Assessment of options for using coal seam gas water in the Central Condamine Alluvium: Business case

Transcription

1 Healthy HeadWaters Coal Seam Gas Water Feasibility Study Assessment of options for using coal seam gas water in the Central : Business case Prepared for the Department of Natural Resources and Mines April 2013

2 This document presents outcomes of Activity 8.3 of the Healthy HeadWaters Coal Seam Gas Water Feasibility Study. The has analysed the opportunities for, and the risks and practicability of, using coal seam gas water to address water sustainability and adjustment issues in the Queensland section of the Murray-Darling Basin. The study was funded with $5 million from the Commonwealth Government, with support from the Queensland Government, as part of the Healthy HeadWaters Program, which is Queensland s priority project funded through the Commonwealth Government s Water for the Future initiative. The study was managed by the Queensland Department of Natural Resources and Mines (DNRM). This report was prepared by Arup for the State of Queensland. Disclaimers This document was prepared exclusively for the State of Queensland (Department of Natural Resources and Mines) and is not to be relied upon by any other person. Arup has made every effort to ensure that the information provided is accurate but errors and omissions can occur and circumstances can change from the time that the document was prepared. Therefore, except for any liability that cannot be excluded by law, Arup excludes any liability for loss or damage, direct or indirect, from any person relying (directly or indirectly) on opinions, forecasts, conclusions, recommendations or other information in this report or document. State of Queensland The State gives no warranty in relation to the contents of this report (including accuracy, reliability, completeness, currency or suitability) and accepts no liability (including without limitation, liability in negligence) for any loss, damage or costs (including consequential damage) relating to any use of the contents of this report. Acknowledgements The authors would like to acknowledge that this report builds on other work undertaken under Activity 8 of the. This includes reports by KBR Infrastructure options for delivering coal seam gas water to the Central, Klohn Crippen Berger Injection of coal seam gas water into the Central Site prioritisation, Schlumberger Water Services Field program design for injection trials in the Central and Tree Crop Technologies Assessment of alternative use options for coal seam gas water proposed for Central recharge schemes. In addition this report includes work by Schlumberger Water Services on modelling the response of the water levels to injection, which is included as Appendix C. The report also includes work by KBR on the design and costing of water delivery infrastructure within in the text and presented in Appendix D.

3 Executive Summary Coal seam gas (CSG) development in Queensland is expanding rapidly in order to supply an emerging liquefied natural gas export industry. The expansion in CSG development will result in significant quantities of groundwater being brought to the surface, presenting a challenge for the CSG industry for management and disposal. Initial phases of the Healthy HeadWaters Study (HHW Study) consisted of investigations aimed at understanding the impacts of extracting and using CSG water, as well as analyses on the likely supply of, and demand for, CSG water. The final phase of the HHW Study focussed primarily on options for large-scale beneficial use of CSG water. Several years ago, it was identified that there may be an opportunity to use treated CSG water to recharge the Central (CCA), which has been depleted by over-extraction for irrigation over several decades. Recharging the CCA could provide a disposal mechanism for a large volume of treated CSG water, while also helping to secure the sustainability of this important groundwater resource which supplies water to a $100 million agricultural area. This business case aims to examine this opportunity, and to provide a way forward for developing and implementing a CSG water recharge scheme in the CCA. Aquifer recharge can be achieved either through injection via bores and infiltration trenches or by substitution where water is supplied to groundwater users in lieu of groundwater allocations, thereby reducing take from the aquifer and allowing natural recharge. The method that provides the greatest recharge efficiency is obviously preferable. Investigations and subsequent stakeholder discussions have indicated that a substitution scheme would be impractical to implement unless it included injection as a means of dealing with CSG water when it is not required for irrigation (such as during wet periods or between growing seasons). The recommended option that has been identified in this business case is an injection only scheme to recharge the CCA. The option represents a superior approach both environmentally and relating to on-farm water practices. Securing Arrow Energy s commitment to an injection scheme in the CCA could result in recharge of approximately 40 per cent of the Cecil Plains area of the CCA. Injecting CSG water into the CCA under an approach of this nature provides a once-in-a-lifetime opportunity to improve the security of the groundwater resource in the alluvium. However if agreement on scheme design and a firm implementation path for an injection scheme are not committed to in the next six to twelve months, then it is likely that a substitution only scheme will be built. Once a substitution only scheme is built, it is unlikely that the additional capital costs to build an injection scheme would be supported, and therefore the opportunity for maximising recharge benefits for the CCA (and the Murray-Darling Basin) will be lost. Further, it is recommended that the recharge be a staged process, where following successful injection trials, a scheme is sized to inject water based on that produced by Arrow Energy s proposed water treatment facility near Cecil Plains. Final 30 April 2013 Arup Page i

