.

It is fertile ground and Hedge Funds that provide seed money for class actions are studying these issues very closely. For the speculative money stuck in slow financial markets, class actions are another means to an end. Legal precedent in the US and elsewhere is starting to develop and the likelihood of massive class actions is increasing.

Beyond environmental impacts, the regional scale devaluation of properties in areas such as Chinchilla point to another potential litigant – the banks. Partnering with a smaller CSG company is even more fraught as limited or no capital base makes the farmer the first port of call.

Surprisingly, Governments have no requirement that CSG operations be insured for environmental risk such as failure of rehabilitation, water contamination and depletion or for property devaluation. The protection of such insurance is basic to the social license that is required by the community for mining and the extractive industries to operate. You can’t drive a vehicle on the road without 3rd party insurance, surely 3rd parties require protection in these circumstances as well.

Of more value, insurance companies would weed out the dodgy operators, the serial offenders, undercapitalised and cowboy operations sheltering under inadequate legislation. There would be another watchdog overlooking environmental performance, a watchdog with real skin in the game.

For a state government anxious to kick off the CSG industry the temptation for the corporate farmer, the cash strapped or smaller operator, the hobbyist or absentee land owner could be overpowering. Recommendations from both the state and federal inquiries into CSG outline such compensation and not surprisingly these recommendations have had a luke warm reception from CSG companies choosing instead to express relief that there is no moratorium.

We must respect the precautionary principle and the consequences of such compensation for land management could be disastrous. Financial incentives may splinter the community of interest that exists to protect and properly manage our agricultural and environmental resources. If we provide incentives, we may end up with a death by a thousand cuts, division in the communities and the slow destruction of agricultural and environmental values across regional NSW.

I can hear the justifications now. “If my country is stuffed by CSG due to neighbour X, I may as well take what I can get, even if it affects neighbour Y. Everybody is doing it now and it’s not my fault if there is a problem, I’m moving on, so someone else can deal with it.”

It all boils down to the evidence. Planning decisions on CSG should be based on robust evidence, not financial incentives. Fair compensation is one thing, but the first steps should be to protect land and water. No one landholder should be able to allow the CSG industry a start with a personal financial gain at the expense of the entire region.

For the farmer or government MP thinking that there just might be something in this CSG thing for them – think again. The evidence is mounting, and when the land use battles are over, the legal battles will begin. That new bit of fencing or road done by the gas company could just cost the farm.