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Thursday, 18 August 2011

Australian farmers face poor returns from gas extraction

Coal seam gas (CSG) has helped produce a mass of words in Australia, as well as handsome profits for well developers. Since these companies started to target agricultural land the debate has become progressively more heated, reaching - it's fair to say - epic proportions in social media, let alone the traditional media. Farmers are outraged, and rightly so. In Australia they hardly benefit from hosting wells on their properties. In the United States it's quite a different proposition, as we can learn from reading the New Yorker's (itself epic) feature story, 'Kuwait on the Prairie'. There, it's oil they're extracting. But the technologies used to get the stuff out of the rock formation in which it sleeps are similar in nature to those used in Australia to extract gas.

The big difference between the situation that has developed in the two countries is that, in North Dakota, farmers are getting seriously rich. One woman interviewed for the story said that leasing development rights to her land netted her "several hundred thousand dollars a year". Another woman said that it was "free money" for farmers. And farmers and speculators in North Dakota are turning their exploration rights into new houses, new cars, and new farm equipment. The returns available for farmers in Australia do not match these.

Why is it that Australian farmers are made to get by on a return of a couple of hundred dollars per well per year? It must be to do with land laws. In Australia, it seems, the farmer owns the surface of the land but not what lies beneath it. In the US, the freehold goes all the way down. That's a sobering reality, and it's almost certain that a lot of the arguments about food security and sovereign risk that are being put forward in the public sphere by farmers' groups would disappear if the financial returns available from leasing access rights to wealthy gas companies were higher.

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