Santos defends efforts to tackle climate change by selling more gas to displace coal and lowering emissions

South Australian oil and gas producer Santos has defended its effort on tackling climate change by selling more gas into Asia to displace the use of coal while investing in lowering its own emissions in the country.

• Record production for Santos

South Australian oil and gas producer Santos has defended its effort on tackling climate change by selling more gas into Asia to displace the use of coal while investing in lowering its own emissions in the country.

A number of shareholders at the annual general meeting raised questions about the company’s focus on growing LNG exports and investing in new gas projects.

Chairman Keith Spence said people were frustrated generally that there has been a lack of action in Australia.

“We have seen the changing policies at the Federal (level). There has been no uniform direction.

“We’re a long lead business, we plan our business in a long way but we have had no sort of stable environment around this whole policy environment around climate change.

“So I think we’ve kind of taken it into our own hands with our plans going forward. We are going to increase our LNG sales because we firmly believe we are displacing coal in Asia. We can demonstrate that. And we going to do something about our emissions in Australia that are generated in the production of LNG as well. We are going to tackle this on two fronts.”

Mr Spence said there is “inherent tension” in the company’s strategies.

“There is inherent tension in what we are saying about our gas making a difference in other parts of the world and our emissions in Australia rising. (But) We are doing our damn best to reduce our emissions from our operations.”

He cited the example of US where new gas production had resulted in the county’s emission levels being turned back to mid-90s levels.

“In China, the use of gas is growing significantly. Their emissions, despite their economy growing, have been held flat in the past three years.”

“From my perspective, gas is making a difference on the planet.”

Santos CEO Kevin Gallagher and chairman Keith Spence at the Santos AGM at Adelaide Oval, Thursday, May 2, 2019. Picture: AAP/Brenton Edwards

The company also left the door on tracking customer emissions in the future.

Santos, which spent $US2.15 billion on acquiring Quadrant Energy late last year, is targeting production of 100 million barrels of oil equivalent by 2025 – almost double its 2018 production levels.

It also hopes to export 4.5 million tonnes of LNG by then, which it said is the “best thing we can do” to reduce global emissions by displacing coal and dirty fuels in Asia”.

Chief executive Kevin Gallagher said he did not believe majority of the shareholders were divided about the company’s position on climate change.

“There are few shareholders that turn up at every AGM and raise these points. I don’t think it represents the majority view of our shareholders.

“You have to ask when you hear some of their comments, well why would you buy a share in that company. It’s because they want to make these points at AGMs.”

He said the United Nations Intergovernmental Panel on Climate Change has made it very clear that gas is 50 per cent cleaner than coal when used in power generation.

“And therefore, for every single tonne of CO2 that is generated from creating LNG here in Australia, it reduces emissions when used in power generation in Asia by three to ten times that amount.”

“So the net benefit of our industry by replacing coal is not in debate by anyone.

“And if anyone thinks that the world in the next 50 years can go to a non-hydrocarbon energy solution, they are dreaming. It’s not possible.

“But we have to move to a cleaner energy mix and we are excited that we think gas is a big part,” Mr Gallagher said.

The Australasian Centre for Corporate Responsibility (ACCR) had put forward resolutions that would require Santos to cut emissions and reduce the emissions of those using its gas, but the company decided not include those because “they were not in the best interests of the company and shareholders”, Mr Spence told investors.

He said the company already had strong climate change commitments and had set a net-zero emissions target by 2050.

“We continue to face external challenges, none greater than the need for us to address the long-term sustainability of our industry in the context of global climate change,” he said.

The meeting also heard about local opposition to Santos’ multi-billion dollar coal seam gas project in NSW and its fracking project in the Northern Territory due to concerns about water contamination and lack of consultation with some landholders.

“The risk to aquifers is extremely remote. We value water as much as you,” Mr Spence said.

“We are all Australians. We all value the environment. We are not reckless.

“We don’t do anything in a way where we go out deliberately to harm the environment. I don’t know if it’s a communication problem here or what.”

Supply only way to curb high gas prices

On high gas prices, Mr Gallagher said new local supply is the only way to bring them down and dismissed calls for government intervention in the market.

“We know how to deliver low-cost gas to the east coast of Australia,” Mr Gallagher said.

“We are doing it today. We are the lowest cost developer; and the only way to drive prices down in longer term... is to increase supply.

“The only way to drive price of any commodity down is to increase supply. History shows us that government intervention will not drive prices down.

“In fact what it will do is suppress development, suppress sustainable gas prices. It has been tried in the past, it doesn’t work.”

Mr Gallagher said unlocking new supplies like Narrabri was key.

A decision on development consent for the project is expected later this year.

“I have read recently people are talking about imports as a solution, which is quite astonishing.

“We’d rather encourage the jobs to be in other parts of the world than here in Australia to develop that gas.

“I can guarantee that the gas from Narrabri would be lower cost that any imported gas from overseas.”

Irrespective of who wins the Federal election, Mr Gallagher said he hoped the current approval process for Narrabri would be allowed to run its course independently.

“We need to rely on strong reliable regulations. I think the people of Australia require and deserve that.”

LNG development in Queensland had unlocked more gas into the local market, he said.

“Gas (projects) in Queensland would never have developed without an LNG project because it was too expensive and the scale required to develop those resources was not there in the domestic market.

“More gas is flowing from those projects into domestic gas market today than the other way. “That’s a really important point. So had they not been developed on the back of LNG projects, the position today would be a whole lot worse than it actually is.”

Santos said it is drilling more than 100 wells in the Cooper Basin and growing its resource again to put that into the domestic market.

“But we need new sources of supply. I am saying you can go to government regulations and try and fix prices, but I can get you cheaper gas from Narrabri if we are allowed to develop it. That’s the solution - developing the project.”

In other developments at the annual meeting where all resolutions were passed, director Hock Goh was re-elected to the board.

Mr Goh was on leave last year over his connections to overseas company Harbour Energy, which has made multiple, unsuccessful takeover bids for Santos.

A $13 billion-plus bid was made, and rejected, over the Easter weekend last year.

“Hock was in a position where he really had to make a choice between was he going to continue on the Santos board or Harbour. We gave him that choice and he took that choice,” Mr Spence said.

He said Santos, which last year acquired Quadrant Energy in a $2.15 billion deal, remained an attractive target due to its low-cost growth opportunities, but was focused on the long term.