Queensland Bans Shale-Oil Mine, Protects Barrier Reef

By Angela Macdonald-Smith

Aug. 25 (Bloomberg) -- Australia's Queensland state banned shale-oil mining for 20 years, blocking a plan for a strip-mine 10 kilometers (6 miles) from the nation's World Heritage-listed Great Barrier Reef.

State Premier Anna Bligh yesterday said she blocked plans by Queensland Energy Resources Pty, owner of the McFarlane deposit, to dig up about 400,000 metric tons of rock for testing. The company is seeking urgent talks with the state government over the proposal to mine more than 1.6 billion barrels of oil over the next 40 years, it said in an e-mailed statement.

Oil's advance to a record $147 a barrel has made extracting crude from unconventional sources profitable, pitching resource companies against environmentalists. In Canada, activists have sought to slow development of oil-sands deposits. The amount of pollution Queensland Energy's plan would cause makes the proposal ``lunacy,'' Greenpeace said.

``Government will devote the next two years to researching whether shale oil deposits can be used in an environmentally acceptable way,'' Bligh said in an e-mailed statement. ``While the development of shale oil has potential as an energy source, we will not allow it until we can be assured that it can be extracted and processed without harming the environment.''

Tourism at the Great Barrier Reef, the world's largest coral reef, contributes more than A$5.4 billion ($4.7 billion) to the Australian economy, the Association of Marine Park Tourism Operators Ltd. said last month. Queensland Energy's plan would have cleared an area 3 kilometers wide and 7 kilometers long, the Courier Mail reported yesterday.

Greenhouse Effect

Shale-oil mining involves heating solid organic matter called kerogen found in rocks until it decomposes to release hydrocarbons that can be captured to produce synthetic crude oil and combustible gas. The proposed mine would have created as much as 40 million tons a year of greenhouse gases, equivalent to a quarter of Queensland's annual emissions, Greenpeace says on its Web site.

Shale oil is mined commercially in China, Estonia and Brazil, while Australia's last oil shale mine closed after World War II, according to Queensland Energy. Crude-oil prices have surged 59 percent in the past 12 months, reaching a record $147.27 a barrel in New York on July 11.

Canada's Alberta-based Pembina Institute is among those to have challenged in court government permits granted to companies with oil-sands projects because of the effect on the environment, and urged the province to slow the pace of development.

`Premature Decision'

Only one lease currently exists to mine shale oil in Queensland state, near the coast at Gladstone, about 550 kilometers by road from the state capital Brisbane, and no new mines will be permitted, Bligh said.

Closely held Queensland Energy, based in Brisbane, was formed in 2004 by U.S. investor Sandefer Capital Partners LP to buy most of the shale-oil assets of Australia's Southern Pacific Petroleum NL.

``The company had no advance notice that the Queensland government was considering taking the premature decision it has announced,'' it said in the statement. ``The company remains convinced that developing the state's strategically important oil shale resources is in the best long-term interest of both Queensland and Australia.''

The decision will further erode Queensland's standing as a destination for exploration investment, the Queensland Resources Council, a mining industry association, said in a separate statement.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net