Energy: Santos’ Gallagher tells leaders to focus on energy security, decarbonisation

Santos CEO Kevin Gallagher: “My advice to governments is focus on decarbonisation and energy security, not ideology.” Picture Simon Cross

“My advice to governments particularly in this part of the world is focus on decarbonisation and energy security, not ideology.”

Santos chief executive Kevin Gallagher is pulling no punches ahead of his address to 2000 oil and gas delegates on Wednesday at the annual APPEA conference.

Something has changed at APPEA this year. The dial is shifting on carbon capture and storage. Everyone is talking about it as a critical step in energy transition to get to net zero by 2050.

In 12 months, war and a new priority for national security has checked the accelerating transition to renewables.

CCS has had a difficult birth. It is little understood and the flagship Australian example, led by Chevron’s Gorgon Project, found itself in the press for all the wrong reasons. CCS has also long been opposed by green groups.

“That’s because we have got into this ideological discussion about ‘if we do CCS doesn’t it keep fossil fuels alive?’” says Gallagher. He points to the 2050 net zero forecasts by the International Energy Agency where gas and oil is still very much in the mix with renewables.

“The IEA says you cannot achieve net zero without CCS. Fifty per cent of the hydrogen by 2050 is made from natural gas in their net zero scenario. So if we are not going to do CCS we might as well give up on the net zero journey,” he says.

Chevron may have fallen short of its 4m tonne annual CCS target. But it is also the world’s biggest carbon capture use and storage project. And it works. “It’s 2 million tonnes per annum. It’s a great success,” says Gallagher.

On Tuesday, Chevron’s head of operations Kory Judd had a clip at Andrew Forrest, who ran a “lipstick on a pig” spoiler just ahead of the gas conference.

“We have injected six million tonnes of carbon dioxide since 2019, 2.1 million tonnes last year. That is about equivalent to the emissions that a company like FMG would have emitted. It’s not a question of if, it is really how much is the long term capacity of this,” Judd says.

The IEA’s baked in expectations of CCS to deliver global Net Zero are huge. A total 7.6 billion tonnes of CO2 per year would need to be stored by 2050. “That is 200 times more than is being stored in the 30 or so commercial projects around the world today,” points out Senex Energy CEO and APPEA chairman Ian Davies.

Gallagher warns that for every year of inaction, balancing the books by 2050 is getting harder. “Go back to 2018, the IEA was saying 1.3bn tonnes of CCS a year by 2050, then that became 1.8bn, 2.3bn, 4.6bn and now it is 7.8bn.”

Huge investment is required to scale up CCS but the politics are delicate.

In July, the federal government is expected to release new CCS acreage. The hope is that big gas competes for the licenses to create new CCS hubs that can share infrastructure.

Yet imagine the consequences for the sector if the Simon Holmes a Court backed Teal independents hold the balance of power, come Sunday.

ExxonMobile already puts away 9m tonnes of CO2 a year, 7m from its LaBarge facility in Wyoming. Dylan Pugh chair of ExxonMobile Australia’s pitch to delegates was to provide reliable supply, invest in uncertain times, reuse existing infrastructure and create a CCS that allows other local industries to also decarbonise.

At Santos, Gallagher is forging ahead with another world scale CCS project at Moomba in South Australia that will store 1.7m tonnes of CO2 per year.

“Our Moomba project is around 16 per cent complete. Our Bayu-Undan project is more complex because that requires cross border agreements East Timor and Australia bilateral agreements. We’d like to see more energy on this side quite frankly to get that done,” he says.

Last year, I wrote that climate pressure had caused a split: European oil and gas majors shifting to renewables and US companies doubling down on fossil fuels with little thought for CCS to offset emissions.

Today Gallagher says the European majors are finding the going tough. “Their investors are saying these returns are very low. Maybe you should give us more cash back in dividends and allow us to invest in renewables if we choose to do that?” he says.

“What I have seen in the last year is that the Americans who were just doubling down on oil and gas are more and more moving to the CCS story as well. They are getting to that point of asking how am I going to get a license to grow again?”

Overseas, Gallagher says CCS projects are gaining momentum led by Norway, the UK and the US where tax incentives spur investment. “More than 100 projects in the planning stage — most of the oil and gas companies I talk to are looking to do a CCS project somewhere in North America,” he says.

After his speech, Gallagher takes off for Japan and South Korea to talk to new potential customers about clean fuels and CCS projects.