Fresh doubts over flagship Santos project as fault forces Barossa shutdown

Santos is racing to fix a fault on its flagship Barossa gas project's offshore vessel, as pressure mounts to deliver its first LNG cargo by year-end.

Santos insist its future has never been brighter, in large part due to the imminent impact of its Barossa LNG project.

Santos is scrambling to keep its flagship Barossa LNG project on track after a fault aboard an offshore production vessel forced a shutdown, raising fresh doubts over its long-promised timetable for first gas production amid mounting investor pressure.

Repairs were close to completion, sources said, but the stoppage had left the company facing a race against time to hold its schedule. Gas must be transferred from the vessel to the Darwin LNG plant for processing and export, and any delay in recommencing production tightens the window for Santos to deliver its first cargo by year-end.

Santos has not issued an ­update to the market, underscoring its confidence that it ­remains on track to meet fourth-quarter guidance, but those close to the project said internal pressure was mounting.

“It sounds like Santos has been scrambling to address an offshore issue at Barossa, so the Darwin LNG plant hasn’t even cooled down yet to get ready for exporting cargoes,” said a senior industry source.

The issue, detected this month during production operations on the BW Opal floating production, storage and offloading (FPSO) vessel, ­involved the failure of a fitting on pipework connected to the ­seawater cooling system, The Australian understands.

Santos FPSO Barossa.

No personnel were injured and there was no environmental harm, but Santos immediately shut down operations, notified authorities, and launched urgent repair and diagnostic efforts.

The collapse of Abu Dhabi National Oil Company’s roughly $30bn takeover approach – a bid that would have delivered shareholders a substantial premium – has placed Santos under renewed scrutiny from investors who have grown impatient about the company’s ability to deliver the value it has long been promised.

Chief executive Kevin Gallagher has insisted the company is at the strongest point in its 70-year history, but with Barossa ­carrying much of the weight of Santos’s growth outlook, the latest issue will sow concern among some shareholders.

Mr Gallagher has urged shareholders to remain patient, arguing Barossa and a suite of expansion projects across northern Australia and Papua New Guinea will underpin earnings growth and strengthen Santos’s competitiveness well into the next decade. But investors appear to be in little mood for further ­setbacks, particularly after a string of regulatory and operational challenges.

Barossa is the largest development in Santos’s pipeline: a $5.4bn offshore gas field linked to a new purpose-built FPSO and connected via pipeline to the Darwin LNG plant.

The project is intended to ­secure the Northern Territory’s long-term role as an LNG export hub and allow Australia to tap ­lucrative Asian demand as regional buyers are seeking stable, long-dated supply contracts. But progress has been repeatedly disrupted. A protracted legal battle with Tiwi Islanders over environmental approvals halted pipeline construction for months, while BW Opal was forced in September into a two-week shutdown amid unspecified software issues that led the company to lower its production guidance.

The timing of the outage comes as Santos is also under intensifying scrutiny from the Albanese government, which is preparing to sign off on sweeping new rules governing the east coast gas market. The Australian understands a reservation scheme, long resisted by producers, is viewed within the industry as inevitable.

Such a mechanism would carry implications for Santos, the largest shareholder in Gladstone LNG, one of three Queensland LNG exporters. Gladstone LNG is the only project that does not produce enough gas to meet its contractual export obligations and has relied heavily on purchasing gas from the domestic market to fill the gap. Critics say this practice has tightened local supply and contributed to elevated prices for manufacturers and households.

Gladstone LNG rejects that argument, insisting its buying was the catalyst behind these developments materialising and warning any curbs on its domestic buying could threaten the energy security of allies such as Japan, Korea and China.

But with the government’s east coast market review nearing its end, producers fear the coming regulatory reset will favour interventionist settings designed to guarantee local supply at the expense of export-led development.

For Santos, the challenge is one of timing as much as execution. It must reassure investors bruised by the failed ADNOC bid, demonstrate to governments that it remains a reliable long-term supplier and convince customers that Barossa, the cornerstone of its growth strategy, can be delivered without further delay.

Originally published as Fresh doubts over flagship Santos project as fault forces Barossa shutdown