The irony of it all. Back in the early 2000s Australia (and the world) had a plan for decarbonisation that made a lot of sense. It was that coal-fired power would be phased out in favour of gas which would act as the “transitional fuel” as renewables ratcheted down in price.
Australia was superbly placed for this transition given its large gas reserves. We would be able to keep cheap energy at home and become an energy export “superpower” as the Howard Government put it.
Then along came a relatively small in stature but large in malevolence firm called Santos.
STO took this sound decarbonisation plan and turned it to its own baleful ends. In the 2010s, STO overbuilt gas export hubs in QLD:
As Santos worked toward approving its company-transforming Gladstone LNG project at the start of this decade, managing director David Knox made the sensible statement that he would approve one LNG train, capable of exporting the equivalent of half the east coast’s gas demand, rather than two because the venture did not yet have enough gas for the second.
“You’ve got to be absolutely confident when you sanction trains that you’ve got the full gas supply to meet your contractual obligations that you’ve signed out with the buyers,” Mr Knox told investors in August 2010 when asked why the plan was to sanction just one train first up.
“In order to do it (approve the second train) we need to have absolute confidence ourselves that we’ve got all the molecules in order to fill that second train.”
But in the months ahead, things changed. In January, 2011, the Peter Coates-chaired Santos board approved a $US16 billion plan to go ahead with two LNG trains from the beginning….as a result of the decision and a series of other factors, GLNG last quarter had to buy more than half the gas it exported from other parties.
…In hindsight, assumptions that gave Santos confidence it could find the gas to support two LNG trains, and which were gradually revealed to investors as the project progressed, look more like leaps of faith.
…When GLNG was approved as a two-train project, Mr Knox assuredly answered questions about gas reserves.
“We have plenty of gas,” he told investors. “We have the reserves we require, which is why we’ve not been participating in acquisitions in Queensland of late — we have the reserves, we’re very confident of that.”
But even then, and unbeknown to investors, Santos was planning more domestic gas purchases, from a domestic market where it had wrongly expected prices to stay low. This was revealed in August 2012, after the GLNG budget rose by $US2.5bn to $US18.5bn because, Santos said, of extra drilling and compression requirements.
The fallout was felt across the entire east coast power grid when the export terminals opened in 2014. The National Electricity Market (NEM) was suddenly short of gas. This resulted in immense utility price spikes because as renewable power output increased so did the role of gas as the marginal cost producer in the NEM. Gas is the only baseload power that can turn on and off quickly when the wind doesn’t blow or the sun doesn’t shine.
For years, Australia tied itself in political economy knots trying to undo this harm. The only sensible solution was to force Santos and other gas carteliers to reserve gas for local use. That policy was debated endlessly but never got up.
Eventually, a kind of uncomfortable default emerged in which Coalition governments and the Santos cartel did handshake agreements to keep enough gas here amid periodic price spikes.
Surging renewables and alternative dispatchable baseload power such as battery storage have slowly eaten into that cartel’s local price gouge but it goes on. Not even perturbed by the fact that STO’s offshore gas shipments are mostly going to China, even as that nation threatens to destroy Australian liberalism.
But Santos, the rogue gas cartelier, wasn’t done. Not by a long shot.
Having engineered a borderline uneconomic gas price for Australia, Santos went to work arguing that the solution to this problem of its own making was to develop more gas.
As it happened, the worst affected region by STO’s engineered gas shortage was SE Australia and especially NSW. It had a lot of gas reserves. But they were highly polluting unconventional reserves that not only produced immense quantities of greenhouse gases but mountains of carcinogenic salts to boot. And the reserve was inside the Pilliga State Forrest, as well as sitting stop the Great Artesian Basin. The ingredients of an environmental catastrophe.
The NSW chief economist went to work on the problem and created a framework of 16 safety conditions under which the gas could be safely extracted. However, STO lobbied parliament and, through a series of unfortunate events, the Narrabri gas project was approved subject to NONE of the 16 conditions.
This outcome was despite the gas being expensive. Because there was no formal gas reservation policy in place it could not contribute to delivering cheaper gas to NSW because any new gas from Narrabri would simply displace other domestic volumes into the still unfulfilled STO LNG export plant in QLD.
Readers will recall the appalling “gas-led recovery” of 2020. The Narrabri project was all that was really about as another Coalition Government folded to the power of STO. The “gas-led recovery” is little more than a licence for STO to swiss cheese NSW and gouge its gas while poisoning its groundwater for thousands of years.
But, again, STO was not done. Having now twisted Australia’s decarbonisation plan to its own ill-begotten ends for over a decade, STO went to work on global outcomes. This brings us to today and The Saturday Paper:
As the prime minister heads to the 2021 United Nations Climate Change Conference in Glasgow (COP26), many Australians will be surprised to know that a gas industry boss hailing from Scotland played a key role in the government’s plan being presented at the historic UN climate summit.
Kevin Gallagher, the head of energy giant Santos, is a University of Glasgow graduate and diehard fan of Glasgow’s Celtic Football Club. Along with his work for Santos, Gallagher is also chair of Australia’s powerful gas lobby, APPEA. He’s a loud voice in Canberra when climate and energy matters are discussed.