4 The potential costs for deep and shallow injection site trials would be in the order of $2.4 million and $2.49 million per site, respectively. Concurrent with this scheme, work should commence on confirming the availability of additional CSG water, such that an expanded scheme that includes additional water from the Chinchilla South area can be progressed at a suitable stage in the near future. This expanded scheme would extend the life of the injection scheme and could fully recharge the Cecil Plains area. This expanded scheme could supply approximately 40 per cent of the current water deficit in the CCA and provide a key pathway for CSG water disposal. All stakeholders agree in principle that a scheme involving injection would provide the most potential benefits, both environmentally for the CCA (and Murray-Darling Basin), and from the perspective of minimising the disruption to existing water allocation and on-farm use of water. The following recommendations are proposed as the next steps in progressing with the implementation of an injection scheme in the CCA and to resolve any outstanding issues in relation to this scheme. Recommendation Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4 Recommendation 5 Recommendation 6 Recommendation 7 Description That the Queensland government identify and appoint a lead agency to be responsible for managing the next phases of work identified as a consequence of the opportunities identified in this business case. That the Queensland Government lead the development and execution of injection trials in the CCA (at a total cost of approximately $5 million) as a matter of priority so that feasibility of aquifer injection can be more clearly demonstrated. In support of Recommendation 2, the Queensland and Commonwealth Governments and Arrow Energy seek agreement on implementing an injection only scheme to enable the favoured injection option to be pursued. That Queensland Government and Arrow Energy commence discussions on an approvals process as well as a legal framework for the management of liability issues associated with an injection scheme in the CCA. That Queensland Government, Arrow Energy and other relevant CSG companies agree a community engagement process for the implementation of an injection scheme including the following stakeholders: The communities who draw all or part of their water supply from the Condamine alluvium; and Communities outside the CCA from which water could be exported if an expanded injection scheme were to be pursued That Government lead the development of a funding model for an injection scheme in the CCA. Implementing an injection scheme will involve considerable up front capital costs and operating costs. This funding model should agree the quantum of costs to be met by Arrow Energy. Additional consideration should also be given to additional sources of funding to meet the costs of the scheme and any subsequent commercial arrangements. That the Queensland Government engage with the western tenement holders to explore the scope and potential for expanding the injection scheme to conditions outlined in Option 1C. Final 30 April 2013 Arup Page ii

5 About this document This document presents a business case that assesses the feasibility of using treated CSG water to recharge the CCA, and identifies the steps that need to be taken to progress the development of a CCA recharge scheme. This business case is presented in three sections: 1. Part A Business case background and rationale, including an overview of precursor studies, a description of the regional context and drivers for the project, a review of relevant policy and legislative frameworks, and an overview of stakeholder consultation processes and outcomes; 2. Part B Assessment of the recharge scheme options, including a detailed description of the options, the methodology used to undertake the qualitative and quantitative assessments presented in this business case, and presentation and discussion of the results; and 3. Part C Critical analysis of the results, and a proposed mechanism to progress the recommended option, including an analysis of the benefits, challenges and opportunities presented by both the substitution and injection options. This section also recommends a preferred option and sets out a series of recommendations for the next stage of the process to implement a CCA recharge scheme. Technical inputs to the HHW Study A number of research activities were commissioned to contribute to specific elements of the HHW Study, and which have supported the development of this report. These activities, and the organisations which undertook them, are described below: Activity 2: Modelling and forecasting of CSG water production Klohn Crippen Berger (KCB) developed a Water Production Tool capable of forecasting, from an industry-wide perspective, where, when and how much CSG water will be produced in the Surat and southern Bowen basins. This tool was used to estimate where, when, and how much CSG water is likely to be produced over the next 40 years that could be transported to the CCA. For the purpose of the business case, these estimates were supplemented by estimates provided by Arrow Energy of the CSG water likely to be produced on its tenements close to the CCA. Activity 6: Aquifer injection feasibility KCB conducted a desktop assessment of the technical feasibility of injecting treated CSG water into the CCA. The assessment concluded that injection of reverse osmosis (RO) treated CSG water into the aquifers of the CCA is likely to be technically feasible. It also developed a prioritised list of the 12 highest potential injection targets across the CCA (seven shallow injection targets and five deep injection targets). In addition, it identified that a better understanding of the local hydraulic relationship between the Walloon Coal Measures (WCM) and the CCA was needed to assess the likely impacts and outcomes of injection at specific sites in the CCA. Final 30 April 2013 Arup Page iii

