Santos eyes cheaper carbon storage offshore East Timor at new $1.7bn APAC hub

Growing carbon seize and storage (CCS) tasks in Southeast Asia is significantly cheaper than creating related tasks in additional developed economies, comparable to Australia.

Certainly, Australia’s second largest oil and fuel producer, Santos (ASX:STO), seems to be set to reap the benefits of this by creating the just about depleted Bayu Undan area, offshore East Timor, right into a CCS facility estimated to value over $1.7 billion. In flip, East Timor hopes to host the primary service provider CCS scheme of its type in Asia Pacific. It may very well be one of many world’s largest, and probably present much-need income for the tiny Southeast Asian nation. The last word imaginative and prescient is a multi-user infrastructure hub for receiving and storing carbon dioxide from a number of sources and industries throughout the area.

Initially, the plan is to seize carbon dioxide (CO2) from Santos’ Barossa fuel growth in northern Australia after which pipe it to East Timor, the place it will likely be injected underground into Bayu Undan’s geological formations for storage.

Santos is benefiting from the comparatively lax licensing necessities and rules governing carbon storage in East Timor, also called Timor Leste, to develop the large CCS hub.

Asia Storage Least expensive Globally

Carbon storage websites in Asia are anticipated to be among the many most cost-effective globally, in line with Rystad Vitality, a consultancy. Drilling and properly providers are typically cheaper in Asia, however considerably, licensing necessities usually are not as troublesome or sophisticated in Asia in comparison with extra economically developed nations, Yvonne Lam, head of carbon markets and CCUS analysis at Rystad, informed Vitality Voice. This helps lower prices.

In additional developed areas, comparable to Europe and Australia, completely different licensing necessities exist for CO2 storage. They’re extra stringent and require operators to carry out further research to make sure no carbon leakage will happen. Check wells are additionally wanted earlier than a mission can begin. Subsequently, “there are much more research, work, and time, wanted to be spent earlier than an organization can apply and acquire licenses,” added Lam.

“At present, aside from Australia, most nations in Asia Pacific should not have these licensing necessities. Considerably, it reduces the effort and time wanted to entry fields for CO2 storage,” stated Lam.

Santos proposes to make use of the Bayu Undan reservoir for capturing and storing CO2 from a brand new area it’s creating as a part of the $3.6 billion Barossa mission, the place the fuel has a really excessive CO2 content material. Certainly, the Institute for Vitality Economics and Monetary Evaluation (IEEFA), has branded it as one of many world’s dirtiest fuel tasks.

Barossa fuel is because of come on-line in 2025 and given world consideration on the power transition Santos should handle the emissions from Barossa and the Darwin liquefied pure fuel (LNG) plant, the place the fuel can be processed for export. In any other case financing from its Japanese and South Korean companions could also be in danger. South Korea’s SK E&S, in addition to Japan’s JERA, are each companions in Barossa.

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East Timor Eyes First Mover Benefit

The federal government of East Timor appears joyful to oblige Santos and its CCS plan. East Timor says it’s eyeing first mover benefit within the rising carbon storage market in Asia Pacific because the world races to decarbonise.

East Timor’s Nationwide Authority of Petroleum and Minerals (ANPM) has acknowledged that the Southeast Asian nation’s involvement within the CCS mission is a step in the direction of accelerating its decarbonisation targets, although the nation is already a really low emission intensive nation.

Considerably, the federal government sees carbon buying and selling or carbon credit score markets as an integral a part of their future financial system. Growing Bayu Undan as a service provider CCS hub for storing third-party fuel from throughout the area would assist the nation transfer nearer to this aspiration.

Furthermore, the federal government is anticipating a great portion of income from the mission, however no particulars have been revealed but, Sohini Chatterjee, a CCUS and world upstream analyst at consultancy Rystad Vitality, informed Vitality Voice.

Industrial discussions are ongoing between Santos and the Timorese authorities, Florentino Soares Ferreira, president of East Timor’s ANPM informed Vitality Voice. “We’re wanting ahead to seeing an Asia Pacific scheme on carbon credit. In the end, we want to generate a storage payment for the CO2, along with gaining carbon credit,” he stated.

Chatterjee famous that the federal government will definitely get some revenues from Santos for the CCS mission, though the quantity could be lower than its earnings from upstream oil and fuel manufacturing. East Timor’s income from Bayu Undan oil and fuel was greater than $170 million per 30 days throughout the first quarter of 2022, however these revenues will disappear as soon as Santos shuts down manufacturing later this yr to make manner for the carbon storage growth.

A senior analysis analyst at an funding financial institution that covers Santos, informed Vitality Voice, that “the issue is CCS does probably not earn a living, so there is not going to be many {dollars} to share round.”

