AGL said it detected traces of the chemical monoethanolamine borate in September and October 2014 in sampling of groundwater and surface water near its Waukivory CSG site. The detection was made prior to the start of hydraulic fracturing – or fracking – of the wells on October 27, an AGL spokesman said.

A reading on November 20 found a count of 60 parts per billion of the compound but then it dropped to zero six days later while fracking was still under way, the spokesman said.

"We can't draw a conclusion because there is not a data set going back far enough to show that 60 hadn't been a level at any stage in the past," he said.

The EPA said its probe will examine the changing levels of the chemical.

"While the levels of this compound were extremely low and are highly unlikely to pose any risk to human health or the environment, it is important that the matter is investigated," Mark Gifford, EPA's chief environmental regulator, said.

Mr Gifford said the chemical's detection was made kilometres away from the site, and "doesn't appear to be [the result of] a well failure," he said.

"We want to understand what's going on here," Mr Gifford said. "It's not expected there'd be any levels of change and where there are levels of change that's why the monitoring is in place."

"Monoethanolamine also is known [as a] constituent of mammal urine and associated with agricultural land and bush areas," the AGL spokesman said.

Monoethanolamine borate is an EPA-approved chemical used in fracking and helps fluids carry sand into the fracture openings and release coal seam gas. It is not a BTEX-group chemical, which have been banned for use in fracking in NSW.

The EPA said the detection processes and subsequent publication of findings underscored the agency's efforts to promote transparency in the controversial industry.

Hunter Water has been in dispute with AGL and one of its contractors, Transpacific, discharged 600,000 litres of treated flowback water – fluids containing fracking chemicals – into its sewerage system between October and December. The water agency has released letters making it clear to AGL it objected to any such discharge into its network.

The EPA is due to receive by January 19 data on what was discharged and when.

"We are making inquiries to determine whether or not there were any regulatory issues," Mr Gifford said. "Has everyone followed the requirements of the various licences and agreements?"

After the Newcastle Herald revealed the discharges, AGL began trucking the flowback water for treatment by Worth Recycling at its plant near Windsor.