Australian LNG group unveils giant outback carbon capture reservoir

Australian gas producer Santos has secured a network of depleted gas reservoirs that it said could safely hold 100mn tonnes of carbon dioxide, opening up a potentially lucrative line in carbon credits.

The onshore storage reservoirs in north-eastern South Australia previously held natural gas but have been repurposed for waste CO2 that Santos intends to capture in its yet-to-be-built Moomba carbon capture and storage project.

The company said it expected the Moomba project, a joint venture with fellow gas company Beach Energy, to capture 1.7mn tonnes of carbon dioxide every year, meaning the storage capacity announced on Tuesday could last almost 60 years. The first CO2 injection is expected in 2024.

Santos, one of Australia’s largest liquefied natural gas producers, has put CCS at the centre of its decarbonisation push. Carbon capture has been backed by governments and the oil industry internationally but has yet to make meaningful dents in global emissions.

Santos said that initially carbon capture would be used to reduce emissions from the gas extraction process. But longer-term, the company also hoped to use the technology in the manufacture of “blue hydrogen”, which extracts hydrogen from natural gas and captures and stores the waste carbon dioxide produced in the process.

“[Carbon capture and storage] is a critical technology to achieve the world’s emission reduction goals and we only have to look at current carbon prices to see how valuable 100mn tonnes of storage is,” chief executive Kevin Gallagher said in a statement on Tuesday.

For every tonne of carbon dioxide that is captured and stored, Santos will be able to claim one Australian carbon credit unit. The energy group could then either sell the units to Canberra for A$17 (US$12) per tonne, which the government would then retire, or sell them the private market, where ACCUs are fetching more than A$55 (US$39).

Santos said it could capture and store CO2 at Moomba for $24 a tonne, meaning at current ACCU prices it stood to make a $15 profit per credit if it sold them on private markets — or about $25mn a year if it hits its annual target of 1.7 mn tonnes.

But critics questioned whether that target was realistic. Polly Hemming, a carbon market expert with the Australia Institute, a think-tank, said CCS projects had a record of failing to meet targets. She pointed to Chevron’s Gorgon CCS project in Western Australia, which has underdelivered on its promises.

She said carbon capture on gas projects would “result in a net increase in emissions” because it would prolong gas production and give the industry what she said was an undeserved social licence.

“We should be phasing out gas, not prolonging it by saying we can capture a small percentage of reservoir CO2 emissions,” she said.

Hemming also questioned whether corporates would want to buy carbon credits generated by a gas company.

Among the critics of CCS is former prime minister Malcolm Turnbull, who has called CCS a “scam”, a “con” and a “proven failure”.

But under Scott Morrison, Australia’s government has enthusiastically supported CCS and blue hydrogen. The Moomba project will be eligible for government funding through a carbon credit buying programme known as the Emissions Reduction Fund.

The Morrison government has also put aside A$500mn to fund “low emissions technologies” such as CCS and direct air capture, technology that extracts CO2 directly from the atmosphere for storage in geological formations.