IN A blow to supporters of coal gas exploration, an energy company which allowed deadly toxins to enter underground water at Kingaroy has been ordered by a court to decommission and rehabilitate the site.

Cougar Energy operated one of three underground coal gasification pilot projects using methods which could be used in the Warwick area if suitable coal deposits were found here.

The Cougar trial at Kingaroy began in March 2010, using technology which involved drilling bore holes into a coal seam and injecting steam and oxygen under pressure and igniting the mixture underground to force coal gas to the surface.

But within just five days of operation - on March 15 - the Cougar well underwent a major failure involving the cracking of its cement lining, which allowed the toxic carcinogens benzene and toluene to enter surrounding underground water supplies. Similar failures have occurred in tests in the United States.

Cougar advised the Department of Environment and Resource Management (DERM) that a "flare malfunction" causing movement of the well casing had taken place, but it took the company until June 30 to come clean about the leaching of contaminants.

DERM ordered the pilot trial to stop on July 17, pending further monitoring and later ordered Cougar to decommission and rehabilitate the site before any further trials could take place.

Cougar appealed the order in the Planning and Environment Court of Queensland, which yesterday ruled the DERM orders would stand.

Judge Richard Jones delivered a 14 page ruling in which he slammed Cougar Energy for its repeated assertions that no environmental harm had taken place due to the cracking of the well, noting that there is no "safe" concentration level for benzene in drinking water.

He also noted the contaminated water at Kingaroy could be a potential future source of potable human drinking water and that the precautionary principle must apply.

"On the evidence before me, I am satisfied that the potential for environmental harm associated with this case is real," he said.

"(Cougar's) position seems not only to be contradicted by the scientific evidence but also the definition of environmental harm as defined in the Environmental Protection Act which ... includes not only adverse effects but potential adverse effects".

Cougar Energy was yet to issue a statement by time of printing last night.

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