Santos greenlights Australia’s largest oil and gas investment in close to a decade

SANTOS has sanctioned a US$3.6bn investment in the Barossa gas project off Australia’s Northern Territory, extending the life of the Darwin LNG plant and marking the largest investment in the country’s oil and gas sector since 2012. Concerns about the climate impacts of the project have prompted one group to label the project “a carbon bomb”.

The Barossa development includes a floating production, storage and offloading (FPSO) vessel, subsea production wells, supporting subsea infrastructure and a gas export pipeline tied into the existing Bayu-Undan-to-Darwin LNG pipeline. The Barossa field is located around 300 km north of Darwin and the first production of gas is expected in the first half of 2025.

The decision to sanction a final investment decision (FID) in Barossa had been delayed due to the turmoil in the energy markets caused by Covid-19 pandemic. The investment will shore up dwindling output from the Bayu-Undan fields and Santos says the decision extends the life of the 3.7m t/y Darwin LNG plant by around 20 years.

Santos CEO Kevin Gallagher said: “Barossa and Darwin LNG life extension will create 600 jobs throughout the construction phase and secure 350 jobs for the next 20 years of production at the Darwin LNG facility.”

Wood Mackenzie Research Analyst Shaun Brady said: "This decision makes a lot of sense given the significant LNG demand expected across Asia Pacific through the next two decades. As Barossa was the only logical backfill option for Darwin LNG, the Darwin facility would have had to shut down for an extended period if it was not sanctioned, with partners incurring significant decommissioning costs.”

High carbon concerns

The high carbon dioxide content in the Barossa gas field – around 18% – has sparked environmental concerns. A project document submitted to Australia’s offshore energy regulator Nopsema noted that levels of CO₂ in the field are higher than others in the region. The submission outlines the need for the FPSO to strip out CO₂ to reduce the proportion heading to Darwin in the feed gas to 6%. The captured gas would then be released to atmosphere at a rate approaching 3.8m t/y. On top of this, Australia’s Clean Energy Regulator records emissions from the Darwin LNG plant at 1.7m t/y.

John Robert, a process engineer and industrial economist who wrote an analysis of Barossa for the Institute for Energy Economics and Financial Analysis (IEEFA) said: “This makes the Barossa to Darwin project ‘a CO₂ emissions factory with an LNG byproduct’ – a truly questionable investment in a rapidly evolving market.”

The analysis also questions whether BWO, the firm contracted to build and operate the FPSO, has sufficient experience. It reports that BWO’s existing fleet of FPSOs averages 82m ft³/d of gas processing capacity, and its largest at 353m ft³/d is less than half that required for Barossa.

“Such a plant processing 800m ft³/d from 18 v% CO₂ to 6 v% is a challenging proposition onshore, let alone on a moving ship located 300 km from land,” Robert writes.

The report also asks how the project is consistent with BWO’s plans to take urgent action to combat climate change and its impacts; and why Nopsema approved the project in light of its regulatory responsibilities for environmental management.

Carbon capture

Santos said it has signed a memorandum of understanding with project partner SK E&S and its LNG customer Mitsubishi to “jointly investigate opportunities for carbon-neutral LNG from Barossa, including collaboration relating to Santos’ Moomba CCS project, bilateral agreements for carbon credits, and potential future development of zero-emissions hydrogen.”

Santos’ Moomba CCS project is awaiting a final investment decision. Plans are for it to capture 1.7m t/y CO₂, considerably short of what is required to cover the emissions from Darwin and Barossa. Last year, BP entered a non-binding agreement to support the development of Moomba CCS and said it could invest A$20m (US$15.2m) in the project. Santos has said that Moomba has the potential to store up to 20m t/y of CO₂.

Responding to the plans for CCS, Brady said: "Santos has a goal to be net-zero by 2040 and reduce emissions by 30% through 2030. The Barossa field contains high levels of CO₂. These emissions will need to be offset by a combination of land-based offsets, energy efficiency projects, electrification, and the Moomba CCS project. With such a high carbon intensity, Santos must now deliver the projects that can offset this impact.”

Last year, following successful injection tests at Moomba, Gallagher said: “Australia has a natural competitive advantage in CCS with known high-quality, stable geological depleted storage basins capable of injection at a rate of 300m t/y for at least 100 years – the same basins that have previously safely and permanently held oil and gas in place for tens of millions of years.”

But he said a carbon credit system is needed before Santos can commit to investment in the CCS project.

“We will need an approved methodology for CCS to be in place with the Clean Energy Regulator before we take a final investment decision on our Moomba CCS Project because carbon credits are essential to make it stack up economically with the cost of abatement still at around A$30/t ,” Gallagher said.

The Australasian Centre for Corporate Responsibility (ACCR) described Barossa as “a carbon bomb”. Dan Gocher, Director of Climate & Environment at ACCR, said: “CEO Kevin Gallagher has previously claimed that carbon dioxide could be ‘piped in’ to be captured at Moomba, in order to generate carbon credits. Investors need to interrogate this further.”

Investment welcomed

Commenting on the Australia energy sector and other LNG projects set for investment decisions, Brady said: "2021 is shaping up to be the most important year in Australian upstream investment in over a decade. Barossa is the single largest upstream project to be sanctioned since 2012. With Woodside also targeting Pluto T2 and Scarborough FID in H2, and Chevron aiming to sanction additional subsea spend at Gorgon LNG, 2021 could define the upstream capital landscape in Australia for the rest of the decade.”

Responding to the FID, Sam McMahon, Senator for the Northern Territory (NT), said: “The announcement of the development of this field, with gas and particularly condensates so close to Darwin, will provide opportunities for us to capitalise on value-adding with new industries.

“The NT is uniquely placed to develop a thriving petrochemical industry, amongst others, on the back of this announcement. It comes at a time when the NT couldn’t need it more; our economy was in tatters before Covid and we desperately need business and industry to get us back on track.”

Keith Pitt, Minister for Resources, Water and Northern Australia, said: “The final investment decision for the Barossa project is a tremendous show of confidence in the long-term future of Australia’s resource sector.

“It is also a great sign that oil and gas market conditions have improved.”