This was clear when Scott Morrison and his Energy minister, Angus Taylor, finally unveiled “the plan” to deliver net zero by 2050 this week. Support for Australia’s gas industry was at its core. Or, as Morrison put it, the plan, “will not shut down our coal or gas production or exports”.
The plan’s fine print shows Australian coal exports will fall in the global push for net zero, but gas can thrive for decades to come. That’s if Australia’s booming gas industry can cut its emissions with the help of taxpayers. Government support for carbon capture and storage (CCS) – a controversial and costly technology for reducing emissions – is a central plank of Morrison and Taylor’s plan.
The government, like the gas industry, is proposing vast amounts of the greenhouse gas emissions can be permanently buried in the deep underground geological storage basins around Australia, which once held oil and gas reserves. Under this optimistic scenario, carbon capture and storage will help Australia’s liquefied natural gas exports continue to grow and allow Australian gas to be used to make new “clean” hydrogen.
The plan reveals a lot about Taylor and Morrison’s current thinking on climate change. Despite the entire G7 and Australia’s key trading partners ratcheting up their ambition to avoid dangerous climate change, the Coalition has barely moved in its approach over the past year. Morrison’s plan for COP26 in Glasgow is essentially the same plan Taylor released last September. It brushes aside the findings of the latest Intergovernmental Panel on Climate Change (IPCC) report, widely described as “a code red for humanity”. The plan also largely ignores the advice that the world needs to cut emissions almost in half by 2030 to reach net-zero emissions by 2050. And, critically, it allows Australia’s weak 2030 emission-cutting target to stand at just 26 to 28 per cent, well below most of the developed world, despite Morrison saying that Australia would “meet and beat” that target.
One of the few changes is even more government support for carbon capture and storage and the gas industry. During the past year, the gas industry has worked closely with the government to boost support for this fraught technology. At the gas lobby’s talkfest in June, Gallagher described Australia as “a carbon storage superpower based on our vast tracts of pastoral and cropping land, and our depleted oil and gas reservoirs”. As he put it, “Australia has a natural competitive advantage in CCS with known high-quality stable geological storage basins capable of injection at a rate of 300 million tonnes per annum for at least 100 years.”
With the climate crisis deepening, oil and gas companies such as Santos and ExxonMobil have stepped up their lobbying on CCS and are looking keenly at depleted gas reservoirs to make money from the CCS solution. Just last month, Santos signed a deal with Timor-Leste to investigate storing carbon emissions in its rundown Bayu-Undan gas reservoir, 500 kilometres north of Darwin.
Climate activists and energy experts have long questioned the economic and environmental credentials of CCS as a way to reduce greenhouse emissions for coal and gas. Despite decades of promises and billions spent, most CCS projects to reduce carbon emissions have ended up in costly failures.
While the technology is well proved, the challenge comes from needing to transport and store the emissions on a huge scale to have an impact.
But the gas industry knows the liquefied natural gas (LNG) business model can’t survive without dealing with its emissions – and CCS is one of the few cards it has to play. Australia’s major trading partners, Japan and South Korea, are big investors in Australian LNG projects and big customers. Unlike Australia, both countries have agreed to reduce their emissions by 2030 by 46 per cent and 40 per cent respectively. That means within nine years they will need to slash their emissions from burning fossil fuels. It’s why the push for CCS is so important.
The Australian gas industry needs to keep alive the prospect of large-scale CCS projects to persuade Japanese and Korean energy investors, financiers and customers that Australia can deliver carbon-neutral LNG and clean hydrogen in the not-too-distant future.
Just weeks before the Glasgow summit, Taylor gave the gas lobby’s CCS campaign a major boost. In a world first, the Energy minister announced companies such as Santos could get “carbon credits” from the government for new CCS projects. CCS, with all its problems, is now set to become part of Australia’s carbon offset system under the taxpayer-supported Emissions Reduction Fund.
Until now, carbon offsetting in Australia has seen companies invest in projects such as reforestation, renewable energy, energy efficiency or efficient farming to reduce or remove greenhouse gas emissions. When investors put their money into an offset project they can get Australian carbon credit units (ACCUs), which can offset the emissions from their businesses.
While many climate scientists recognise carbon capture and storage will play a role in reducing emissions for a number of industries, they warn against using it as a way to expand the coal and gas industry. Its value is more likely to be realised as a way of recycling carbon for industry rather than storing it on a massive scale.
Taylor’s decision to grant carbon credits for CCS has been widely criticised by climate groups. “CCS is used by the oil and gas industry to justify large-scale projects that would inevitably result in far greater emissions that they sequester”, said The Australia Institute’s Mark Ogge.
Fortescue Metals Group’s chairman Andrew “Twiggy” Forrest echoes that criticism. At the same time as Santos was lobbying for CCS carbon credits, Gallagher hit the “go” button on Barossa, a huge new gas development 300 kilometres north of Darwin, which has been described as the most greenhouse-intensive LNG project in Australia’s history. Forrest attacked Barossa as one of the most polluting projects in the world. “It needs to be called for what it is,” he said. “It is an atrocious project.”
