Australia’s CCS Expansion Poses More Risks

On the same day the Australian Senate passed new “sea dumping” legislation, Australian gas producer Santos and South Korean gas producer and distributor SK E&S were striking an agreement to develop a carbon capture and storage (CCS) project off Western Australia.

The Environment Protection (Sea Dumping) Amendment (Using New Technologies to Fight Climate Change) Bill 2023 was passed on 13 November following a week of debate. The legislation would enable Australia to accept imports of carbon dioxide (CO2) emissions from large polluters in countries such as Japan and South Korea. Australia would then ship the CO2 across its maritime border and dump it in the territory of its smaller neighbour, Timor Leste.

Santos and SK E&S’s planned CCS project would operate in the Bonaparte basin, off the coast of Western Australia, after the companies were part of a consortium awarded the CO2 storage permit G-11-AP. The two companies, partners in the Barossa gas project, will also look at securing additional CO2 storage in the near-depleted Bayu-Undan gas field in Timor Leste and develop a business to transport CO2 from South Korea to Australia for storage. 

Australian policymakers have actively encouraged oil and gas firms to develop offshore CCS projects. The federal government has 10 areas open to potential bidders until 28 November after issuing a handful of CO2 storage permits in the past two years. The Western Australia premier, Roger Cook, says his state, which covers around one-third of Australia’s landmass, is the ideal place to store much of the world’s carbon emissions and must capitalise on its natural advantages to become a global carbon storage hub.

Not only is Australia encouraging oil and gas companies to create CCS ventures, they are also paying them to do so with the issue of Australian carbon credit units (ACCUs) under the Emissions Reduction Fund (ERF) backed by the Australian government (although Canberra has also withdrawn some direct funding for CCS projects).

Despite enthusiastic legislative and fiscal backing from successive Australian governments, CCS remains a flawed solution for reducing greenhouse gas (GHG) emissions. CCS has been around since the 1970s, but it consistently fails to live up to the expectations promoted by oil and gas producers. Moreover, it only deals with a fraction of total GHG emissions, as it ignores the Scope 3 emissions when the consumer burns oil and gas, representing 85% to 90% of total energy sector emissions. 

CCS only perpetuates oil and gas production, which are major contributors to global GHG emissions each year. Global energy-related CO2 emissions totalled 36.8 gigatonnes in 2022, whereas CCS sequestered a little more than 40 million tonnes of CO2 in the same period. This equates to a rounding error in the total emissions pumped into the atmosphere each year.

The addition of CCS will lead to a net increase in GHG emissions, putting the world at risk of failing to meet CO2 reduction targets consistent with the Paris Climate Agreement’s aim of keeping the rise in global average temperatures to 1.5°C.

Australia already hosts one of the largest CCS facilities in the world – the Gorgon CCS system, part of Chevron’s 15.6 million tonnes per annum (Mtpa) Gorgon liquefied natural gas (LNG) venture. It has consistently sequestered far less CO2 than it was designed to do, capturing less than 4% of the total emissions the Gorgon LNG project pumps into the atmosphere. In the latest fiscal year to 30 June 2023, the Gorgon CCS injected just 34% of the 5 million tonnes of CO2 it captured in the 12-month period. 

And yet Santos is now proposing to build a CCS project more than twice the size of Gorgon with the 10mtpa Bayu-Undan CCS facility. It plans to pump CO2 from the Barossa gas project along a pipeline more than 500km long from Darwin to Bayu-Undan, compared with less than 30km of pipelines for the Gorgon project. 

The Gorgon partners Chevron, Shell and ExxonMobil have spent more than A$3 billion on the CCS facility since it started seven years ago. 

Investors from South Korea, such as KEXIM and SK E&S, and from Japan, such as Inpex, JERA and Tokyo Gas, need to consider that storing CO2 in depleted gas fields is not a straight swap because CO2 has a different chemical structure to fossil gas and therefore reacts differently to geological structures. The scale and complexity of the proposed CCS projects in Australia/Timor Leste and globally are unprecedented, and so far, most CCS operators have overseen underperforming projects. Questions from investors must be raised regarding the technical viability and risk associated with developing and managing these proposed undertakings. 

After all, CCS is meant to securely store CO2 for much longer than modern oil and gas projects have been around.

Kevin Morrison, is an Energy Finance Analyst, Australian Gas for The Institute of Energy Economics and Financial Analysis (IEEFA). He works closely with the global oil and gas team to examine issues facing the Australian LNG and gas sector. Before joining IEEFA, Kevin worked for over 30 years as a financial journalist for Reuters, Sydney Morning Herald, the Financial Times (FT) and Argus Media, covering Australia’s and UK’s energy and resources sectors. 

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Energy Tracker Asia.