6 KCB s investigations concluded that a field program incorporating injection trials, groundwater monitoring and geophysical assessments was required to more definitively assess the feasibility of injecting CSG water into the CCA. Activity 8.2: Field program design for injection trials in the Central Schlumberger Water Services (SWS) designed and developed a detailed program of work to implement a field program for aquifer injection trials to contribute to the assessment of: a) The feasibility of injecting CSG water into the CCA; and b) The hydrogeological relationship between the WCM and the CCA. SWS also developed and costed an indicative design for the infrastructure required to operate long-term aquifer injection activities at one shallow and one deep site in the CCA. The design and costings have been used in the development of this business case. SWS also conducted additional work on modelling the response of the water levels in the CCA to injection. Activity 8.1: Infrastructure options for delivering CSG water to the Central Kellogg Brown and Root (KBR) was engaged to investigate and evaluate the physical infrastructure required to deliver CSG water to the CCA from the identified source area. This work also estimated approximate order of magnitude costs of the proposed schemes, including costs associated with the construction, operation and maintenance of pipeline infrastructure, expressed in absolute terms as well as per megalitre (per ML) of water delivered (Activity 8.3). Activity 8.3B: Comparative assessment of CSG water uses Tree Crop Technologies compared the benefits, costs and feasibility of proposed CCA recharge scheme options with a range of realistic alternative options for the same CSG water. Activity 8.3C: Business case development Arup was engaged to develop this business case and facilitate a number of workshops with stakeholders. These stakeholders were involved in the quantitative and qualitative assessments completed as part of this assessment. This business case incorporates all of the previous work completed as part of the HHW Study. Stakeholder consultation Formal and informal consultation in the development of this business case occurred through a Stakeholder Reference Group. This group included diverse stakeholders with an interest in the HHW Study and the associated technical and economic analysis presented in this business case. Involvement from industry, government and community stakeholders has been crucial to achieving the Final 30 April 2013 Arup Page iv

7 objectives and outcomes of earlier work and in developing the options presented in the business case. There remains considerable concern from the community in relation to the growing level of activity from CSG companies within the Surat Basin and the economic and social issues associated with the potential impacts on aquifers and management of CSG water. These concerns have been highlighted in this business case along with specific issues from major stakeholder groups who participated in the development of the business case. Current issues within the CCA Since the 1960s, the groundwater resources of the CCA have been developed intensively, and at a rate that is unsustainable in the long term. Irrigation in the CCA expanded dramatically in the 1960s, and by 1969 it became evident that the aquifer system in the central part of the area was becoming depleted. Various measures have since been introduced to reduce groundwater use, including metering, water charges, and announced annual allocations. Between 1990 and 2004, average annual groundwater use in the CCA was about 66 gigalitres (GL). Announced entitlements since 2010 have restricted the maximum allowable use to 55 gigalitres per annum (GL/a). Despite these reductions in use, depletion of the aquifer has continued. In the intensely developed area east of Cecil Plains, water levels are estimated to have fallen by as much as 26 m. The natural gradients of flow in the aquifer have been replaced by a large zone of depression east of Cecil Plains, and a smaller depletion zone around Macalister. Accessing groundwater in some areas has become more difficult and/or costly as the water table has fallen. Some groundwater users are now unable to access all of their licensed entitlement, and instead seasonally assign it to other groundwater users. In 2009 the Queensland Government commenced a process to amend the Condamine and Balonne Water Resource Plan to include the CCA. This amendment was initiated to provide a framework in which to address the overallocation of the groundwater system. The amendment to the water resource plan has been deferred to allow for the introduction of the Australian Government s Murray-Darling Basin Plan (the Basin Plan), which specifies limits on how much water can be taken from surface water and groundwater systems in catchments of the Murray-Darling Basin, including the CCA. These long-term average sustainable diversion limits (SDLs) reflect the maximum amount of water that can be taken without compromising the environmental integrity and productive base of the water resource. The Australian Government has also announced that it will purchase water entitlements to align current levels of use with SDLs throughout the Murray- Darling Basin. The Basin Plan, including the SDLs will be reviewed in 2019 to ensure the objectives of the plan are being achieved. There remains the possibility that the SDL could be further reduced if aquifer levels do not stabilise at acceptable levels. Final 30 April 2013 Arup Page v

8 CSG water production in the Surat Basin There are four major CSG companies operating in Queensland: Arrow Energy, Queensland Gas Company (QGC), Origin Energy and Santos. Most of Arrow Energy tenements are near the CCA, while Origin Energy and QGC tenements lie between Millmerran and Roma following the Walloon coal outcrop. The majority of tenements owned by Santos are around Roma and further north. CSG in the Surat Basin is sourced from the WCM, a sequence of layers of coal, mudstones and sandstones. The thickness of this sequence may be up to 700 m, but on average is of the order of 300 m. The WCM is also part of the Great Artesian Basin (GAB), and lies above and below several regionally significant GAB aquifers, such as the Hutton Sandstone and the Springbok Sandstone. Large volumes of water need to be extracted from the WCM in order to produce CSG. Under Queensland s regulatory framework for CSG water, CSG operators are responsible for finding an environmentally safe way to use or dispose of the water that they produce. CSG operators are required to present their strategies for managing the CSG water associated with a given project in the project s environmental impact statement (EIS) and environmental management plan (EMP). The EMP typically includes a separate CSG water management plan. A major challenge in managing CSG water, and in identifying opportunities for its use, is predicting how much will be produced over space and time as the industry develops. Rates of CSG water production vary considerably from one location to the next due to the variable physical properties of the coal measures. In addition, the industry s development plans are constantly evolving, so there will always be some uncertainty about which areas will be developed, and in which order. For these reasons, estimates of future CSG water volumes are always uncertain, and will change over time as new information becomes available. However, the water production tool developed for this study was used to develop spatial estimates of how much water could be available over time in the region surrounding the CCA. The findings are presented below. Source area Cumulative water production Chinchilla West 419 GL ( ) Chinchilla South 509 GL ( ) CCA North 99 GL ( ) CCA Central 56 GL ( ) CCA South 90 GL ( ) The extraction of these water volumes from the WCM in the Surat Basin to produce CSG is expected to result in the drawdown of water levels of the aquifers lying above or below the coal measures. Among the aquifers which may be affected is the CCA, which is incised into the eastern margin of the WCM. The nature of the hydraulic connectivity between the two units is a subject of ongoing investigation, but it is believed to be such that the reduced pressure in the WCM due to CSG water extraction will result in some water being drawn from the CCA down into the coal measures. Final 30 April 2013 Arup Page vi