CCS is not proven. Not even subsidised CCS, which is what the Morrison Government is now doing, at your expense, for STO. For instance, the largest LNG plant in Australia, Gorgon, all $70bn of it, has failed completely to make CCS work:
The operator of Australia’s only commercial-scale carbon capture and storage project has conceded the project has failed to meet its targets, and is now seeking a deal with Western Australian regulators on how to make up for millions of tonnes of carbon dioxide it failed to store.
On Monday, Chevron announced that it had finally succeeded in sequestering five million tonnes of carbon dioxide at its carbon capture and storage facility at the company’s Gorgon LNG plant.
While Chevron celebrated this as a “significant milestone” for the project, it falls well short of what was promised to regulators when the massive $70 billion LNG project was first announced in 2009.
The storage project is supposed to be capable of storing at least 80 per cent of the carbon dioxide produced by the Gorgon LNG facility, or around 4 million tonnes a year. The storage was one of the key conditions for state government approval.
Chevron is understood to have spent more than $3 billion building the carbon capture facility, but it took several years after the start of gas production for the Gorgon CCS project even to begin operation due to delays and technical difficulties. The first CO2 was injected into an undersea deposit in 2019.
The project encountered further difficulties after its commissioning, with sand clogging parts of the storage system and dramatically reducing the amount of carbon dioxide it was able to inject underground.
It is understood regulators may ask Chevron to offset the emissions it failed to store by purchasing offsets from either local or international carbon markets. If Chevron is made to buy Australian Carbon Credit Units, which currently trade at above $20 per tonne, the cost to the company could easily exceed $200 million.
Which is chicken feed. Failed CCS is a cost of doing business.
As The Saturday Paper says, what this is now about is the future of hydrogen, the low-emissions power source that will substitute oil and gas in the future for today’s carbon-intensive industry:
Electrification is at the heart of the changing energy mix, with innovation driving down the cost of renewable power, denting longer-term demand for hydrocarbons. Electrification, though, can only take the world so far. Many industrial sectors, as well as heavy-duty trucking, shipping, aviation and chemicals, will need alternatives. Low-carbon hydrogen has great potential to capture a sizeable market share, with the world’s major energy importers already rolling out their hydrogen roadmaps. In turning the energy-trade world order on its head, net zero simultaneously offers energy exporters – current and future – a once-in-a-lifetime opportunity to secure future revenues by developing low-carbon hydrogen supply. This will include blue hydrogen from those with access to low-cost natural gas resources and carbon capture potential – Russia, Canada, the United States and Saudi Arabia – and green hydrogen from those with vast renewable resources – Australia and the Middle East.
Bogus CCS is only the first problem with STO’s “blue hydrogen”, according to the latest research:
Hydrogen is often viewed as an important energy carrier in a future decarbonized world. Currently, most hydrogen is produced by steam reforming of methane in natural gas (“gray hydrogen”), with high carbon dioxide emissions. Increasingly, many propose using carbon capture and storage to reduce these emissions, producing so-called “blue hydrogen,” frequently promoted as low emissions. We undertake the first effort in a peer-reviewed paper to examine the lifecycle greenhouse gas emissions of blue hydrogen accounting for emissions of both carbon dioxide and unburned fugitive methane. Far from being low carbon, greenhouse gas emissions from the production of blue hydrogen are quite high, particularly due to the release of fugitive methane. For our default assumptions (3.5% emission rate of methane from natural gas and a 20-year global warming potential), total carbon dioxide equivalent emissions for blue hydrogen are only 9%-12% less than for gray hydrogen. While carbon dioxide emissions are lower, fugitive methane emissions for blue hydrogen are higher than for gray hydrogen because of an increased use of natural gas to power the carbon capture. Perhaps surprisingly, the greenhouse gas footprint of blue hydrogen is more than 20% greater than burning natural gas or coal for heat and some 60% greater than burning diesel oil for heat, again with our default assumptions. In a sensitivity analysis in which the methane emission rate from natural gas is reduced to a low value of 1.54%, greenhouse gas emissions from blue hydrogen are still greater than from simply burning natural gas, and are only 18%-25% less than for gray hydrogen. Our analysis assumes that captured carbon dioxide can be stored indefinitely, an optimistic and unproven assumption. Even if true though, the use of blue hydrogen appears difficult to justify on climate grounds.
And so, as the hydrogen fight has been joined, STO has deployed its core competency. This is not the extraction of fossil fuels from the ground. It is the corruption of the political economy in ways that profit it over the environment, economic efficiency, market functionality, the national interest and the public good.
This fits perfectly into the Morrison Government’s post-truth decarbonisation world. And so Santos has parlayed several decades of national abuse into a privileged position within Australia’s global decarbonisation platform. That Santos is a rogue gas robber baron; a huge political donor and lobbyist; a purveyor of snake oil and lies; an environmental catastrophe waiting to happen; a plaything of Chinese interests, and a legacy of a planet-killing energy regime, has somehow become pre-requisite over indictment.
Santos is an historical case study of the resources curse and the only remedy is its immediate nationalisation and shuttering.
