Mon, Jun 17 2024 17 June, 2024

Australia gas debate re-heats on BP purchase

BP is to acquire Shell’s 27% stake in the offshore Browse gas project, reigniting divisions in Australia’s gas sector.

Off shore platform in the ocean (Photo credit: Adobe Stock/lkpro)

The stakes in Australia’s gas sector are heating up again. This time it comes as energy super major Shell sells its stake in a massive Australian gas project to BP, its cross-town rival.

All the while, the move could spell more climate litigation in Australia, one of the most litigious oil and gas sectors in the world, pitting the fossil fuel industry against environmental groups in a protracted struggle over energy security versus environmental concerns.

BP said on April 29 that it’s buying Shell’s 27% stake in Perth-based Woodside Energy’s Browse gas project offshore Western Australia (WA) for US$20.5 (A$30) billion.

Until the BP move, prospects for the 11.4 million tonnes per annum (mtpa) LNG project being developed were increasingly dismal. It had been idle for several years due to regulatory and commercial problems.

If the deal is approved, BP will increase its Browse stake to 44%, overtaking operator Woodside Energy’s 30.3% stake. Other project partners include PetroChina and Japanese firms Mitsubishi and Mitsui.

Shell said it agreed to sell its stake in Browse for an undisclosed price because the asset was “no longer a strategic fit” in the company’s global portfolio.

However, there may be more to the story than the energy giant is admitting. Shell remains under immense pressure from activist investors to clean up emissions from its fossil fuel operations and pivot to more renewables development.

Last year, Shell moved its corporate headquarters from the Netherlands after more than 100 years, to London, due to what it considered excessive governmental pressure and unfavourable rulings over its fossil fuel operations.

Notably, though not without its nay-sayers, BP, Shell and Woodside Energy have all set net zero by 2050 goals.

Simon Molyneux, managing director/CEO at Perth-based Molyneux Advisors, views the BP move through a strategic lens. “Shell gets out of a technically challenging project in a country where it’s probably already overweight and has many challenging projects,” he told Gas Outlook.

“It has access to lots of gas at lower costs, that is also geographically advantaged and with lower sovereign risk globally,“ he added. “BP shores up low geo-political risk gas in a key part of the world, at high unit cost with possible synergy with hydrogen hubs developing in the region.”

Australia gas resource boost

Browse production would be massive. The project is based on 15.5 trillion cubic feet (tcf) of gas and 417 million barrels of condensate held in the Brecknock, Calliance and Torosa fields.

It’s considered Australia’s largest undeveloped conventional gas resource. Browse gas production is also being considered as a replacement for ageing gas fields to supply Woodside’s North West Shelf LNG plant.

The three gas fields that make up the Browse development contain between 8% and 12% carbon dioxide. Due to its size, the project is expected to emit up to 7 mtpa of CO2 at peak, averaging about 4 mtpa over 50 years, Upstream has reported.

Australia is currently the world’s largest LNG producer with some 87.7 mtpa of liquefaction capacity, but that top slot will fall by the mid-part of the decade as both Qatar and the U.S. continue to bring more LNG projects online.

Despite criticism, Woodside CEO Meg O’Neill remains a strong carbon capture storage (CCS) supporter. She admitted that for the Browse project to go forward the company would have to rely heavily on CCS technology.

“The technology has been used in an offshore setting for more than a decade in Norway and so whilst there is only one CCS project in Australia and the operator of that project (Chevron) has admitted there were challenges during the startup, they are sequestering CO2 today and the technology itself is not only viable, but it will be essential to help meet the world’s decarbonisation goals,” she said.

Others see CCS technology as a false climate change mitigation narrative. They claim that the oil and gas sector is using CCS as a way to justify their massive capex intensive projects, particularly new project proposals.

Moreover, operating a CCS system is still expensive and has yet to be deployed at the necessary scale. It’s also incredibly energy intensive. Once CO2 is stored there’s also a risk of leakage.

“Well failure during injection or a blowout could result in a release of large amounts of CO2; storage locations can leak CO2, as they are located close to fossil fuel reservoirs, where oil and gas wellbores provide a pathway for CO2 to escape to the surface,” said a Food & Water Watch report.

Molyneux, for his part, explained that CCS will pose hurdles for the Browse project. “Woodside already has a GHG Assessment Licence but a large-scale, remote CCS project remains a fairly untested development,” he said.

“I feel this project will need to be designed as net-zero Scope 1 and 2 from day one. There will be lots of regulatory hurdles, other technical and court challenges on the way.’

“Woodside will have to bring their ‘A’ game to bring this home without blowing the budget, while having Shell out of the way may expedite decision-making because the remaining parties are committed,” he added.

Australia gas sector posts record profits

Complicating developments even more, a possible resurgent Browse project comes as Australia’s gas sector posts record profits and in lockstep pays record taxes to state and federal governments of some US$10.85 (A$16) billion this financial year. That’s nearly triple the amount paid last year while a large part of the increase comes from record high LNG exports and soaring commodity prices.

Furthermore, there are varying interpretations over what more tax revenue means. The Australian Petroleum and Production Association (APPEA), an industry advocacy group, said those funds can increasingly underpin critical spending on much needed public services like new hospitals, schools, healthcare, roads and infrastructure.

Others claim that’s little justification for the environmental damage these companies cause, while pointing out that their record profits are also fueling a cost of living crisis in the country.

New figures released last week by the Australian Bureau of Statistics show that living costs have hit a record high, even higher than the current rate of inflation.

Over the past 12 months, all living cost indices in Australia have risen between 7.1% and 9.6% for all households, compared to a 7% annual increase in inflation.