9 On the basis of modelling undertaken, the Office of Groundwater Impact Assessment estimated that in the region of maximum impact, the extraction of CSG water from the underlying WCM will reduce groundwater levels within the CCA by up to 1.2 m. Potential for beneficial use of treated CSG water The primary driver for using CSG water to recharge the CCA is to help secure the long-term viability of the aquifer, both as an economic resource and an environmental asset. While there is now a process in place under the Basin Plan to reduce groundwater extraction to a sustainable level, there are still benefits to be gained by increasing the amount of water in the aquifer, above and beyond the rate of natural recharge. As discussed, groundwater modelling undertaken to date for the Office of Groundwater Impact Assessment suggests that some 110 GL could be lost from the CCA as a result of CSG water extraction over a 100 year period. CSG companies are obliged to make good any associated impacts to individual water bores. Impacts to individual bores aside, such losses will work against existing efforts to reduce groundwater extraction to a sustainable level. Assuming that licensed extraction for agriculture and other uses is brought in line with the SDL, the loss of additional water due to CSG operations could result in further depletion of the aquifer. Under the Basin Plan the State would have to account for all impacts due to CSG activities as part of the audit process. In principle, recharging the CCA aquifer directly (via injection) or indirectly (via substitution) using treated CSG water could offset the impacts of CSG operations on the CCA. The proposed injection arrangements would go beyond the predicted CSG impacts, resulting in amelioration of previous over extraction of the CCA. Legislative and policy context Community apprehension over the continued expansion of the CSG industry within the Surat Basin is well documented. Primarily, concerns relate to perceptions of the risks associated with CSG extraction causing water and air pollution, the release of fugitive emissions, land usage and access conflicts, and concerns over the adequacy of Government s assessment and regulation of these potential impacts. In recent years both the Queensland and Commonwealth Governments have continued to strengthen legislative and regulatory frameworks and oversight of the industry through various agencies and commissions in response to these community concerns. Any future proposals to use CSG water for any purpose in the CCA need to ensure that they are consistent with these policies and legislative and regulatory frameworks. CSG and CSG water extraction, management and disposal are primarily regulated by State (Queensland) legislation. However, the Commonwealth Government has recently announced its intention to extend the requirement for Commonwealth approval to apply to CSG or large coal mining projects where water resources have the potential to be impacted. If the legislative amendments are made this Final 30 April 2013 Arup Page vii

10 would mean that water resources impacted by CSG projects will form a Matter of National Environmental Significance under Part 3 of the Environmental Protection and Biodiversity Conservation Act A Water Management Plan applying to the groundwater resources of the Upper SDL area was declared on 10 August This plan qualifies as an interim Water Resource Plan (WRP) for the purposes of the Commonwealth Water Act 2007 and has been made to ensure that water users in the Upper s are eligible to participate in the Commonwealth water recovery program. The plan mirrors the requirements set for future management of groundwater in the established in the Basin Plan. The legislative and policy context for CSG water extraction and its relevance to this proposed recharge scheme is discussed extensively in this business case. Recharge scheme options considered by this business case Based on information about the likely availability of CSG water and the technical feasibility of aquifer injection and groundwater substitution, three recharge scheme options were developed for detailed consideration in this business case: Option 1 Injection only; Option 2 Injection plus substitution to licence-holders land abutting injection pipelines; and Option 3 Injection plus substitution to a greater area of licence-holders land to meet a peak delivery period of at least 20 years. These options were compared against a Baseline Substitution Option which is indicative of a groundwater substitution scheme which could be implemented by Arrow Energy supplying water from its water treatment facility. All three recharge scheme options have been developed to deliver water to five injection sites (two deep and three shallow) which were identified by an earlier site prioritisation study. These five sites were chosen for their proximity to the intensively irrigated Cecil Plains area and to Arrow Energy s proposed Water Treatment Facility 9 (WTF9), which is assumed to be a common supply point for all options. In addition to this infrastructure, a 145 km pipeline from an assumed water treatment facility in the Chinchilla South area to the off-take point from WTF9 was also included. Pipelines were sized to accommodate the peak delivery volumes for each scheme, and were located where possible within existing corridors, easements, road reserves or adjacent to cadastral boundaries, and to minimise high elevation areas and watercourse crossings. All aspects of this water delivery infrastructure for each of the options were designed and costed in earlier phases of this study. In addition to the recharge scheme options, three different water supply profiles were applied to each of the options, meaning a total of 10 options were considered (three injection only options and six hybrid injection-substitution options and the Baseline Substitution Option). These water supply profiles featured different Final 30 April 2013 Arup Page viii

