Legal and political challenges to new gas projects just got easier

Labor’s deal to get the safeguard mechanism over the line with the Greens opens up new legal and political fronts for anti-oil and gas activists, Credit Suisse says.

Minister for Climate Change and Energy Chris Bowen.

The redesigned safeguard mechanism brings with it the prospect of a “bigger minefield of green activism and litigation’’, while broadening the political battlefield for opponents of new gas projects, Credit Suisse energy analyst Saul Kavonic says.

Santos has also been identified as likely being the most heavily impacted energy company from a cost perspective by the changes to the mechanism, agreed under the deal struck between the federal government and the Greens, given the relatively higher carbon dioxide content of gas from its proposed Barossa project.

And on a third front, one of Australia’s major players in the carbon offset sector, Australian Integrated Carbon (AIC), has come out swinging, shooting down the Greens’ claim that the agreement puts a freeze on offsets generated through what is known as human induced regeneration (HIR).

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It’s not the first hole which the industry players have sought to punch in the Greens’ claims made on Monday, with the proponents of the Beetaloo gas project in the Northern Territory - Tamboran Resources and Empire Energy - both refuting a claim from Greens leader Adam Bandt that the agreed to amendments had “derailed” both the Beetaloo project and Santos’s Barossa development off the NT coast.

Tamboran managing director Joel Riddle said the claim was “100 per cent wrong’’, and that the Beetaloo project had already factored in everything called for in the amendments.

That’s an assessment which Mr Kavonic is comfortable with, with the Credit Suisse analyst saying the amendments could actually make the project more attractive as a source of gas to Darwin’s Icthys gas plant, given the potentially greater impact on the undeveloped Icthys Plover field.

“Labor has not conceded too much to the Greens that has real teeth,’’ Mr Kavonic said in a note to clients.

Mr Kavonic said the main, practical impact of the policy was that it would require new gas fields supplying liquefied natural gas plants to have all reservoir emissions offset.

“This will most impact new, high-CO2 reservoirs such as Santos’s Barossa, Shell’s Crux, Woodside’s Browse, Inpex Plover and some later backfill for Chevron’s Gorgon/Wheatstone,’’ Mr Kavonic said.

Credit Suisse and Jarden have both estimated Santos will be the most impacted “but overall valuation impact is under a few per cent for all of Woodside, Beach Energy, and Santos’’ Mr Kavonic said.

Jarden’s analysts said the revisions would have no material impact on Woodside Energy “but the requirement to offset Barossa reservoir emissions increases the cost impact for Santos by 9 cents per share to 26 cents per share’’.

Santos is yet to respond to the revisions announced this week.

Woodside said via a spokesperson on Tuesday “Australia needs to find a way forward to ensure there is investment certainty for the businesses that are committed to the nation’s emissions reduction goals and that drive our economy via domestic gas, tax revenue and raw materials for manufacturing’’.

“The safeguard mechanism amendments acknowledge the role for gas and carbon capture, utilisation and storage in maintaining Australia’s competitiveness in a decarbonising economy, while reducing emissions at the largest industrial facilities.

“We look forward to engaging with government on the implementation of the safeguard mechanism package in a manner that supports the development of needed new energy supplies, and ensures a continuation of Australia’s reputation for investment certainty.’’

Mr Kavonic said on the political and legal front, the revisions did increase execution risk.

“The new policy sees ample more discretion awarded to the minister to not approve projects on emissions grounds and restrict offset use for new oil and gas projects,’’ he said.

“While it’s all discretionary, and we expect Labor doesn’t have a current intent to exercise this discretion, political drivers and intents can change.

“Indeed, it may prove a brave minister who approves a new gas project after the Climate Change Authority declares it to breach the emissions trajectory (notwithstanding there are avenues the minister can take to maintain the emissions target and accommodate the trajectory.’’

Under the changes, projects which use carbon offsets to meet more than 30 per cent of their targeted requirements will be referred to the Clean Energy Authority to explain why.

Mr Bandt said on Monday that under the “wide-ranging powers” afforded to the Minister under the revisions, the government “could” set the use of Australian Carbon Credit Units (ACCUs) at zero, “effectively stopping a project from proceeding’’.

“The minister’s action or lack of action would be subject to legal enforcement,’’ Mr Bandt said.

Mr Kavonic said the policy both provided more gateways for political pressure as well as scope for more legal challenges and appeals.

He said this could “further muddy the approvals process and delay timelines for new projects ... which will also impact industry appetite to even try to pursue new investment’’.

With offsets an important measure to bring projects across the energy sector but also other energy-intensive industries back to their required emissions outputs, AIC took issue with Mr Bandt’s claim that offsets produced through HIR were “dubious’’ and that their use would be frozen.

AIC chief executive Adam Townley said the claims were “wilfully misleading’’ and the new legislation would in fact make HIR more important.

Mr Townley said the agreement merely agrees to the implementation of the Chubb Review’s recommendation that HIR is appropriately administered to ensure genuine abatement occurs – something strongly supported by industry participants.

“The Chubb Review was clear in finding that carbon abatement from increased vegetation is real. It was also clear that best practice requires that HIR is subject to regular review and active management,” Mr Townley said.

As defined by the Clean Energy regulator, HIR involves encouraging the regeneration of native tree species indigenous to a project area.

The Chubb Review’s final report into the ACCU scheme, released in January, found that “the HIR method is sound’’, while giving guidance on how such projects should be regulated.