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The NSW Environment Protection Authority criticised AGL for a lack of transparency and launched a full investigation after the company announced it had suspended operations near Gloucester following the detection of the toxic chemicals benzene, toluene, ethylbenzene and xylenes in water from two of its four CSG wells and an above-ground water storage tank.

“AGL informed the EPA that it was aware of these elevated levels of BTEX chemicals on 15 January but it did not make these results known to the EPA or the public until today,” Mark Gifford, EPA Chief Environmental Regulator said in a statement released late on Tuesday.

“The EPA is very concerned at AGL's lack of timeliness and transparency in informing us of these results and we will be conducting a full investigation.”

Great Lakes Councillor and founder of Great Lakes Knitting Nannas Against Gas Linda Gill said the group was calling on the government “to cancel AGL's license immediately in light of the alarming and predictable results.”

But AGL said it could “categorically state” that none of the fluids used in the hydraulic fracturing of the wells at the Waukivory project contained BTEX components. 

“The BTEX detected in the samples is most likely to be naturally occurring from within coal seams located at an average depth of approximately 600 metres and brought to the surface as part of the flowback of water from the hydraulic fracturing process,” AGL said in a statement released on Tuesday.

However, Groundswell Gloucester said the detection of the chemicals should trigger a review of the whole project.

“This confirms our worst fears and demonstrates yet again that there are significant environmental problems with AGL's Gloucester Gas Project,” John Watts, a spokesman for the group, said.

Five samples included BTEX, four of them in the 12-70 parts per billion (ppb) range – a result AGL said was in line with groundwater test results of 30-60 ppb in the Gloucester Basin prior to the recent fracking of the wells. A fifth sample, however, found a BTEX concentration of 555 ppb.

Michael Fraser, AGL's managing director, said: “Because of the community's concern about any detection of BTEX and in the interests of acting prudently, AGL has voluntarily suspended the Waukivory Pilot Project until a full review of the sample results has been completed.”

AGL has also lately been criticised after its contractor Transpacific transported the water extracted during fracking – known as flowback water – to be discharged after treatment into Hunter Water's network.  Hunter Water had advised both companies it would not accept the discharge.

Investigators from the Division of Resources and Energy are due to arrive at AGL's pilot coal seam gas site near Gloucester today (Wednesday) to get to the bottom of whether BTEX chemicals found in water samples from wells are naturally occurring or were introduced by the company, Resources minister Anthony Roberts says.

"I want to know exactly what has happened," Mr Roberts told a hearing of a parliamentary inquiry that is looking into gas supplies in NSW.

He described the detection of BTEX as a "concerning development", with the use of the chemicals for coal seam gas fracking banned in NSW.

Mr Roberts said he immediately ordered the investigation after AGL notified the government on Tuesday of the sample results.The report from investigators would be made public when it was received, he said.

Division deputy secretary Kylie Hargreaves told the inquiry a stop work order had been issued to the company to cease all activities relating to its flowback water until the investigation was completed and the division was certain the BTEX was not an additive.