11 benefit periods, peak supply periods and total water supply volumes, all of which impacted on the financial viability of the options. These profiles are as follows: Water supply profile A - all water is supplied by Arrow Energy from its WTF9 no Chinchilla South water import is considered. This water supply profile determines the peak supply rate of 21.4 GL/a (based on the peak volumes) adopted for all other profiles and options considered by the business case. A peak supply period of 10 years is assumed for this profile because the average production in of 18.8 GL/a is sufficiently close to 21.4 GL/a. In total 351 GL of treated CSG water is supplied over 35 years. Water supply profile B - builds on water supply profile A by importing treated CSG water from the Chinchilla South supply area according to the predicted CSG water production in that area commencing in Imported water is capped at the peak supply rate determined by water production profile A, i.e. not all the water available from Chinchilla South is imported (only 226 GL of a potential 503 GL). This extends the peak supply period to the CCA from 10 to 20 years. Under this profile 577 GL of treated CSG water is supplied over a period of 35 years. Water supply profile C - builds on water supply profile A by importing treated CSG water from the Chinchilla South area. However, in this case it is assumed that production in the Chinchilla South area may be delayed by a period of 10 years. Imported water is still capped at the peak supply rate determined by water supply profile A, but the delay in the Chinchilla South production allows more of this water to be imported, and extends the peak supply period from 10 years to 30 years. Under this profile, 846 GL of treated CSG water is supplied to the CCA over 50 years, extending the supply period by 15 years. The business case also considers the approximate water demand profile reflected in current water use practices (and therefore demand) on the CCA, particularly in the Cecil Plains area. This demand profile is particularly problematic for the Baseline Substitution Option. Quantitative and qualitative analysis In order to assess the benefits and key issues associated with each of the ten options discussed in this business case, a combined qualitative and quantitative assessment methodology was applied. The purpose of the combined qualitative and quantitative assessment was to develop an overall ranking for each of the options (with reference to a set of pre-determined objectives). The assessment process is broadly described overleaf, with the comprehensive list of assumptions and scoring approach detailed later in relevant sections of the business case. Final 30 April 2013 Arup Page ix

12 Key observations from the qualitative assessment showed that: Option 1 (injection only scheme), regardless of the water supply profile is qualitatively superior. This outcome reflects the objective of the scheme which is to restore water levels in the CCA and the lower administrative burden for implementing a pure injection scheme; and Scores for Option 2 and 3 (all water supply profiles) are also qualitatively superior to the Baseline Substitution Option, which is the least preferred option due to its poorer environmental outcomes. The quantitative assessment results are less open to interpretation with results presented at a Net Present Cost (NPC) and NPC per megalitre of water (NPC/ML) for each of the options and water supply profiles. The key findings are discussed below and presented in the table overleaf. The quantitative analysis indicated that the Baseline Substitution Option required the lowest investment across the life of the project (NPC of $93 million), compared with all other options. This would indicate that (using the assumptions applied in this business case), a substitution only scheme is less costly to build and operate than an injection scheme or a hybrid injection/substitution scheme. However, this represents the lowest possible cost for the Baseline Substitution Option and if the assumptions are not met (for example, if not all licence-holders are willing to accept substitution) the cost of this option could be significantly higher. The Baseline Substitution Option only uses the anticipated CSG water from Arrow Energy s CCA tenements. From Arrow Energy s perspective, this option potentially presents technically the most feasible option to implement because it is able to proceed immediately with no requirements to modify legislation and regulations and would be fully funded using its own investment. Notwithstanding the administrative challenges associated with contracting agreed water volumes with individual irrigators (and other potential users), this option is likely to be financially and legally attractive to some stakeholders. The most significant issue with a Baseline Substitution Option is that it delivers the poorest environmental outcome of all options considered by this business case. Additionally, this quantitative finding does not consider the challenges associated in negotiating with individual land owners/irrigators etc. or other scheme administrative requirements (this is why this option ranked lowest in the Final 30 April 2013 Arup Page x

