The new Safeguard Mechanism andthe Santos Barossa gas project
The Safeguard Mechanism now requires stronger
action to cut pollution from gas projects including
full abatement of reservoir emissions. The SantosBarossa project is particularly emissions-intensive
and is likely to incur carbon costs of between $500m
and $987m between now and 2030.
Authors: Piers Verstegen, Rod Campbell
Date: May 2023

INTRODUCTION
Australia’s primary policy to address industrial greenhouse gas emissions is theSafeguard Mechanism. The policy covers facilities that emit over 100,000 tonnes ofCO2e- per year and was recently amended with new features including:••••

All facilities to reduce net emissions by 4.9% per year to 2030, and to be at netzero emissions by 2050.
A “hard cap” on gross emissions.
New export gas developments must have zero net reservoir emissions fromcommencement.
A review of Human Induced Regeneration offsets (HIR), one of the largest
offsets methods in Australia.

These changes will have particular impact on the Santos Barossa project: a $5.2 billion
offshore gas development located north of Darwin in the Timor Sea. The project
involves a new floating production facility, underwater wells, and a pipeline
connection to the existing Darwin LNG export facility. Barossa is possibly Australia’s
most carbon intensive gas development due to the very high CO2 content in theBarossa field.

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BAROSSA PROJECT
Under the strengthened Safeguard Mechanism, there are several requirements thatwill impose additional costs on the Barossa Development.

Reservoir emissions
The most significant aspect of the new Safeguard Mechanism for the Barossa Project isits requirement that new offshore gas fields must either fully offset, or capture andpermanently store, all reservoir carbon emissions. This requirement will take effect assoon as operation commences and will apply for the life of the project.
Any given gas field will contain an amount of CO2 which will be trapped within thereservoir along with the natural gas (methane). This CO2 is normally vented—i.e.
released into the atmosphere—at the field and/or at the gas processing facility prior toliquefaction or refining. These emissions are referred to as “reservoir emissions”.
The level of reservoir emissions varies from field to field depending on how much CO2
is trapped along with the natural gas. At 16%–20% CO2 by volume,1 the Barossa field
has a higher proportion of reservoir CO2 than any other gas field in Australia. The field
has three times greater CO2 content than the Bayu-Undan gas field, which currently
feeds the Darwin LNG facility, and six times greater than the North West Shelf LNG
facility in Western Australia.2 This means that the Barossa field faces much higher
abatement costs than other LNG development in Australia.
When the project’s offshore and gas processing emissions are factored in, the LNG
produced from the Barossa field would have a total emissions intensity of 1.4 tonnesof CO2 per tonne of LNG produced. This makes the Barossa development the mostemissions intensive LNG projects in Australia and the world, as shown in Figure 1
below:

1

Conoco Phillips (2017) Barossa Area Development Offshore Project Proposal, page 131, Table 4-8,
https://www.nopsema.gov.au/sites/default/files/documents/2021-03/Draft-for-public-commentBarossa-Area-Development-Offshore-Project-Proposal-July-2017.pdf
2Institute for Energy Economics and Financial Analysis (IEEFA) (2022) Santos’ Loss Forces Them Back toThe Drawing Board on Unapproved Barossa Gas Project, https://ieefa.org/resources/santos-lossforces-them-back-drawing-board-unapproved-barossa-gas-project

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Figure 1: LNG facilities by emissions intensity, Australia and selected overseas
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

Sources: Conoco Phillips (2017) Barossa Area Development Offshore Project Proposal, Jacobs(2019) NWS Project Extension Proposal Greenhouse Gas Benchmarking, Figure 5-1,
https://www.epa.wa.gov.au/sites/default/files/PER_documentation2/NWS%20Project%20Exte
nsion%20-%20Appendix%20F%20-%20Greenhouse%20Gas%20Benchmarking%20Report.pdf

Figure 1 includes two estimates for Barossa: total emissions intensity of 1.4 tonnes
CO2-e per tonne, which includes reservoir emissions, flaring and fuel gas emission in
the field and LNG processing; and another estimate: 0.97t tonnes CO2-e per tonne
LNG, which excludes field flaring and fuel gas emissions to ensure a like-for-likecomparison with the data for the other LNG facilities. It is likely, however, thatBarossa’s unusually large field fuel gas emissions relate to processing of its highreservoir emissions, meaning that the other projects are unlikely to have similarly large
fuel gas emissions in the field. Regardless, Barossa’s emissions are likely to be among
the highest in the world on a per-tonne of LNG basis.

