THE company about to start coal seam gas drilling around southern Sydney and the Illawarra plans to use the controversial ''fracking'' technique to mine directly beside Warragamba Dam, which holds much of the city's drinking water.
Fracking, or hydraulic fracturing, involves pumping a mixture of water, sand and chemicals deep underground to shatter rock strata and force coal seam gas to the surface, where it can be refined into natural gas for fuel.
The fracking process has raised serious environmental concerns centred on the impact of potentially toxic, rock-dissolving chemicals on underground water tables, and the disposal of big volumes of saline water pumped back to the surface.
The gas industry says the process is long established in Australia and completely safe.
Leaked confidential company documents written for a Sydney gas drilling company, Apex Energy NL, detail plans to extract coal seam gas from old coalmines along the edge of Lake Burragorang, the reservoir at Warragamba Dam.
Some gas can be extracted without fracking to stimulate the release of gas but ''Apex expects that commercial levels of production will not be met without such seam stimulation,'' the documents say.
Environment groups say fracking should be banned from around water sources.
''No one else would be allowed to enter the area with hundreds of chemicals and pump them into the ground. The catchment manager would throw the book at them,'' said Jeff Angel, the executive director of the Total Environment Centre.
He is calling for a moratorium on new coal seam gas mining in NSW until a transparent, state-wide strategy is developed.
''The miners deserve no special privileges, especially since no mining operation is fail-safe … Sydney's drinking water supply must have absolute protection.''
US studies have shown that chemicals used during fracking can contaminate groundwater, and the US Environmental Protection Agency is investigating links between drinking water impurities in heavily mined districts and health problems. A full report is to be produced in 2012.