For those of not familiar with Dart Energy, it is a company that was originally spun off after the acquisition of Arrow Energy by Shell.

Since that time, with a handful of Australian licences in its hands it has been hard at work to develop an international portfolio.

With prospects spanning the globe including Scotland, India, China, Poland, Germany, and Indonesia, it certainly has no shortage of development options on the table, and different sources of cashflow.

But alas, Australian investors generally have not recognised the potential of its international assets in valuations.

This trend was behind its decision to attempt a Singapore float of its international assets earlier this year. The attempt eventually fell over due to “poor market conditions”, but it was a sign that Dart wanted away, at least in part, from the Australian market.

While the attempt was aborted, one has to wonder why Dart is bothering with Australia at all.

It has international assets likely to be more recognised by international investors, while it is beset by regulatory hurdles, protests and negative press as it attempts to merely get a pilot project up.

Of course, a lot of this ties into a broader question about coal seam gas in New South Wales.

The question being: is the market worth the growing pains for the juniors and mid-caps?

While the majors have LNG projects to feed with cargoes into Asia to consider, the juniors are fighting for the scraps caused by the distortion in domestic prices associated with the LNG projects at Gladstone.

The notable exception of course is Santos. While its drilling program in the state is barely underway, it has not yet made a statement on whether the gas will eventually go into the GLNG project or be sold onto the domestic market in NSW.

For all the talk of gas shortages in the state, Santos may be well-advised to try and feed the LNG machine instead of hoping the domestic market provides a premium.

A number of recent events have thrown just a little bit of cold water on bullish talk about the NSW market and highlighted the difficulty of operating in the state.

First off, merely operating in the state is becoming increasingly difficult as the voices against CSG continue to become more volatile.

Case in point, the recent trouble Dart has been experiencing in attempting to bring its Fullerton Cove project to pilot status.

In a brief chat to EnergyNewsPremium last week in response to the latest legal challenge thrown at Dart, chief executive Robbert de Weijer said it was hard to imagine doing any more to prove its pilot production would be safe.

“This project has been under scrutiny for about nine months from the state government, federal government, and also the Independent Scientific Committee,” he said.

“They’ve all approved it, and they’ve had a really good look at it given all the sensitivities there are surrounding CSG, and they’ve all come to the conclusion that it’s environmentally safe.

“We followed the right process. The quality of the studies we have done are extremely good. The REF [Review of Environmental Factors] document is more than 200 pages, so we’ve done a very thorough job when it comes to environmental studies.”

Given the increasing reams of paperwork being done by CSG operators in the state, one has to wonder when environmentalists will start attacking CSG for depopulating the nation’s forests by having the audacity to submit increasingly complex and duplicative environmental submissions.

“Keep in mind that this is a very small project,” de Weijer said. “This is an exploration project. Two wells from a single well pad, and all we’re doing is testing that area for commercial viability. If we were to produce, then we’d have to go through a whole new set of approvals.”

Just yesterday the state government released its long-awaited strategic regional land use plan for key areas of the state.

APPEA, in response, said that the new regime could add up to three months onto the current permitting process.

Despite the reams of paper filed by Dart, an initial injunction was slapped on Dart by New South Wales’ Land and Environment Court. While Dart contended this was actually good news, one has to wonder whether or not the decision was merely a formality or a sign of things to come from the judicial system.

While the outlook for the NSW market remains rosy for producers, just a hint of pessimism on the demand side crept into the debate last week.

Just a fortnight ago it may have been an accepted fact that coal-fired electricity generation in the state would gradually exit left with a golden handshake and be replaced with a slew of shiny, new coal-fired stations.

Martin Ferguson and his negotiation team put somewhat of a damper on that line of thinking.

The federal government backed away from a deal to buy out the dirtiest coal plants, put off by the high esteem operators held their plants in.

Add that to a scrapping of the $15/t floor on carbon permits and a situation exists where there is increasingly little market pressure for coal-fired generators to switch off.

While a carbon price may be an impost, a generous compensation package combined with the fact operators can raid European markets for cheaper permits gives generators the big chair in negotiations with the government.

It was a point made last week by Frontier Economics, which suggested brown coal-fired stations could be up to $400 million to a whopping $1 billion better off under the carbon tax than life before it.

While this could just be the high watermark before the gradual draining of the sector and the sector has since denied the analysis, it doesn’t bode well for the gas-fired sector.

It is not inconceivable that in the worst-case scenario, coal plants could open in NSW as a slowdown in China forces a lot more coal onto the domestic market.

Those who disagree with the line of thinking may suggest population growth in NSW would invariably drive up demand to a point where existing coal-fired plants could not cope with the demand.

This may be true in the broader term, but Ferguson disagrees.

Confronted with reporters after he announced that the government was walking away from the negotiation table, he said the government had observed weaker demand combined with efficiency gains in the nation’s electricity networks (no doubt driven by the much decried “gold plating” of the system).

While this may not present a longer-term challenge, it does change the ramp-up profile of demand. It means the exponential growth in demand in NSW may actually come later, instead of in the predicted 2015-2017 window when gas contracts start to dry up.

It makes the exploration work being done in NSW by the likes of Dart Energy look a tad on the bullish side.

Assuming (and it’s just that) Dart can get into full-scale production of CSG within four or five years it may find the market, while advantageous, not exactly as great as it would have assumed when it set out on the project.

The fact juniors are being crushed under the weight of regulation when their great strength is being nimble and innovative does not bode well for the sector.

The fact the demand side profile in NSW is increasingly being pushed out by so-far failed clean market reforms also doesn’t bode well for the sector.

So what is a junior to do when confronted by the very real threat of increased regulation and the somewhat-intangible prospect of not having the gas price increase as much in the medium term as it would have expected?

Well, it is not inconceivable that several juniors might merely focus on acquiring licenses and then go as slowly as possible.

Think of it as a non-government imposed moratorium on development.

While it would not exactly ensure short-term cashflow, CSG is becoming an increasingly longer-term game anyhow, as state and federal governments crack under the weight of popular opinion to create higher hurdles for investment.

Under this scenario, juniors could just be content to build up acreage and poke boreholes, doing the bare minimum to maintain licenses.

It is a strange time indeed if going slow is starting to look as attractive as full-steam ahead development.

This article first appeared in ILN's sister publication EnergyNewsBulletin.net.