Other direct emissions
Beyond reservoir emissions, the new Safeguard Mechanism requires covered facilities
to reduce other emissions at a rate of 4.9% per year to 2030 and to net-zero by 2050.

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According to the Barossa Development Offshore Petroleum Proposal,3 other emissions
will include:•••

0.055 Mt CO2-e per year from offshore flaring,
1.509 Mt CO2-e per year from the use of fuel gas at the offshore facility, and1.751 Mt CO2-e per year from processing the gas at the Darwin LNG facility.4

All these emissions will be subject to the 4.9% per year reduction obligation.

ABATEMENT OPTIONS: RISKY AND EXPENSIVE
Abatement of reservoir gas and other emissions from the Barossa LNG project could beachieved through purchasing of offsets and/or Carbon Capture and Storage (CCS)
technology. Both methods carry significant additional risk for Santos and its
shareholders.

Carbon Capture and Storage
Santos has proposed the development of a CCS facility to capture the Barossa project’s
reservoir emissions. The captured CO2 would be injected into the depleted BayuUndan gas fields.
There are very significant environmental and capital risks, as well as additional energyuse, associated with this option. The proposed CCS facility would incur significant
capital expenditure and would require a new environment impact assessment process
under Northern Territory and Commonwealth environmental laws. This has thepotential to delay the commencement of the project by several years.
In addition, the decommissioning costs and operational risks associated with an
offshore CCS facility would be significant. The amount of energy required to pump CO2
from the Barossa field to the injection site would be significant, and the risks
associated with potential future carbon leakage from the fields would present an
ongoing and potentially uninsurable risk for the company.
A similar CCS injection facility for reservoir gas at Chevron’s Gorgon LNG project inWestern Australia been plagued with ongoing technical problems, cost blowouts, and34Conoco Phillips (2017) Barossa Area Development Offshore Project Proposal
Historical baseline reported at Clean Energy Regulator (2023) Safeguard baselines table,
https://www.cleanenergyregulator.gov.au/NGER/The-safeguard-mechanism/safeguarddata/Safeguard-baselines-table

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compliance issues. The facility cost over $AU3 billion,5 and has fallen short of its
injection targets by about 50% in its first five years of operation. As a result, Chevron
will now be required to retrospectively offset over five million tonnes of CO2.6Offsets
Facilities covered by the Safeguard Mechanism will only be able to use AustralianCarbon Credit Units (ACCUs) or Safeguard Mechanism Credits to offset emissions.
Using ACCUs to offset emissions also presents considerable risk to Santos and its
shareholders, not least because the use of offsets to abate a high proportion ofemissions is inconsistent with new international standards published by the United
Nations7 and the International Organization for Standardization8 on greenwashing andnet zero commitments:
Non-state actors cannot buy cheap credits that often lack integrity instead ofimmediately cutting their own emissions across their value chain.
(United Nations High Level Expert Group on net Zero Commitments from NonState entities)
As countries and businesses look to decarbonise supply chains, international markets
will increasingly place a cost premium on products from facilities that do not comply
with such standards.
The potential for failed offsetting projects in Australia is also very real. Analysis ofseveral ACCU methods have found that far lower levels of abatement have beenachieved than has been claimed, and that the offsets lack integrity and permanence.9
It is likely that these risks will be reflected in significant additional future costs for

