Chevron's dodge on Gorgon LNG carbon pollution rejected

Chevron has been denied a two-year free pass on Gorgon greenhouse gas emissions by the WA Government that could cost it more than $80 million, and there may be a future bill for Wheatstone as well.

Chevron's dodge on Gorgon LNG carbon pollution rejected

The WA Government has backed the advice of the Environmental Protection Authority that the Gorgon LNG project has to meet requirements to bury some of its greenhouse gases from the start of operations, not two years afterwards as operator Chevron argued.

The action by WA Environment Minister Stephen Dawson on Friday makes it almost certain that Gorgon's showpiece carbon storage project will breach its environmental conditions.

The $US54 billion ($80 billion) Gorgon LNG project was only allowed on the Class A nature reserve Barrow Island as it was an ideal location to bury carbon dioxide that makes up about 14% of the gas from the Gorgon offshore reservoir.

Gorgon - the biggest emitter of greenhouse gases in the State - is required to be able to inject all its reservoir CO2 underground and inject at least 80% of that CO2 over any five-year period.

Dawson asked the EPA in April 2018 to determine when the injection requirement commenced.

The EPA concluded in September 2019 that all reservoir gas vented to the atmosphere after 14 July 2016 should count. Gorgon shipped its first cargo in March 2016 but only used gas from the Jansz reservoir, that has negligible CO2, in the early months of production.

Chevron wanted Gorgon's performance against the 80% injection requirement to be measured from July 2018, more than two years after the Gorgon's first LNG cargo sailed.

The company argued, according to the EPA report, that the requirement should begin when the plant's current license to operate from the Department of Water and Environmental Regulation was issued. The current licence was issued well after the plant commenced operations as Gorgon had previously operated under two separate licences that were combined.

On Friday the EPA posted a revision to the ministerial statement of Gorgon's environmental conditions signed by Dawson that puts the EPA recommendation into effect.

Gorgon: way worse than "worst-case"

Boiling Cold used the past three Gorgon environmental performance reports to the WA Government and carbon emissions data from the Clean Energy Regulator to investigate the greenhouse gas performance of Gorgon.

The emissions in the first three years of operation can be compared to Chevron's "worst-case" and "target" emission performances from its 2015 Gorgon Greenhouse Abatement Program.

The principal cause of Gorgon's excessive emissions is that for three years CO2 stripped from the gas flowing from the reservoir was not injected underground but vented to the atmosphere.

When the CO2 injection system started operating in 2017 Chevron found excess water in the gas that could corrode the equipment. After extensive modifications, the system restarted in August 2019.

The Federal Government in 2011 stated the cost of the CO2 injection system was to be $2 billion. The final cost is likely to be much higher due to the delays and modifications.

Emissions other than reservoir CO2, mainly from gas burnt to power the LNG plant, started much higher than Chevron's target but are decreasing each year.

Flaring of excess gas during the troubled start-up of the LNG trains produced about 1.5 million tonnes of greenhouse gases in 16 months.

Boiling Cold calculated that if Gorgon can perform at its target level for the final two years of the five-year monitoring period, then about 48% of the reservoir CO2 would be stored underground. The shortfall from the 80% target is about 5.4 million tonnes.

The Department of Water and Environmental Regulation said in February that it would not consider regulatory options until the end of the five-year monitoring period in July 2021.

To offset the 5.4 million tonnes of calculated excess carbon pollution at the current spot price of Australian Carbon Credit Units of about $16 a tonne would cost Gorgon's partners $86 million.

In 2018 Chevron was earning about $32 million a day from its interests in  Gorgon and Wheatstone, that was only operating at half capacity.

A Chevron spokesperson said the company is reviewing the Minister's decision.

Breach of Commonwealth limit possible

It will be a close call if Gorgon can stay adhere to the Federal Government's safeguard mechanism that sets annual limits for large polluting facilities.

Gorgon, and some other plants, have been allowed the extra leeway of being measured over three years, allowing emission in some years to exceed the annual limit.

Gorgon's so-called multi-year baseline is 25.0 million tonnes of greenhouse gases during the three years to June 2020. The average of 8.35 million tonnes a year is a generous 41% higher than Chevron's predicted worst-case outcome.

The CO2 injection system that started operating in August 2019 had injected one million tonnes of CO2 by mid-February.

A Boiling Cold analysis estimated the CO2 injection system must operate at about 80% of its target capacity of 4 million tonnes a year for the remaining 3½ months of the three-year reporting period for Gorgon not to exceed the baseline.

Chevron may avoid breaching the limit due to a planned maintenance shutdown of one of Gorgon's three LNG trains.

If Gorgon's emissions do stay under the baseline, it will because it is set well above expected performance.

If the limit is breached, Chevron could be required to purchase carbon credits.

However, Chevron can now extend the three-year monitoring period by 12 months due to a recent change by the Clean Energy Regulator "in recognition of the widespread disruption that COVID-19 has caused for business operations."

This extra year will dilute the effect of the early years without CO2 injection and help Gorgon to not exceed the safeguard mechanism baseline.

Wheatstone LNG also under carbon scrutiny

The US oil and gas major may soon know if it must offset carbon pollution at Wheatstone, its other WA LNG plant.

Chevron and its partners approved the Wheatstone investment in 2011 knowing the project had to offset all emissions from reservoir gas, estimated to be about 1.2 million tonnes a year.

Two years later the Barnett Liberal WA Government removed the requirement it had imposed on the basis it duplicated the Gillard Labor Commonwealth Government's carbon price.

With a carbon price long-gone WA Environment Minister Stephen Dawson in early 2018 asked the WA EPA reconsider the requirement.

WA Minister for Environment Stephen Dawson. Source: WA Parliament

At the time WA shadow minister for mines and petroleum Bill Marmion incorrectly said the move created sovereign risk issues. If the requirement was re-imposed Wheatstone would return to the environmental conditions the investors accepted in 2011.

It is understood the EPA delayed a decision until it finalised its greenhouse gas guidelines, that were released in April.

The Wheatstone decision and an assessment of the Waitsia gas project in the Perth Basin due mid-year will be the first clear indications of the EPA's stance of greenhouse gas emissions since March 2019 when it withdrew a recommendation that all emissions be offset.

For both projects the EPA will make recommendations to Dawson who is obliged to consider EPA recommendations but free not to implement them.

Main picture: Gorgon LNG trains on Barrow Island. Source: Chevron Australia Pty Ltd.