Australian independent Santos has signed four initial agreements for CO2 storage at its Bayu-Undan gas field in the Timor Sea, which it plans to turn into a carbon capture and storage (CCS) hub.
The Adelaide-based company has signed four initial agreements with upstream gas developers and a South Korea-based industrial conglomerate for CO2 storage at its proposed Bayu-Undan CCS facility 500km north of Darwin. It said the deals indicate that demand for CCS could be in excess of 10mn t/yr, describing Bayu-Undan as "low cost, safe and permanent." A final investment decision for the project is targeted for 2025, with two other CCS developments underway intended to allow Santos to continue upstream gas supply while abating some emissions.
The fast-depleting Bayu-Undan field supplying Darwin LNG is expected to cease production around mid-2023. But its planned replacement the Barossa field has had its development stalled after a court ruling ordered Santos to suspend drilling there. A pipeline linking Barossa to Darwin LNG has also been hit with delays by Australia's offshore gas regulator.
The oil and gas company derives three-quarters of its income from LNG but its Darwin plant is suffering diminishing supply, with production down by 37pc on the quarter to just 140,000t in January-March while LNG sales fell by 16pc on the quarter to $1.07bn.
In a note to investors, research house E&P Financial recently labelled Santos a takeover target because of the impacts of delays for Barossa, the fast-depleting Bayu-Undan field and regulatory changes on domestic gas imposed by the federal government. Completion of Santos' sale of its 5pc stake in the 6.9mn t/yr PNG LNG project and the resolution of Barossa drilling uncertainties will dictate the firm's future performance, according to E&P.
Supermajors and select US energy companies appear to have the balance sheet capacity, with Exxon and Chevron having sufficient cash liquidity, and recent market speculation that Exxon is considering a bid for US oil and gas producer Pioneer.
Regulatory uncertainty in the Australian market has grown since the federal government brought in changes to carbon emissions rules for new gas projects and began laying the groundwork for changes to its petroleum profits tax at the upcoming budget set for 9 May. Santos has been critical of the government's lack of support for CCS, while critics say the technology is unproven and designed to allow unabated upstream gas development.
The ANEA price, Argus' assessment for spot LNG deliveries to northeast Asia across first-half and second-half June was $11.055/mn Btu and $11.155/mn Btu respectively on 3 May, a fall of around 49¢/mn Btu on a week earlier.
