A revision to the Safeguard Mechanism, legislation that requires Australia’s largest emitters to cut direct emissions (known as Scope 1 emissions,) could trigger a spike in carbon, capture and storage (CCS) projects in the region, says global research firm Wood Mackenzie.
Coming into effect on 1 July 2023, the reformed Safeguard Mechanism will require projects to reduce emissions intensity by an average 4.9% per year to 2030, with lower reductions after that.
For new gas projects, producers will be required to abate or offset all reservoir CO2 from first production. This will create real impetus for Australia’s emerging CCS industry to accelerate Research & Development and roll-out new projects.
According to Wood Mackenzie data, there are currently 27 proposed or under-development CCS projects in Australia. Chevron’s Gorgon CCS project is currently in operation and Santos’ Moomba CCS project is expected to start operations in 2024.
Changes to the Safeguard Mechanism will have a direct impact on gas producers looking to develop CCS projects in Australia. CCS’ route to a viable revenue stream is clearer, and getting financial backing will potentially become easier. I suspect this policy will generate a proliferation of CCS projects in Australia, because not only will upstream producers need abatement solutions, but so will all the other big industrial and mining emitters subject to the Mechanism,” Anne Forbes, research analyst at Wood Mackenzie said.
Revisions to the Safeguard Mechanism will impact projects differently, depending on their emissions and gas quality. As such, it will have a significant impact on some of Australia’s largest pre-Final Investment Decision (FID) and under-development projects, as most of these contain relatively high levels of reservoir CO2.
“It is now critical for new projects, including Woodside’s Browse, Santos’ Barossa, and Eni’s Evans Shoal/Verus, to invest in a carbon capture and storage (CCS) solution that can operate from day one. And for new projects without a CCS plan, like Shell’s Crux development, CCS and greater purchase of carbon offsets has now become a crucial consideration,” Forbes added.
Government and industry will also need to expedite progress on incentives and regulatory structures to enable the rollout of CCS projects in time to meet the requirements of the Safeguard Mechanism.
For new gas projects, including fields that will supply existing LNG facilities, ‘best practice’ baselines will be adopted in line with the revised Mechanism. This specifically includes zero emissions from venting of a field’s reservoir CO2. For the Northern Territory’s Beetaloo Basin specifically, all new oil and gas entrants will be required to have net-zero Scope 1 emissions from the start.
“However, more guidance is required to determine what “best practice” really means for the industry, particularly on zero-venting,” Forbes added. “A period of consultation with industry will follow to hammer out the details, which will be a keenly followed process given the current ambiguity in the legislation.”
“To cut annual emissions in the near-term it is likely that operators will tackle the low hanging fruit first, such as switching to non-routine flaring only and cutting down fugitive methane emissions. Longer-term more impactful solutions for cutting emissions will likely include using power sourced from the grid and/or renewable and the ramping-up of CCS,” Forbes concluded.