13 Option qualitative assessment). In addition, whilst the Baseline Substitution Option has the potential to address Arrow Energy s anticipated impact on groundwater drawdown in the CCA, it may not provide a mechanism for Arrow Energy to beneficially use all of the water it produces. For seasonailty reasons, another usage or disposal option may be required, potentially resulting in additional costs. It also has the shortest benefit period of all the options considered as part of this business plan. The key quantitative elements of all of the options are described in the table below. Benefit Stream (years) Water Volume from WTF9 Water supply from the west Total Water Volume Peak Water Volume Peak supply period (years) NPC (capex and opex) $million NPC/ML ($/ML) Baseline Substitution Option 25years 330GL 0 330GL 21.4GL/a 5 years Option 1A 35 years 351GL 0 351GL 21.4GL/a 10 years Option 1B 35 years 351GL 226GL* 577GL 21.4GL/a 20 years Option 1C 50 years 351GL 495GL 846GL 21.4GL/a 30 years Option 2A 35 years 351GL 0 351GL 21.4GL/a 10 years Option 2B 35 years 351GL 226GL* 577GL 21.4GL/a 20 years Option 2C 50 years 351GL 495GL 846GL 21.4GL/a 30 years Option 3A 35 years 351GL 0 351GL 21.4GL/a 10 years Option 3B 35 years 351GL 226GL* 577GL 21.4GL/a 20 years Option 3C 50 years 351GL 495GL 846GL 21.4GL/a 30 years * only 226GL from a potential 503GL is imported from the Chinchilla South region The Options with the lowest the cost per megalitre of water delivered were Options 1C and 2C. This is because water supply profile C extends the peak water supply period and delivers water for up to fifty years meaning that the infrastructure costs are apportioned over a far longer period. These options however have significantly higher upfront costs, with an NPC of more than double the costs of the Baseline Substitution Option. This is because of the more extensive pipeline network that needs to be built, including the South Chinchilla pipeline (sourcing water from CSG companies in the Chinchilla South area) and an associated distribution network. Key reasons for recommending an injection scheme include: Greater recharge efficiency with opportunities for maximising volumes; Administrative simplicity of implementing an injection scheme; Providing flexibility for water extraction and use; and Reduced direct impact on land holdings and the environment due to a requirement for less physical infrastructure. Final 30 April 2013 Arup Page xi

14 Further, implementing the preferred Option 1A also has the following specific benefits: It has the lowest capital cost of all injection options considered in this business case; It allows for a staged development (managed capital investment) of a broader injection scheme, or a hybrid scheme involving both injection and limited substitution; Delivers the second best return on investment (NPC/ML) of all injection options considered in this business case; and It does not rely on additional water from outside of the CCA. Option 1A, although it represents a higher cost per megalitre of water delivered, has a far lower NPC than Option 1C or 2C. For this reason, Option 1A which only utilises water from Arrow Energy s WTF9 facility may provide the best opportunity to implement an injection scheme in the CCA. An additional advantage of Option 1A is that if there is additional water produced by either Arrow Energy (or other CSG companies) beyond the capacity of the initial distribution water pipelines and injection locations, the initial scheme could be readily augmented to inject additional water into the CCA. Conversely, under the indicative substitution option (Baseline Substitution), additional water produced would not necessarily benefit the CCA. It is foreseeable that additional CSG water would be provided to some users as supplies beyond their water allocations, or disposed of by alterantive means. Neither of these alternatives will directly benefit the CCA nor will they contribute to the broader Murray-Darling Basin outcomes. Implementing Option 1A as the preferred option, in the first instance could, at a suitable point in the future, be scaled to a deliver larger volumes of water which may improve further the benefits for stakeholders, the CCA and the Murray- Darling Basin. Implementing the preferred option Although this business case highlights a wide range of environmental, technical, social, infrastructure and financial outcomes associated different potential aquifer water recharge schemes, the key challenge which presents itself is how to ensure implementation of a scheme which optimises the outcomes for stakeholders and the environment. Clearly there are different challenges associated with each of the options considered in this business case there are no risk-free water recharge schemes and similarly none of the schemes will be supported by all stakeholders. However, all stakeholders agree in principle that a recharge scheme involving injection has the potential to demonstrate the greatest benefits, both environmentally for the CCA (and Murray-Darling Basin) and from the perspective of minimising the disruption to existing water allocation and on-farm use of water. If agreement on scheme design and a firm implementation path for an injection scheme, including injection trials, are not committed to in the near future then it is likely that a substitution only scheme (similar to the Baseline Substitution Option) Final 30 April 2013 Arup Page xii

15 will be built by Arrow Energy. Once a substitution only scheme is built, it is unlikely that the additional capital costs required to build an injection scheme would be supported by Arrow Energy, and therefore the opportunity for maximising recharge benefits for the CCA will be lost. To implement an injection scheme in the CCA, the following issues will need to be resolved in a timely manner: Urgent agreement between Queensland Government, Arrow Energy and any other stakeholders to enable injection trials and community engagement to occur leading to implementing an injection only scheme; Injection trials to confirm the expected technical feasibility. These trial will also require funding and based on the investigations of SWS (2013), the costs for deep and shallow injection sites would be in the order of $2.4 million and $2.49 million per site respectively; The need for Queensland Government involvement and leadership including the development of an approvals process as well as a legal framework for the management of potential corporate risks of an injection scheme; and The requirement for early and broad community engagement. Processes to resolve these issues have been set out in the recommendations contained within this report and provide a guide as to the scope of the next phase of the project. Final 30 April 2013 Arup Page xiii

