Carbon Capture Sites: A Different Sort of Acreage Auction

In the wake of the COP26 in Glasgow, Australia’s international reputation has taken a bit of a bruising. Having been accused of ‘hiding behind others’ and being a ‘colossal fossil’ in driving the climate change transition towards minimising global warming levels, Australia has defended its positions, which include the continued mining of coal and an entrenched focus on fossils fuels, as necessary for its economic development.

That is, admittedly, the reality for most countries, even Australia’s peers that have committed to stronger pledges and decarbonisation plans. Rhetoric may count for much in terms of ambition, but Scott Morrison’s administration is also balancing alternatives. Recently the government unveiled an offshore acreage release for a very different purpose. Instead of demarcating areas for potential exploration and production of oil and natural gas, the bidding round is instead for exploration of potential greenhouse gas storage opportunities.

Following up from a GHG storage release in 2014, the 2021 round encompasses five areas identified as prospective locations for carbon and greenhouse gas emission storage in the Northern Territories and Western Australia, including the Bonaparte, Browse and Northern Carnarvon basins. Such acreage is important, given that the future of the energy industry depends not just on the development of renewables and a transition from traditional fossil fuels, but also to compensate for ongoing emissions by capturing, sequestering and storing greenhouse gases as a balance with the aim of having net zero carbon emissions. CCS – or carbon capture and storage technologies – is the bedrock that underpins, for example, Shell’s ambition of becoming a net carbon zero company by 2050 and well as powering the hydrogen revolution through the production of blue hydrogen.

In the words of Keith Pitt, Australia’s Minister for Resources: “Australia has the capacity to continue to be an energy export leader, at the same time as providing a regional hub for the storage of greenhouse gases. Carbon capture, use and storage is one of the priority technologies we are developing. The proximity to gas fields and existing infrastructure provides opportunities for industry partnership and collaboration, further industrial development and the creation of jobs.” In other words, Australia currently has no desire to eliminate coal and fossil fuels are a source of economic development, but will aim to compensate for that, and assuage its critics – by becoming a decarbonisation hub in parallel. Potentially, this means that Australia itself will be on track to become a net carbon zero nation by 2050 as it has announced. But this scope of that target is the issue: compensating for domestic fossil fuels and coal production through CCS would meet Scope 1 and perhaps Scope 2 emission targets as defined by GHG accounting protocols. But most of Australia’s oil, gas and coal is exported: to China, to Japan and to other parts of Asia. And that makes targeting Scope 3 emissions tough. Unless, of course, Australia can provide the framework for importing sequestered carbon to be stored.

And that seems to be the idea behind this offshore GHG storage acreage release. Unlike other major CCS projects that are direct collaborations between industry players and governments, the usage of an auction format is interesting. It allows for competitive bidding that could encompasses plans far grander than a project-based emit-and-capture approach, such as Chevron’s Gorgon carbon dioxide injection project. That CCS project, which is one of the world’s largest, is designed to capture and store up to 4 million tonnes per annum of CO2 from operation of the Gorgon LNG project, though teething problems and operational issues have prevented it from operating at full capacity. But the ambition of the GHG acreage auction seems to be far broader, aimed at complementing the slate of recently announced company projects. Like Chevron’s stated intention to invest US$28 million in Western Australia lower carbon projects as a complement and offset to Gorgon, Santos’ US$165 million Moomba CCS project in South Australia and (also Santos, in collaboration with Italy’s Eni) the potential Timor Sea CCS development that straddles jurisdiction of Australia and Timor Leste.

Bids for the current auction are due to be submitted to regulator National Offshore Petroleum Titles Administrator by 10 March, 2022. Interest in the auction will be closely watched, given that it will indicate potential and scale of driving this programme forward. And that potential is vast. Given that Australia is a continent onto itself, it has massive areas – both offshore and onshore – that it can leverage upon. That scale in a major consideration, since gains in technology and the presence of stable geological storage basins that have already been exploited can bring down the cost of CCS projects, providing a cutting-edge natural competitive advantage. The Australian Petroleum Production and Exploration Association has welcomed the release, stating that it would be a significant job creator and a significant step towards reducing emissions. The presence of one of the world’s largest natural gas industries also means that Australia can pivot from producing LNG to producing blue hydrogen, which is seen as the future of clean energy. Provided, of course, that the unavoidable GHG associated with hydrogen production can be captured and storage cleanly and competitively.

If successful, it could be easy to imagine that such an auction could become a regular, perhaps annual round. Potentially, it could also be married with traditional acreage auctions, providing a framework for net zero-focused bidding where exploration is balanced with sequestration from the start. That might not be enough to silence Australia’s most vocal critics, especially those that advocate the eventual elimination of coal and fossil fuels but it is a pragmatic and practical approach that balances development and sustainability. And that pragmatism is what will ensure that the ambitions of COP26 can be met, not just political rhetoric.??

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