5IEEFA (2002) If Chevron, Exxon and Shell can’t get Gorgon’s carbon capture and storage to work, whocan?, https://ieefa.org/articles/if-chevron-exxon-and-shell-cant-get-gorgons-carbon-capture-andstorage-work-who-can
6Sydney Morning Herald (2021) Chevron’s five years of Gorgon carbon storage failure could cost $230
million https://www.smh.com.au/environment/climate-change/chevron-s-five-years-of-gorgon-carbonstorage-failure-could-cost-230-million-20211110-p597uf.html
7United Nations High Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities(2023) Integrity Matters, Net Zero Commitments by Business, Financial Institutions, Cities and Regions
https://www.un.org/sites/un2.un.org/files/high-level_expert_group_n7b.pdf
8International Organization for Standardization (2023) Net Zero Guidelines https://www.iso.org/netzero
9Long and McDonnald (2022) Insider blows whistle on Australia's greenhouse gas reduction schemes,
https://www.abc.net.au/news/2022-03-24/insider-blows-whistle-on-greenhouse-gas-reductionschemes/100933186

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facilities relying on these forms of abatement, and contribute to a significant credibility
gap in their corporate climate change commitments.

COST IMPACT ON BAROSSA PROJECTThe Barossa project’s capital cost is estimated at $5.2 billion AUD.10 Santos currently
aims to produce the first gas from the project in 2025.11
This 2025 start date means that the facility will face the increased cost impacts of thestrengthened Safeguard Mechanism—including abating all reservoir gas emissions andreducing other emissions in line with the Safeguard Mechanism annual decline rates
published by the Australian Government—as soon as it begins operating.

Cost for abatement of reservoir gas
The most significant cost incurred by Santos under the Safeguard Mechanism will bethat of the complete abatement of reservoir gas emissions. At the current ACCU priceof $38 per tonne,12 offsetting 1.8 million tonnes of reservoir emissions per year would
cost $69 million per year. However, it is likely that the carbon price will risesignificantly once the Safeguard Mechanism reforms take effect. This anticipated pricerise will be further exacerbated by constraints on the use of cheap low-integrity
offsets, the review of HIR method and the hard cap on emissions.
At a higher carbon price of $75 per tonne, the Government’s proposed maximum
price, Santos would incur a cost of $136 million per year to offset reservoir emissions
only, or $683 million for five years of operation to 2030.

Cost of abatement for other emissions
In addition to fully abating reservoir emissions, Santos will face additional abatement
costs for other emissions associated with processing of the Barossa gas and the Darwin
LNG facility. Offshore emissions (other than reservoir gas) and processing emissions
associated with the Barossa gas will be 3.315 Mt CO2-e per year including offshore
flaring and combustion of fuel gas, and emissions from gas processing at Darwin LNG.
Under the Safeguard Mechanism, Santos will be required to abate or offset an
10 Sydney Morning Herald (2022) Santos restricts drilling its $5b Barossa project until court approval

https://www.smh.com.au/business/companies/santos-restricts-drilling-its-5b-barossa-project-untilcourt-approval-20220826-p5bd3a.html
11 Santos (n.d.) Barossa Gas Project, https://www.santos.com/barossa
12Jarden ACCU web platform https://accus.com.au/

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additional 4.06Mt CO2-e under the Safeguard decline rate of 4.9% per year from 2025
to 2030.
This will represent an additional cost of $304.6 million for the five years of operation to2030, based on the higher expected carbon price under the Safeguard Mechanism.
These additional costs are summarised in Table 1 below.
Table 1: estimated abatement costs for the Barossa to Darwin LNG project

Reservoir emissions
Other offshore
emissions(fuel gas and flaring)
Darwin LNG
emissions
Total per year
Total to 2030

Emissions

Abatement
required

Mt CO2-e/yr% of emissions

1.821
1.564

100%
4.9% peryear

1.751

4.9% peryear

5.136
25.68

Abatement
required
2025-26 to 2029-30
Mt CO2-e

Cost at carbon price
($m)
$38/t
CO2-e

$75/t
CO2-e

9.1

$346.0$682.9

1.92

$72.8

$143.7

2.14

$81.5

$160.913.16$500.3$987.5

CONCLUSION
The strengthened Safeguard Mechanism will impose considerable additional costs on
the Barossa LNG development. An estimated cost of between $500.3 and $987.5m to2030 will be incurred under the new policy.
For context, this represents nearly 20% of the $5.2 billion capital costs of the project.
It is important to recognise that these costs will continue to increase after 2030 as theSafeguard Mechanism baseline for the Darwin LNG facility will decrease to zero by2050.

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