Santos locks in carbon credits for $5.7bn Barossa LNG project

Santos has acquired enough carbon credits for its soon-to-be ready new $5.7bn Barossa LNG development to meet tough new emission reduction targets.

Santos has acquired enough carbon credits for its soon-to-be ready new $5.7bn Barossa LNG development to meet tough new emission reduction targets, a senior executive has revealed, though the company’s chief executive has warned future supplies of the instruments clouds the industry.

The acquisition underscores the near readiness of what will be Australia’s first LNG facility in more than five years, a development Santos believes will propel growth in its share prices but which has ignited a wave of opposition from environmentalists.

While the Barossa project will provide a timely boost to Santos’ supplies, the gas has higher levels of carbon dioxide than other regions, complicating the task facing Santos following the introduction of the Safeguard Mechanism.

But Michael Abbott, executive vice president for Santos, told a senate hearing that Santos has completed the acquisition for carbon credits, known as Australian Carbon Credit Units (ACCUs) for the first few years of operations.

The Australian understands the company has acquired 2.5m contracts for delivery between 2023 and 2027. The contracts, Mr Abbott said, will allow Santos to comply with the safeguard mechanism and develop plans for carbon capture and storage from the facility in the Timor Sea.

The strengthened safeguard mechanism – a scheme first introduced under the Coalition – requires Australia’s 215 largest polluters to cut their annual emissions by about 5 per cent every year from baseline levels.

Many will initially achieve their requirements through the use of carbon emission credits.

But for gas projects, options to abate emissions are limited. Santos will hope to spur carbon capture and storage, but other developments may not have the option, forcing them to use credits.

But The Australian understands Santos’ chief executive Kevin Gallagher last year wrote to federal Energy Minister Chris Bowen to warn there were insufficient ACCUs in the market.

A limited supply and increased demand will propel the price of ACCUs, forcing developments into expensive abatements.

The warning comes as environmentalists continue to push against new LNG developments, with Barossa emerging as the centrepiece of opposition.

Santos expects to provide its first gas from the development within months, despite suffering two consequential legal challenges.

In 2022, the Federal Court ruled Santos had not consulted adequately prior to securing an environmental permit, forcing the oil and gas company to spend another year developing a revised plan.

In 2024, Santos suffered another blow when the Federal Court temporarily blocked the company from laying a 262km pipeline amid an allegation from a Tiwi Island local that it would irreparably damage Indigenous connection to the sea country.

The Federal Court eventually rejected the application, though it cost Santos valuable weeks.

Santos is now seeking costs. It has ruled out seeking costs from the Tiwi Island applicant, but has told the Federal Court it will seek costs from the Environmental Defenders Office, which represented the applicant.

Typically, legal counsels are not liable, but Santos is seeking to persuade the court that the Environmental Defenders Office was a de facto applicant in the case that was vigorously dismissed by the presiding Justice.

Santos last week asked the Federal Court to allow it to see the communications between the Environmental Defenders Office and a star academic witness, who was later discredited by the ruling judge.

In a court hearing on Wednesday, Santos amended its original application for a subpoena to access communications between the EDO and Dr Michael O’Leary, an associate professor at the University of WA, who appeared as a cultural expert for the Environmental Defenders Office and Simon Munkara.