Nonetheless, creating CCS in East Timor is sensible for Santos, as it will likely be comparatively cheaper and quicker than doing one thing related in Australia. Chopping funding prices can be vital for Santos, particularly, if, because the Institute for Vitality Economics and Monetary Evaluation (IEEFA) reviews, that from a monetary perspective, CCS is a poor funding. “Till there’s a carbon worth, CCS is disincentivised and stays a poor funding…..our analysis exhibits there isn’t any enterprise case for fuel CCS apart from as a company social accountability initiative,” famous IEEFA.

Usually, governments that permit cross-border storage tasks in northwest Europe earn revenues from CO2 licenses. Nevertheless, Santos, the present operator of the Bayu Undan area, already has licensing rights, as East Timor doesn’t have any licensing system or rules for carbon storage in place. This helps decrease mission prices, stated Chatterjee.

Rystad Vitality estimates capital expenditure for Bayu Undan CCS at greater than $1.7 billion throughout seize, transport, and storage, for your entire cluster mission with 10 million tonnes per yr (t/y) capability. The consultancy estimates breakeven prices for CO2 storage at roughly $60-70 per tonne, which covers processing, transport, and storage. Santos can be banking on Australian authorities funding help to assist enhance the economics.

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Largest Regional CCS Undertaking

The Bayu Undan CCS mission is the biggest cross-border mission introduced in Asia Pacific and is exclusive, stated Rystad’s Chatterjee.

The primary part of the mission plans to seize whole emissions of two.3 million t/y from the Barossa offshore fuel processing unit (2 million t/y) and the Darwin LNG onshore fuel processing plant (0.3 million t/y).

The growth of the mission involving extra emission property and operators is anticipated to cowl the remaining 7.7 million t/y of capability. Nevertheless, there isn’t any announcement but across the different property and operators which may type a part of the growth.

The Expertise

Santos has not introduced the kind of expertise that can be deployed at Bayu Undan. Nevertheless, based mostly on its different CCS tasks beneath growth in Australia, Santos is anticipated to make use of mature chemical absorption expertise for capturing CO2, stated Chatterjee.

Santos may also use depleted hydrocarbon fields for everlasting storage of CO2 at Bayu Undan. And because of the area’s lengthy manufacturing historical past, the corporate has expertise with the Jurassic clastic reservoirs at Bayu Undan. “Subsequently, Santos has the higher hand, with entry to giant seismic and different cross-sectional datasets, which might considerably convey down the levelised value of storage for the mission,” added Chatterjee.

The Financial Dangers

Nonetheless, there are financial dangers referring to pipeline building, in addition to modifications required for the prevailing pipeline to Bayu Undan, stated Chatterjee. The pipelines might want to move from shallow waters to deep and ultra-deep waters and once more to shallow waters in the direction of the storage web site in East Timor. With a complete estimated size of 800 kms, this might improve the levelised value of transporting CO2. Furthermore, interim threat assessments are wanted for deep water CO2 transportation routes, she added.

Racing In the direction of a Closing Funding Determination?

There is no such thing as a doubt that Santos must minimise local weather altering emissions from the Barossa mission by creating a CCS mission as quickly as potential. The corporate is formally focusing on a last funding choice (FID) for CCS at Bayu Undan in 2023. Nevertheless, the corporate is seeking to speed up the event. Business sources informed Vitality Voice that Santos hopes to take FID later this yr. Certainly, Santos wants this extra urgently than East Timor simply now. This might assist give the East Timor authorities a bonus in negotiations.

Nonetheless, Chatterjee cautioned that the mission is but to obtain Australian authorities funding or get registered beneath the Australian carbon credit score items (ACCUs) scheme. “Each of which would offer a serious enhance for quicker CCS deployment from a industrial viewpoint, much like what we’ve got seen not too long ago with Santos’ different key mission in Australia – Moomba CCS.”

There are additionally some fascinating industrial points that have to be resolved. Most notably, worldwide transport and carbon crediting, in addition to the switch of long-term containment from personal sector to state, stated Daein Cha, chief government for deepC Retailer, which is proposing to develop Asia Pacific’s first floating multi-user CCS hub offshore Australia.

Nonetheless, if the CCS mission does transfer ahead East Timor will certainly be hoping that it’ll translate into employment and financial alternatives for its folks.

Santos began front-end engineering and design work for Bayu Undan CCS in March, and it’s prone to take three years to repurpose the sphere as soon as FID is taken, stated ANPM’s Ferreira.

The members within the Barossa mission are Santos (50% and operator), South Korea’s SK E&S (37.5%) and Japan’s JERA (12.5%).

Santos has a 43.4% operated curiosity in Bayu-Undan and Darwin LNG. The remaining curiosity is held by SK E&S (25%), INPEX (11.4%), ENI (11%), JERA (6.1%) and Tokyo Fuel (3.1%).