A company that contaminated groundwater with cancer-causing chemicals will be banned from any future underground coal gasification (UCG) activities in Queensland.
The state government on Thursday ordered Cougar Energy to shut down its trial UCG plant near Kingaroy in southern Queensland.
The decision was made after the company was found to have contaminated groundwater at the site with cancer-causing chemicals including benzene.
It took two months to notify government authorities of the incident, in breach of strict environmental rules.
The Department of Environment and Resource Management on Friday downplayed the risk for nearby landholders, saying the contamination was confined to the site.
Acting director general Terry Wall said the company would be forced to rehabilitate it, including decontaminating aquifers, and was facing court action over its activities.
Asked if authorities would ever again contemplate allowing Cougar to operate in Queensland, Mr Wall told the ABC: "Certainly not in respect of underground coal gasification."
Mr Wall said the department had formed a view that Cougar's risk management processes were lacking and it could not be trusted to continue operations.
He said there were no drinking water aquifers on the site, so that was not a risk, but the contamination had spread to an aquifer above the site's coal seam.
"There are a number of monitoring bores around the site and none of those indicate any movement of contamination beyond the site," Mr Wall said.
He defended the system the government uses to keep tabs on such projects but admitted that, alongside spot checks by more than 150 officers, it was up to companies to own up to any breaches.
The department has issued Cougar Energy with a summons accusing it of breaching operating permits by contaminating the site, and failing to promptly notify authorities.
He said it was up to individual landholders to decide if they would pursue compensation for any perceived negative effect on their properties.
Cougar Energy is expected to make a statement to the stock exchange on Friday.
Spokesman Len Walker told the ABC the company was yet to decide if it would appeal against the government's shutdown.
Independent MP Dorothy Pratt, who represents the south Burnett region where the Kingaroy trial operated, said the case should serve as a warning to other communities near UCG trial sites.
Two others are being operated in Queensland, using new technology to convert coal to gas using heat and chemicals.
Ms Pratt said new mining technologies should not be allowed in prime agricultural areas like the one at Kingaroy because the risks were simply too high.
"I don't believe, as yet, the technology is fool proof," she told the ABC.
"There's never any guarantee. You can't give a 100 per cent guarantee that no contamination will occur and everything can be put back in place.
"Where there's good agricultural land these sorts of practices should never be undertaken."
She attacked the government's reliance on an honesty policy requiring companies to admit their own breaches.
"The government relies very heavily on the companies to report immediately when things go wrong and if they don't then the disaster that may occur could be catastrophic for people who live in that environment," she said.
"It's up to the people to be vigilant."
In a statement to the stock exchange on Friday, Cougar Energy said it had not received a formal, amended environmental authority outlining the decision to shut down the Kingaroy site.
"Therefore the company is presently not in a position to assess the extent of the amendments or their implications," it said.
It said the Department of Environment and Resource Management (DERM) had made a decision on "flawed conclusions".
"Cougar Energy maintains that the Kingaroy project has not caused any environmental harm to the operating site, surrounding landowner properties nor the Kingaroy township," it said.
"This is supported by DERM acknowledgment that contaminants have not been detected outside the Cougar Energy site.
"Cougar Energy is receiving legal advice in relation to the recent actions of DERM and the shutdown of the Kingaroy project in July 2010."
The Kingaroy trial was suspended in July last year, ahead of the decision on Thursday to permanently shut it down.
Weary members of the Kingaroy Concerned Citizens Group were celebrating a long-fought victory on Friday.
"We're very pleased but quite battle fatigued. There are some members here who've been fighting this for years," spokesman John Dalton told AAP.
He said he expected Cougar to challenge the decision but that now was a time for celebration.
"This was patently a badly configured operation, a poorly chosen site and poorly conducted in a technical sense by Cougar Energy," he said.
"If ever there was one the Queensland government could flex its muscles on, it was this one."
He said the irony was that the Kingaroy site might ultimately be deemed strategic cropping land, under a new policy the government is pursuing to protect the state's best farmlands from mining and other threats.
"This particular site was geologically the worst possible for this type of operation because it had potable, usable aquifers used by local landholders sitting above the burning coal cavity," he said.
"You're really asking for trouble when you do that sort of thing."
Friends of the Earth spokesman Drew Hutton, who campaigned against the Cougar trial, said the Queensland government must ensure greater oversight of such operations.
"The whole history over the last 20 years has been of the mining industry self-regulating," he said.
He said communities around the other two UCG sites, at Chinchilla and Kogan, needed to follow Kingaroy's example and "kick up a fuss".
"The only reason the Cougar site was closed down was that the locally community simply rebelled against it," he said.
"It's got nothing to do with government will."
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