Commodities, Features, Oil & gas

A Santos solution to the energy crisis

Santos energy

Australian Resources & Investment unpacks the country’s ongoing energy crisis, highlighting a Santos project that could support future shortages, while also showcasing the future of sustainable gas production.

Ask anyone on the east of Australia about what the weather was like this winter and you’ll likely get the same answer.

“Freezing.”

Eastern Australia endured its coldest start to winter in decades in 2022, which aggravated an energy market already strained by shortages brought on by the Russia–Ukraine war.

Melbourne experienced its coldest first two weeks of June since 1949, with temperatures failing to push past 15°C, while Canberra’s temperature didn’t get above 13°C in the first two weeks of winter, the first time that happened in the nation’s capital in almost six decades.

Dubbo, in regional New South Wales, endured its coldest first two weeks of June since 1921.

Demand for natural gas has skyrocketed amid this cold snap, and supply has been unable to keep pace.

Speaking at a Melbourne Mining Club luncheon in early June, Santos chief executive officer Kevin Gallagher said the leading oil and gas company only had limited spot market gas capacity at the time, with most of its supply tied up in long-term contracts.

“All I’ve got available right now over and above what I’m producing today is 15 wells in the Cooper Basin we’re looking to connect as quickly as we can, which will bring very little gas into the market, and it really replaces natural decline in our current producing wells,” he said.

On June 1, the Australian Energy Market Operation (AEMO) triggered the Gas Supply Guarantee (GSG) mechanism for the time since it was introduced in 2017.

According to AEMO, the GSG mechanism comprises new ways to “identify, assess and confirm a potential gas supply shortfall” and “processes to communicate with industry and to call for a response to a shortfall”.

By mid-June, the semi-governmental body suspended the National Electricity Market (NEM) for the first time since its inception in 1998 – another indicator of the historic energy squeeze.

“AEMO has taken this step because it has become impossible to continue operating the spot market while ensuring a secure and reliable supply of electricity for consumers in accordance with the NER (National Electricity Rules),” the company said in a statement.

AEMO chief executive officer Daniel Westerman said suspending the market would “simplify operations during significant outages across the energy supply chain”.

Not only has the local energy market been strained by spiking demand, but AEMO said many generation units had undergone planned maintenance, around 3000 megawatts’ worth of coal-fired power generation had been out of action, while there had also been periods of low wind and solar output.

Santos energy
Santos’ Gladstone liquefied natural gas (GLNG) project in Queensland.

While Australia will continue to produce and export coal and gas in the near-term, renewable energy is at the heart of the government’s future energy strategy.

Prime Minister Anthony Albanese has even said Australia can be a “renewable energy superpower”, with the Labor Government’s plan spurring $76 billion of investment and creating more than 604,000 jobs.

But renewable energy is still an underdeveloped industry that doesn’t yet have the capacity to respond to major energy shortages alone.

This is where fossil fuels can be an important subsidiary in the green energy transition.

“We’re seeing this globally right now,” Gallagher said. “This (the energy crisis) is a global phenomenon driven by … Western countries putting in place policies over the last decade or so that slowed down development of new resources. 

“If you shut down one side of the equation and you have nothing to replace it, this is what you’re going to see. 

“The global gas supply will (then) have to come from the Middle East … or Russia. You’ll be dependent on those countries – that’s where all the gas reserves are.”

Santos’ Narrabri coal-seam gas project in NSW is waiting in the wings to support the energy crunch. The project is said to be able to support up to 50 per cent of the state’s gas needs once up and running.

More than one million family homes, and approximately 33,000 businesses and 300,000 jobs in NSW, rely on natural gas as a source of energy.

However, Narrabri, which was first developed by Eastern Star Gas before Santos bought the project in 2011, is still navigating regulatory approvals before it can come onstream.

“We’ve got most of the approvals (for Narrabri) in place and we’re going through the last stages of that process,” Gallagher said. “But we’ve still got to follow that process and I would anticipate even the last couple of approvals that we need to get, we’ll get legal challenges and we’ll have to go through the legal review process.” 

In mid-June, Federal Resources Minister Madeleine King offered her support for Narrabri, suggesting the project would be important as part of the renewable energy transition.

“If Narrabri meets all the environmental standards, and by all accounts it does, then it makes sense for it to go ahead,” King said in her first interview with the Sydney Morning Herald and The Age after taking office.

