Australia can become CCS powerhouse, but some hurdles linger

Australia has a cocktail of favorable ingredients to make carbon capture and storage, or CCS, successful but there is a need for a better regulatory framework, incentives, stronger will and collaboration among industry players to unlock its true potential to quench the country's net-zero ambition, industry sources said.

"Australia is in a very advantaged position as long as we have the right policies," Irtiza H Sayyed, president of ExxonMobil's low carbon solutions in the Asia-Pacific region, said at the Australian Petroleum Production and Exploration Association (APPEA) 2023 conference held in Adelaide last week, noting that a "fantastic subsurface," plenty of land mass and existing infrastructure benefit CCS development in the country.

There are opportunities for CCS to become a component of LNG export projects emissions reduction strategies to reduce or eliminate the requirements to purchase carbon offsets and safeguard mechanism credits, Logan Reese, research and analysis associate director at S&P Global Commodity Insights, said May 23.

In the long term, CCS applications could extend to other industries beyond the production of hydrocarbons to help Australia meet its net-zero targets with the potential to extend CCS services to markets throughout the Asia-Pacific region, he said.

Australia is home to the world's largest dedicated storage facility located at the Gorgon LNG plant while several other projects are also in the pipeline to facilitate CO2 abatement.

"We believe in CCS at Chevron. We don't think it's the only solution, but we do think it is a key part of the [energy transition] solution," David Fallon, general manager of energy transition at Chevron Australia, said at the same conference.

Chevron Australia operates the Gorgon project, with Chevron holding a 47.3% stake in it, according to the company website.

Meanwhile, Santos MD and CEO Kevin Gallagher noted that Santos was also making several investments to deploy CCS.

Santos' Moomba CCS project is on track for its first CO2 injections next year, the company said recently.

"When combined with the low cost of Moomba CCS and the large-scale carbon storage capacity of the Cooper Basin -- up to 20 million mt/year of CO2 per year for 50 years --this could be the start of an exciting new industry for South Australia in carbon management services, not just for oil and gas production, but for our customers and other third parties," Gallagher said.

Driving CCS growth potential

APPEA has called for a national CCUS road map to provide policy direction and incentivize investment, progress carbon management hubs and promote Australia as a regional storage leader while also recommending nine net-zero zones based on shared infrastructure to hasten decarbonization.

Currently some players operate in silos, an industry source said, noting that collaboration was a must for developing CCS hubs.

With the CCS projects expected to take several years before coming online, the industry is expected to use Australian carbon credits units, or ACCUs, to offset emissions.

Platts, part of S&P Global Commodity Insights, assessed the price of Generic ACCUs at A$36.50/mtCO2e ($24.29/mtCO2e) on May 22, and HIR ACCUs at A$36.75/mtCO2e.

Meanwhile, the political and regulatory environments also posed hurdles, some sources said.

Gallagher noted that Australia does not yet have the regulatory frameworks in place to offer carbon storage capacity that Japan and South Korea need. So, they are now looking at Indonesia and Malaysia, he said.

"The Labor government has signaled support for the industry through development of regulatory framework and additional acreage; at the same time, it canceled more than A$250 million of project funding allocated under the previous government," Reese said.

"In addition, the Labor government will face strong opposition from the Green Party in advancing any efforts to support CCS and instead will be forced to turn to the Liberal-National Coalition to advance any new legislation," he added.

Additionally, fiscal incentives and streamlining approvals would also benefit, sources said.

The US' Inflation Reduction Act is a huge pull, an industry consultant said. The IRA mechanism is set to boost carbon capture, utilization and storage, or CCUS, as it provides tax credit of up to $85/mt for burying CO2 from industrial activity and up to $180/mt for removing CO2 from the air.

"The oil and gas industry is not a passenger on the road to net zero. We are a driver," Woodside Energy CEO Meg O'Neill said.

"And there is no better example of the role we can and must play than carbon capture, utilization and storage," she said.

CCS is also an enabler of hydrogen. According to International Energy Agency estimates, by 2030, renewable energy will account for about 60% of hydrogen production while the remainder 40% will come from natural gas with CCUS.

The A$2 billion Hydrogen Headstart Program announced by the federal government recognizes the importance of hydrogen to reach net zero across Australia, O'Neill said.

"This is a good start, but it would be strengthened by the inclusion of lower-carbon hydrogen from natural gas with CCUS," she added.