Woodside secures WA environmental nod for Scarborough
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The way is now paved for Woodside Petroleum (ASX:WPL) to make the oft-delayed final investment decision on its Scarborough gas development off the WA coast.
It follows an announcement from the WA state government that it has granted environmental approval to the nearshore component.
While Environment Minister Amber-Jade Sanderson authorised the installation of the 32km section of the Scarborough pipeline that runs through state waters along with associated activities, it comes with some conditions.
These include running the new pipeline parallel and close to an existing pipeline, environmental management plans to minimise and monitor impact on marine fauna and coral, and a comprehensive cultural heritage management plan.
The gas major welcomed the approval, noting that the nearly negligible levels of reservoir carbon dioxide would make Scarborough and the associated Pluto Train 2 liquefied natural gas development one of the lowest-carbon LNG sources globally.
This contrasts with the 14% or so CO2 at Chevron’s Gorgon project that necessitated a large-scale carbon capture and storage (CCS) system which has not worked out exactly as planned.
Woodside plans to develop Scarborough through new offshore facilities connected by a 430km pipeline to the proposed Pluto-2 expansion near Karratha, along with modifications to the existing Train 1 and additional domestic gas infrastructure.
It will come at an increased cost, with the company recently ramping up development costs by about 5% to US$12bn due to the required modifications.
WPL also flagged that it might sell down its interest in Pluto Train 2 and Scarborough.
Western Australia’s approval for the pipeline drew predictable responses from the environmental groups with the Conversation Council of WA telling the ABC that the nearshore pipeline project would involve blasting and dredging kilometres of seabed and dumping millions of tons of crushed coral and rock within the Dampier Archipelago.
It had previously claimed that Scarborough would double the amount of carbon pollution from Pluto LNG, and push any chance of hitting net-zero emissions out of reach.
While Scarborough and Pluto Train 2 may be able to dodge having to worry about excessive carbon emissions (though green groups may argue otherwise), other projects – both new and existing – aren’t so lucky.
The answer, according to the International Energy Agency, is to ramp up the use of CCS.
This may very well be true, but Wood Mackenzie warns that it won’t be easy.
“We believe the regulatory, commercial, and technical hurdles still to be overcome are significantly underestimated,” its Asia Pacific research director Angus Rodger said.
“Discussions with both existing and aspirational CCS operators convey a clear message: hitting targets will be very challenging.”
That’s something that Chevron can attest to, given that its CCS system at Gorgon was intended to bury 80% of its carbon emissions over a five year period from 2016, but only started limited emissions storage in 2019.
Rodger further highlighted the issue with his note that while the world emitted 33 gigatonnes of CO2 in 2019, current CCS projects captured just 40 million tonnes of CO2 annually.
“If we are to hit global decarbonisation goals, this will have to rise to at least 7,000Mtpa per year by 2050,” he said.
The consultancy firm added that the energy transition meant that the upstream oil and gas industry could not ignore the challenges of carbon-intensive fields, and had to take steps to offset their carbon footprint.
This means that CCS could be a huge business opportunity, albeit one that still requires a commercial, cash flow-driven model if it is to scale up beyond demonstration projects.
“The lack of a clear economic incentive for CCS means that virtually all projects in operation today have required significant levels of government support,” Rodger added.
“Public funding is helpful and necessary – as it was in the early days of wind and solar – but for CCS to scale up beyond demonstration projects, it must be driven by commercial imperatives.”
In that context, “the future direction of carbon pricing will be crucial”, he said.
“Every company looking at CCS is wrestling with the commercial piece of the puzzle. The scale and uncertainty of the costs is significant.”
The fact that so few projects have been developed also means a lack of existing benchmarks to price projects, Rodger said.
“For the time being, then, CSS remains a cost. But as carbon prices rise, that will change. Early movers may gain a valuable strategic advantage, but it won’t be easy,” he said.