Pilot on the fast track to becoming one of Australia’s first offshore CCS operators

Pilot Energy is very close to lodging its submission for stage one regulatory approvals for its Cliff Head carbon capture and storage (CCS) project, making it the first to seek approvals for an offshore CCS project in Australia.

Pilot Energy (ASX:PGY) is much further down the track towards bringing Australia’s first offshore CCS project into operation than the rest, with the company in the final stages of completing its submission to the National Offshore Petroleum Titles Administrator (NOPTA).

The company is leveraging its existing oil and gas assets to pursue the development of the staged Mid West Clean Energy Project (MWCEP) comprising carbon capture through to ammonia production.

Pilot’s Cliff Head Oil Field is the only late-life offshore reservoir located in the WA Mid-West region with a Commonwealth regulatory pathway to CCS.

In both Australia and overseas, there are very few CCS projects in the pipeline and the ones on the agenda are targeted to be in operation closer to 2030.

Pilot’s Cliff Head CCS project, however, is scheduled to be capturing and storing CO2 by 2025/2026.

This has prompted strong interest from major domestic and international players with big names in Australia, Japan and South Korea realising they don’t have a near-term CCS solution to support their blue hydrogen and ammonia offtake ambitions.

Studies show Cliff Head could safely and permanently store up to 16 million tonnes of CO2 at an injection rate of up to 1.1 million tonnes each year.

Chairman Brad Lingo told Stockhead Pilot’s application for approval of the target CCS storage reservoirs in the Cliff Head Oil Field would be the first seeking approval for the Declaration of Storage Formation under the Offshore Petroleum and Greenhouse Gas Storage Act of 2006.

The Act is the relevant Australian Commonwealth Federal legislation that regulates all offshore oil and gas and greenhouse gas storage activities (CCS storage) in Australian Commonwealth Waters.

“The approval by NOPTA of the reservoirs identified by Pilot in its application is the first step to being able to implement a CCS project,” Lingo said.

Pilot anticipates it will lodge the NOPTA submission in the December quarter.

Lingo said the project was progressing in all material aspects, from regulatory requirements to ammonia offtake arrangements which had laid the platform for the start of front-end engineering design in 2023.

“The MWCEP will provide for the direct ability to reduce significant and growing CO2 emissions in the Mid West region of Western Australia,” he said.

“The project will provide a safe and permanent solution to make a material contribution to Australia meeting its greenhouse gas emissions reduction commitments.”

CCS cashflow to fund hydrogen

Pilot’s CCS project will provide the solid foundation needed to establish hydrogen and ammonia production.

The initial stage of the project would have the potential to generate revenue, around $20m each year starting in 2025, to fund the development of stage two – blue hydrogen production.

Utilising the industrial scale 8 Rivers clean hydrogen technology (8RH2), Pilot has estimated it could initially produce 43,000tpa of globally competitive blue hydrogen at $2.13 per kilogram.

The low-cost blue hydrogen can then be used to produce about 240,000tpa of clean ammonia initially for less than $400 per tonne, increasing to 345,000tpa when the renewables are integrated.

Ammonia sales, anticipated from 2027, could potentially increase revenues to $244m.

US-based 8 Rivers Capital was one of the first to express interest in Pilot’s ammonia offtake, and as part of an investment commitment MoU, was granted the option to enter into a long-term supply deal.

8 Rivers, which has been appointed as Pilot’s hydrogen technology adviser, has now completed its strategic $500,000 cash injection, and has secured an option for 50% of the blue ammonia offtake (up to 250,000tpa).

Pilot has appointed New Energy Technology to accelerate ammonia marketing, with a particular focus on the rapidly growing markets in Asia.

The company continues to engage with potential project partners and customers for both CCS and ammonia offtake.

Aligned with the majors

Pilot is leading the junior energy sector with a strategy that is aligned with and further advanced than even some of the majors in the sector.

Santos (ASX:STO) came out this week with its new strategy that also places a heavy focus on CCS and providing carbon management and decarbonisation services. Santos has identified a 40Mtpa domestic CCS market opportunity by 2030 and highlights a significant shortfall in capacity to meet the forecast CCS demand under the IEA NZE scenario.

The company has restructured the business into two divisions of Upstream Gas and Liquids and Santos Energy Solutions.

In releasing the company’s new strategy of “Backfill and sustain – Decarbonisation – Clean fuels”, managing director Kevin Gallagher said the new strategy was the next step in Santos’ plans to build its transition business, including a decarbonisation and carbon management services business.

“Energy security is a top priority for countries in our region,” he said.

“Given the strong customer demand for our product now and into the future, we will seek to backfill and sustain our core assets to deliver the critical fuels the world needs into the 2040s.

“But we will also decarbonise these critical fuels, in-line with our target of net-zero emissions (scope 1 and 2, equity share) by 2040, and produce clean fuels as customer demand evolves.”

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This article was developed in collaboration with Pilot Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.