UPDATE 2-Australia's Origin halts coal seam gas drilling on asbestos scare

* Origin stops work at 12 Queensland sites

* Tainted material to be removed in days - Imdex

* Imdex may have one other customer using tainted product

(Adds Imdex chief comments)

By Sonali Paul

MELBOURNE, March 13 (Reuters) - Origin Energy ORG.AX , in charge of coal seam gas drilling for the Australia Pacific liquefied natural gas (LNG) project, has stopped work at 12 sites in Queensland state after asbestos was found in drilling fluids it was using.

Origin said the supplier of some of its drilling fluids, Australian Mud Company (AMC), owned by Imdex Ltd IMD.AX , had found that its imported walnut-shell based product Nutplug contained asbestos.

The asbestos-contaminated material is being quarantined and disposed of by a contractor so that drilling operations can return to normal "within days", Imdex Managing Director Bernie Ridgeway told Reuters.

The asbestos scare could add to concerns over coal seam gas drilling, although the Nutplug product is used to help seal wells, and not used in "fracking".

Hydraulic fracturing, or fracking, is a drilling technique that farmers and landowners fear may contaminate water supplies as it uses high-pressure water, sand and chemicals to extract gas trapped in rock.

Origin said it was providing support to anyone who may have been exposed to the asbestos-tainted drilling fluids and is investigating how many people may have been affected.

"It's very, very unlikely that anybody's been affected by this," Imdex's Ridgeway said, adding the asbestos was in very small concentrations.

Origin has found another product to replace Nutplug.

Imdex is withdrawing the product, which it gets from a Chinese manufacturer. Imdex may have one other customer in Australia who uses the product, Ridgeway said, declining to name the customer.

Origin is a 37.5 percent owner of the Australia Pacific LNG project, alongside ConocoPhillips COP.N with 37.5 percent and China's Sinopec 600028.SS with 25 percent. Australia Pacific LNG is one of three LNG projects in Queensland, which are the first in the world to use coal seam gas for LNG.

Origin stock fell 1.2 percent to A$14.39, while Imdex's shares fell 5.2 percent to A$0.645 in a broader market that finished up 0.5 percent.

(Editing by Joseph Radford and Richard Pullin)

((Sonali.Paul@thomsonreuters.com)(+61 3 9286 1419)(Reuters Messaging: sonali.paul.thomsonreuters.com@reuters.net))

Keywords: AUSTRALIA ORIGINENERGY/ASBESTOS