Santos wins planning approval for Narrabri gas project
Industry is happy but opponents threaten intervention after Santos wins approval for its Narrabri coal seam gas project.
Industrial heavyweights are hopeful of pushing ahead with $2bn of manufacturing investments after Santos won approval for its controversial Narrabri coal seam gas project in NSW, as opponents of the development threatened interventions to stop it going ahead.
Multinational Perdaman, Australia’s largest brickmaker Brickworks and retailer Weston Energy - which supplies gas to big users in the state - say the positive decision by the Independent Planning Commission may pave the way to build a new industrial base in the region.
Perdaman has just completed an early design and engineering study on its planned $US1.1bn ($1.54bn) ammonium nitrate plant near the rural NSW town which could either supply fertiliser for agribusiness or explosives for the state‘s mining industry.
Perdaman, which last year struck a preliminary 20-year deal for supplies from Narrabri, will hold two days of meetings with Santos next week as it weighs up a decision on sanctioning its plant, amid a move by Scott Morrison on Thursday to back a manufacturing-led economic recovery from the COVID-19 pandemic.
“Narrabri now looks like a bankable project for us at this stage,” Perdaman managing director Vikas Rambal told The Australian. “There are still steps to take from here but it looks very positive.”
Brickworks will buy up to 3 petajoules annually of gas for seven years from 2025 under the non-binding deal signed for Narrabri.
“We have $200m building two new factories in NSW and this gives us great confidence there will be gas available to run them,” Brickworks chief executive Lindsay Partridge said. Energy retailer Weston Energy, which has agreed a non-binding deal for 10 PJ a year from Narrabri over a decade, said it was the right decision.
“They’ve listened to science rather than emotion. We can get this gas out safely and get the economy moving,” Weston chief executive Garbis Simonian said.
While the decision paves the way for Narrabri to add more supply to the east coast market, major gas buyer Orica stressed it must also deliver cheaper prices for users.
“This increase in supply must translate into sustainable pricing if Australia’s manufacturing base is to remain competitive,” Orica chief executive Alberto Calderon said. “The fact remains that Australia is the only major gas producing country which doesn’t ensure adequate supply at competitive prices for its own domestic market.”
After a near four-year wait for planning approval and nearly a decade after Santos first acquired the Narrabri permits, the IPC ticked off the development on Wednesday. Santos immediately agreed to the IPC’s 134 conditions, which were largely in line with those already laid out by the NSW Planning Department, ensuring a set of phases for the development which could provide half the state’s gas needs.
A judicial review of the decision is still possible after the IPC decision kicked off a wave of criticism from green groups, activists and community members opposed to the project, amid concerns the Gunnedah Basin and surrounding aquifers and farmland could be poisoned from underground drilling along with broader climate change concerns.
The Environmental Defenders Office, which helped defeat the Rocky Hill coal mine in NSW’s Hunter Valley, will meet with clients in the next few days to discuss legal options. Environmental group Lock The Gate, a fierce opponent of Adani’s Carmichael coal mine in Queensland, started a Narrabri Fightback Fund on Wednesday and said it would use donations to fight Santos in the boardroom and along the proposed pipeline route. The Australasian Centre for Corporate Responsibility called on Santos investors to intervene and reject the gas facility.
While both the NSW and Morrison governments backed Narrabri, political fallout also appears likely.
NSW Energy Minister Matt Kean told The Australian before the decision that Santos’s board faced a big risk proceeding with the project, due to the investment risk of gas becoming a stranded asset. Shadow federal resources minister Joel Fitzgibbon also exposed a divide within Labor after calling Narrabri’s approval “great news” just days after shadow energy minister Mark Butler called coal and gas “fuels of the 20th century” that won’t underpin Australia’s future prosperity.
Receiving expedited federal approvals could take as little as one month, according to Citi, with Santos still requiring approval under the Environment Protection and Biodiversity Conservation Act.
In the meantime Santos will kickstart planning for workover activities on existing wells under its exploration rights, followed by a 12-18 month appraisal drilling program.
Still, analysts point out it may take until 2025 before gas is produced, given Santos still needs to sign off on the project which may not take place until sometime in 2022.
While over 10,000 submissions were received, the IPC said that volume in itself was not a reason for refusing the project. The huge opposition to the 850-well proposal followed a record 23,000 submissions on Santos’s environmental impact statement, with 98 per cent opposed to the project although about a third of local submissions supported it.
Potential groundwater impacts can be effectively managed under the conditions of consent, the IPC said.
A condition has also been imposed on Santos to fully offset scope 1 and 2 emissions, due to fears the advantage of coal seam gas over coal could be jeopardised by an underestimation of fugitive emissions.
Narrabri is consistent with strategic land use planning in the Pilliga Forest while waste management and bushfire risks were seen as manageable, the IPC noted.