16 Acronyms Acronyms a ADWG ANZECC BSA CA CAPM CCA CDIL CGMA CMA CPI CSG DEHP DERM DEWS DNRM EA EIS EMP EP Act EPCM GAB GDE GL HHW HHW Study IESC KBR KCB LNG m MAR MCA MDBA ML Annum Australian Drinking Water Guidelines Australian and New Zealand Environment Conservation Council Basin Sustainability Alliance Capital Asset Pricing Model Central Central Downs Irrigators Ltd Condamine Groundwater Management Area Cumulative Management Area Consumer Price Index Coal Seam Gas Queensland Department of Environment and Heritage Protection Queensland Department of Environment and Resource Management Queensland Department of Energy and Water Supply Queensland Department of Natural Resources and Mines Environmental Authority Environmental Impact Statement Environmental Management Plan Environmental Protection Act 1994 Queensland Engineering, Procurement, Construction Management Great Artesian Basin Groundwater dependent ecosystem Gigalitre Healthy Headwaters Healthy Headwaters Coal Seam Gas Water Feasibility Study Independent Expert Scientific Committee Kellogg Brown & Root Klohn Crippen Berger Liquefied Natural Gas Metres Managed Aquifer Recharge Multi Criteria Analysis Murray Darling Basin Authority Megalitre Final 30 April Arup Page xiv

17 MNES NPC NPV NRM NWI O&M OGIA P&G Act QGC QMDB QWC RBA SCER SDL SEWPaC SIMS SWS UWIR WCM WRP Matters of National Environmental Significance Net Present Cost Net Present Value Natural Resource Management National Water Initiative Operating and Maintenance Office of Groundwater Impact Assessment, Department of Natural Resources and Mines - Queensland Petroleum and Gas (Production and Safety) Act Queensland Queensland Gas Company Queensland Murray-Darling Basin Queensland Water Commission Reserve Bank of Australia Standing Council on Energy and Resources Sustainable Diversion Limit Commonwealth Department of Sustainability, Environment, Water, Population and Communities Spring Impact Management Strategy Schlumberger Water Services Surat Underground Water Impact Report Walloon Coal Measures Water Resources Plan WTF9 Arrow Energy s Water Treatment Facility 9 Final 30 April Arup Page xv

18 Contents Executive Summary Acronyms Page i xiv Part A 1 Introduction Purpose of this document Recharge scheme options examined by this business case Structure of the document 2 2 Inputs to the business case The Healthy HeadWaters CSG Water Feasibility Study Key HHW Study inputs to the business case Stakeholder Reference Group 7 3 Background and rational for using CSG water in the Central The Central The CSG industry in the Surat Basin Using CSG water in the Central Alternative uses for CSG water near the Central Condamine Alluvium 26 4 Legislative and policy context Environmental management of CSG projects Monitoring and management of groundwater impacts in the Surat 35 Cumulative Management Areas 4.3 Murray-Darling Basin reform Land access and management for CSG projects in Queensland Strategic Cropping Land 38 5 Stakeholder perspectives on CCA recharge Summary of regional stakeholder perspectives 42 Part B 6 Recharge scheme options considered by the business case Overview and rationale for recharge scheme options CSG water supply profiles Considerations for recharge schemes involving groundwater substitution 57 Final 30 April 2013 Arup

19 7 Description of options analysed as part of this business case The Baseline Substitution Option Option 1 - Injection only Option 2 - Injection plus substitution abutting injection pipelines Option 3 Injection plus a substitution network to meet a peak 69 delivery period of at least 20 years 7.5 Summary of options considered in this business case 72 8 Business case option assessment methodology Qualitative assessment methodology Qualitative assessment - criteria and weighting Quantitative (financial) assessment methodology 80 9 Results of qualitative and quantitative assessment Qualitative assessment results Summary of qualitative assessment results Results of the quantitative assessment Observations on the findings of the quantitative (financial) results 106 Part C 10 The feasibility of using treated CSG water to recharge the Central 10.1 Injection versus substitution Stakeholders views on injection and substitution Business case conclusions - injection versus substitution Critical analysis of options considered in this business case Qualitative and quantitative assessments of options Selecting an option Recommended business case option Implementing the preferred CSG recharge scheme in the CCA Injection trials to demonstrate technical viability Agreement among, and commitment by, stakeholders Funding arrangements Legal and governance responsibilities Contractual Engagement with other CSG Companies Spatial distribution of scheme options Risk analysis of the preferred option compared to the Baseline Substitution Option Final 30 April 2013 Arup