“It is an important gas reserve that will help the population of New South Wales address a future power crisis. It avoids a crisis, is what it does, because it means more gas closer to your systems.”

King was sympathetic towards public concerns regarding Australia’s climate inaction in the past, but said gas would be an important part of the transition away from coal given its better sustainability profile.

“Everyone needs to understand, especially I think in some of the southern states, that right now when you flick on your light switch or have your dishwasher running or turn on your telly, for the most part that moves a turbine in a coal-fired generator. You’re using more coal, which is high in emissions,” she said.

“While the government is now bringing in an energy plan which will get working on renewables, and that’s our very determined ambition, gas is the transition fuel that is able to bring down emissions in the short term.”

Carbon capture and storage (CCS) is coming to the fore as part of efforts to make natural gas a cleaner and more suitable energy source alongside the renewable energy transition. Gallagher said CCA was a “proven technology for low-cost, large-scale emissions reduction”.

According to Geoscience Australia, while technologies such as renewable energy, improved energy efficiency and fuel switching aim to prevent the creation of CO2 emissions, CCS complements these measures by addressing emissions that currently cannot be avoided.

CCS involves capturing, transporting and storing CO2 before it enters the atmosphere. Once captured, CO2 is injected deep underground where it is permanently stored.

Gallagher said CCS would eliminate Scope 1, 2 and 3 emissions, but also enable more affordable production of hydrogen, which is considered an important resource for a green economy.

“In 2050, under the IEA’s (International Energy Agency) net-zero scenario, about half the world’s gas production would be used to make hydrogen and about 40 per cent of the world’s hydrogen would be made from natural gas,” he said.

“We know CCS works, it’s been done before and there are now 27 commercial projects operating around the world today.

“Most of these are in the United States, which has a policy framework that strongly incentivises CCS, including through tax credits and an investment by the Department of Energy of more than $US10 billion to accelerate CCS, direct air capture and industrial emissions reduction.”

Santos’ Darwin LNG project in Northern Territory.

Chevron’s Gorgon liquefied natural gas (LNG) project in Western Australia is the biggest CCS project in the world. At Gorgon, naturally occurring CO2 is taken from offshore gas reservoirs and injected into a giant sandstone formation 2km beneath Barrow Island, where it remains permanently trapped.

Gallagher said Gorgon had successfully stored six million tonnes of CO2 since the CCS project commenced in 2019.

In partnership with Beach Energy, Santos is building its own 1.7-million-tonne-per-annum CCS project at Moomba in South Australia’s Cooper Basin, which Gallagher said could support even more tonnage.

“The exciting thing about the Cooper Basin is that there is storage capacity for up to 20 million tonnes of CO2 per year for up to 50 years,” he said. 

“Not only will our Moomba project be one of the biggest in the world, it will be one of the lowest cost, at around $US24 per tonne.”

The project is estimated to cost $220 million, with Santos and Beach Energy aiming to bring it online in 2024.

Santos has also partnered with the CSIRO to trial and potentially develop what the company hopes is the lowest-cost direct air capture technology in the world at Moomba.

The collaboration will focus on developing CSIRO’s carbon assist technology, which removes CO2 directly from the atmosphere and higher-concentration post-combustion scenarios, to then be permanently stored as part of a CCS project or used to make carbon-based products.

Gallagher said this had the potential to not only negate emissions from gas production, but other emissions from elsewhere in the economy, including sectors that manufacture everyday products such as fertilisers, cement, steel and polymers.

Santos also has its Bayu-Undan CCS project in the pipeline, which has the potential to store up to 10 million tonnes of CO2 per annum.

Located in the Timor Sea, north-west of Santos’ Darwin LNG project, Bayu-Undan would enable the company to store 2.3 million tonnes of CO2 from its Barossa gas project, which is targeting first production in the first half of 2025.

Without a shift to renewable energy, climate change will continue affecting global ecosystems and potentially make the world unliveable for future generations.

However, as green technologies evolve, natural gas still has an important role to play, not only providing a solution when a cold snap hits but also reducing the reliance on other carbon-intensive energy sources.

Through its Moomba and Bayu-Undan CCS projects, there’s no doubt Santos is well-intended. It’s now a matter of bringing these online and solidifying its commitment to emissions reduction. 

This feature appeared in the August issue of Australian Resources & Investment.

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