Santos touts the development as a solution to the tight east coast market by undercutting LNG imports and offering the cheapest new supply source in the state. NSW, along with Victoria and South Australia, could experience gas shortages on peak demand days from 2023 as production from big offshore fields starts to dwindle, hiking pressure on big users trying to secure long-term supply deals.
Santos owns 80 per cent of Narrabri, with EnergyAustralia holding the 20 per cent balance. EnergyAustralia’s stake dates back to 2012 but Macquarie has argued Santos may realign the partnership if it wins planning approvals given the exploration and production focus may be misaligned with the power retailer’s strategy.
After a four-month review of the project, the IPC laid out 134 conditions for Santos governing when it can move through the different development stages, which are appraisal, construction, production and rehabilitation.
“Following its detailed deliberations, the commission concludes the project is in the public interest and that any negative impacts can be effectively mitigated with strict conditions.” the IPC’s statement of reasons for decision said.
“The commission has granted a phased approval that is subject to stringent conditions, which means that the applicant must meet specific requirements before the project can progress to the next phase of development. The commission notes that the approval does not include consent for the proposed gas fired power station at Leewood, the Westport workers accommodation or non-safety flaring infrastructure.”
While over 10,000 submissions were received, the IPC said the volume in itself was not a reason for refusing the project. The huge opposition to the 850-well proposal followed a record 23,000 submissions on Santos’s environmental impact statement with 98 per cent opposed to the project although about a third of local submissions supporting it.
“The commission notes that the number of objections to a development application is not in and of itself the sole measure of the public interest nor necessarily a determinative reason for refusal.”
Potential groundwater impacts can be effectively managed under the conditions of consent while a condition has been imposed on Santos to fully offset scope 1 and 2 emissions due to fears the advantage of coal seam gas over coal could be jeopardised by an underestimation of fugitive emissions.
Narrabri is consistent with strategic land use planning in the Pilliga Forest while waste management and bushfire risks were seen as manageable, the IPC said.
Santos, which entered a trading halt on Wednesday morning, touts the development as a solution to the tight east coast market by undercutting LNG imports and offering the cheapest new supply source in the state. NSW along with Victoria and South Australia could experience gas shortages on peak demand days from 2023 as production from big offshore fields starts to dwindle, hiking pressure on big users trying to secure long-term supply deals.
The Adelaide-based energy producer produced new modelling from ACIL Allen on the eve of the first day of IPC public showing gas prices in Sydney would be between around 4 per cent and 12 per cent lower from 2025 onwards over the 25-year evaluation period with the Narrabri gas project than without it.
Still, Santos’s board faced a big risk proceeding with its $3.6bn Narrabri gas project should it win approval from planning authorities, given the danger of the project becoming a stranded asset, NSW Energy Minister Matt Kean warned on Wednesday.
Global energy giants including BP have signalled a change in investment strategy in recent months, warning it may leave oil and gas in the ground in the future amid a fast-moving transition away from fossil fuels due to climate change.
Among the chief concerns raised by critics of the proposed gas facility was the potential for the Gunnedah Basin and surrounding aquifers to be poisoned due to underground drilling, putting in danger both local farms and the region’s agricultural products produced from the land.
Santos still has “a way to go” until the value in the project is derisked, Credit Suisse said.
“There is still a 12-24 month appraisal period, alongside scope for further social licence challenges including pipeline, power generation and possible accommodation processes,” Credit Suisse analyst Saul Kavonic said.
“We expect Narrabri value should be derisked over time through to a phase 2 final investment decision in 2024 and think it would only be appropriate to perhaps see 25 per cent of full value recognised at this time.”
AWU National Secretary Daniel Walton said the decision should be a big win for NSW.
“Our union has never accepted the false choice between gas and renewables — you need the reliability of the former to allow the latter to flourish. NSW should be a thriving global heavy manufacturing hub, and that’s exactly what we can become if we better harness our gas wealth. This approval is an excellent step.”
Industrial giants Perdaman and Brickworks have warned that up to $2bn of planned spending on NSW manufacturing plants could be in peril if Santos’s Narrabri gas project failed to win approval, threatening a rare investment boost as the nation faces a prolonged economic slump from the coronavirus pandemic.
The Australia Institute said the benefits of Narrabri had been overstated.
“Narrabri gas project approved today will do little to lower gas prices and a lot to make climate change worse,” the Australia Institute’s Richie Merzian tweeted. “Remember ‘energy security’ according to gas lobby is more gas. This is after they tripled gas supply on East Coast in 10yrs and sent most of it overseas.”
Activist group Lock The Gate Alliance said farmers and Gomeroi Traditional Owners fighting the Santos Narrabri coal seam gas field will ramp up the battle to protect their lands and precious water resources following the decision.
Santos owns 80 per cent of Narrabri with EnergyAustralia the 20 per cent balance. EnergyAustralia’s stake dates back to 2012 but Macquarie has argued Santos may realign the partnership if it wins planning approvals given the exploration and production focus may be misaligned with the power retailer’s strategy.
More Coverage