20 13 Recommendations References 135 Tables 1 Cumulative CSG water production from source areas identified in 20 Activity Full list of possible CSG water use options identified by Tree Crop 27 Technologies (2013) 3 Stakeholders relevant to the development of the business case 39 4 Queensland GasFields Commission submission on the Queensland 47 Government CSG Water Management Policy (GasFields Commission, 2012) 5 Summary of water supply profiles 56 6 Summary of assumptions applied to options within this business case 72 7 Summary of key water supply characteristics for all options considered 73 in this business case 8 Scoring scale used for assessment criteria 76 9 Qualitative assessment criteria Assessment weighting for each of the qualitative assessment criteria Summary of qualitative assessment results Ranking the options based on qualitative results Quantitative assessment (financial) results Summary of results of sensitivity analysis Summary of quantitative rankings of options Investment relative to cost per ML for Options 1B and 1C Relative advantages and disadvantages of injection only and substitution 111 only recharge schemes 18 Summary of key water supply characteristics for all options considered 115 in this business case 19 Break even volumes of water required to justify the additional cost of 120 the pipeline from the Chinchilla South area 20 Summary of key elements of Options 1A, 1C and Baseline Substitution 122 Option 21 Risk assessment of injection only and substitution only options for CCA 129 recharge 22 Distribution Pipework Rates D7 23 Break Tank Storage Rates D7 24 Pump Station Costs D8 25 Quantitative summary with inclusion of subsurface vault relative to base E1 results 26 Quantitative summary with discount rate of +1 per cent (9.55 per cent) E3 27 Quantitative summary with discount rate of -1 per cent (7.55 per cent) E3 28 Quantitative summary with capital expenditure + 10 per cent E5 Final 30 April 2013 Arup

21 29 Quantitative summary with capital expenditure -10 per cent E5 30 Quantitative summary with power costs -10 per cent E6 31 Quantitative summary with power costs + 10 per cent E7 Figures 1 Project design of the Healthy HeadWaters CSG Water Feasibility Study 4 2 Components of Activity 8 of the Healthy HeadWaters CSG Water 4 Feasibility Study 3 Location of the Central and the Murray-Darling 8 Basin 4 The extent and thickness of the Central (source: 9 KCB, 2011) 5 Concentration of total dissolved solids in the Central Condamine 10 Alluvium (source: KCB, 2011) 6 Cross section of the CCA showing the fall in water levels since the s (DNRM, 2012) 7 Changes in water levels and flows in the CCA as a result of overextraction 12 (DNRM, 2012) 8 Current and future CSG production (petroleum leases and petroleum 15 lease applications) and exploration areas in the Surat and southern Bowen basins as at 8 January The extent and ownership of tenements shown is indicative only and is subject to change. 9 Forecasted annual CSG water production for the Surat and southern 17 Bowen basins, based on a simulated development scenario (KCB, 2012) 10 Forecasted cumulative CSG water production for the Surat and southern 17 Bowen basins, based on a simulated development scenario (KCB, 2012) 11 Comparison of published CSG water production estimates Forecasted CSG water production and supply areas proposed by 19 Activity 8.1 of the HHW Study 13 CSG water production equivalents for the CCA Long-term drawdown impacts in the CCA, as modelled by QWC (2012) Strategically Managing Coal Seam Gas Water (source: Queensland 35 Government, 2012) 16 Water delivery infrastructure and supply areas for the recharge schemes 53 considered in the business case 17 Anticipated CSG water availability from Arrow Energy s WTF9 (near 54 Cecil Plains) and the Chinchilla South supply area (source: KBR, 2012) 18 Water supply profile A water only from Arrow Energy s WTF9 54 (source: KBR, 2012) 19 Water supply profile B water from Arrow Energy s WTF9 (profile A) 55 supplemented with water from the Chinchilla South supply area (source: KBR, 2012) 20 Water supply profile C water from Arrow Energy s WTF9 (profile A) 56 supplemented with water from Chinchilla South supply area but delayed by 10 years (source: KBR, 2012) 21 Assumed yearly water demand profile for substitution components of Options 2 and 3 59 Final 30 April 2013 Arup

22 22 Schematic for a Baseline Substitution Option Indicative water pipeline network for the Baseline Substitution Option Schematic of Option 1 (injection only scheme) Location of water pipelines and injection locations under Option Schematic showing a hybrid scheme Location of water pipelines, injection fields and properties receiving 68 substitution water under Option 2 28 Location of water pipelines, injection fields and properties receiving 70 substitution water under Option 3A 29 Location of water pipelines, injection fields and properties receiving 71 substitution water under Options 3B and 3C 30 Overview of options assessment methodology Generic steps in an MCA High level overview of quantitative (financial assessment) methodology Qualitative results comparing options and water supply profiles Total NPC ($ million) by option Total cost NPC per ML by option Qualitative results for the options Project cost: Net Present Cost ($million) of the options Return on investment: Net Present Cost ($ per megalitre) options Comparison of qualitative score and return on investment (Net Present 121 Cost/ML) for options using water supply profile C 40 Comparison of qualitative score and return on investment (Net Present 121 Cost/ML) for options using water supply profile A 41 Impact of inclusion of subsurface vault relative to base results E2 42 Impact of change in discount rate relative to base results E4 43 Impact of change in capital expenditure relative to base results E6 44 Impact of change in power costs relative to base results E7 Final 30 April 2013 Arup Appendices Appendix A Glossary of terms Appendix B Stakeholders Appendix C SWS Numerical modelling report Appendix D KBR Network methodology Appendix E Sensitivity analysis