ANALYSIS

Chevron was allowed to build its $US55 billion Gorgon LNG plant on the Barrow Island nature reserve for one reason only: to bury millions of tonnes a year of carbon dioxide from offshore reservoirs into a formation deep under the island.

Since LNG production began in March 2016, Chevron's attempts to meet its commitments to the WA Government to inject CO2 underground have been late, then bungled and now curtailed by a worried regulator.

The importance of CO2 injection at Gorgon goes well beyond WA. It is the world's largest carbon capture and storage project dedicated to reducing greenhouse gas emissions, not enhancing oil recovery.

If oil and gas giant Chevron backed by its two major partners Shell and ExxonMobil, could not get it right at Gorgon more than a decade after the project was approved, then forecasts of a massive global CCS rollout before 2050 look doubtful.

Without significant CCS, the only way to maintain global temperature rise to within 2℃ is an immediate and drastic curtailment of fossil fuel use.

The WA Government laid out two clear requirements for CO2 injection at Gorgon in its environmental approval for the project.

Before Chevron and its partners Shell and ExxonMobil committed to the project in 2009, they knew they had to:

  1. "Implement all practicable means to inject underground all reservoir carbon dioxide removed during gas processing."
  2. "Ensure that calculated on a 5-year rolling average, at least 80 per cent of reservoir carbon dioxide removed…is injected."

In March 2016, Gorgon produced its first load of LNG two years late after a budget blowout of $US18 billion ($24 billion). Over the next 12 months, the plant's second and third LNG trains entered production.

Despite an additional two years of construction, Chevron was not ready to inject CO2 underground. By mid-2016, wells had not been completed, equipment at the top of the wells was not installed, and the CO2 pipeline was not connected, according to Chevron's annual report to the Federal Government.

Being so far behind appears at odds with Chevron's first requirement to "implement all practicable means" to store all the CO2.

Simply difficult

What Chevron was attempting to do was as simple as carbon capture and storage gets but still a complex exercise.

The Gorgon LNG plant is supplied with gas from two offshore fields: Jansz-Io containing negligible CO2 and the Gorgon field with about 14 per cent CO2.

LNG plants must extract all CO2 from the gas before it is liquified to prevent solid frozen CO2 damaging equipment. Chevron completed that first step, which is required for the plant to produce revenue, on time.

The second step of CCS – storage - has cost $3.1 billion to mid-2020 and proved problematic despite Chevron having studied it since 1998.

Map of CO2 injection facilities on Barrow Island for the Gorgon LNG project, including compressors and wells for CO2 injection, surveillance and pressure management.
CO2 injection facilities on Barrow Island. Source: Chevron Australia Pty Ltd

Up to four million tonnes of CO2 a year extracted at the LNG plant has to be compressed to a so-called super-critical phase with the density of a liquid but flowing freely like a gas.

The CO2 is then piped up to 7km and injected into a sandstone layer about 400m thick more than 2000m underground.

About 4km away, water is pumped to the surface from the same layer to make room for the CO2. This water is then pumped into a different layer of rock above the CO2.

Not working: again, and again and again

When Chevron eventually started preparing the equipment for startup it found a long list of problems it had missed in the preceding years. The most serious was a design issue with the compressors that could cause water and CO2 to mix and form an acid that would corrode the equipment.

In April 2017, Chevron claimed its third $20 million tranche of funding from the Federal Government linked to the milestone "ready for startup of the first CO2 compressor."

Months later, Chevron reported that CO2 injection would not start until mid-2018 to allow the compressors to be modified.

The compressor modifications were incomplete in mid-2018, and Chevron pushed first CO2 injection back to early 2019. However, Chevron also missed that target, and injection did not begin until August 2019.

Even when CO2 injection began 3½ years after the first LNG production, the system was not fully operational. The wells designed to remove water to make way for the CO2 were out of action as they clogged with sand during testing.

During 2020 CO2 injection averaged 70 per cent of maximum capacity under a series of permissions from WA's Department of Mining, Industry Regulation and Safety to operate without the water wells working.

Finally, in December 2020, the regulator's patience wore out, and it cut the permitted injection rate to 30 per cent of maximum capacity until Chevron fixed the so-called pressure management system. Without the water being removed there was a risk that the increasing pressure required to pump the CO2 underground would fracture the rock around the injection wells and permanently damage the system's performance.

Gorgon has been in production for 5½ years, but there has not been a day when all elements of the CO2 injection system worked at the same time.

What's the deal?

While on Barrow Island engineers were tackling technical problems in Perth Chevron and the Government were at loggerheads over the fine print of what the US giant and its partners Shell and ExxonMobil were obliged to do.

In dispute was the start date of the first five-year period when 80 per cent of the CO2 from the reservoir must be injected.

Then Environment Minister Stephen Dawson referred the question to the WA Environmental Protection Authority in May 2018, and the EPA finally reported back in September 2019.

The EPA concluded that CO2 injection would not be assessed from when production began but from when each LNG train received its operating license: mid-2016 for Train 1 and mid-2018 for Trains 2 and 3.

Production from Gorgon's second train started in October 2016, and the third train started in March 2017, yet Chevron did not receive an operating license for these trains until July 2018. Before then, the two giant trains operated under a works approval usually uses for construction and a short period of commissioning after startup.

This licensing arrangement significantly reduced the calculated shortfall in CO2 injection that Chevron and its partners are liable for.

The first five-year period ends on Sunday July 18.

Chevron is now required to tell the Government how the 80 per cent target could be met or how it will offset the shortfall.

Chevron's main options are to propose that the 80 per cent average could be reached over a more extended period, or buy carbon credits to cover the shortfall to date.

Given Chevron's continued failure to meet targets for CO2 injection, the Government would be naive to accept a delay in reckoning.

What's the damage?

Boiling Cold has collated all available data on Gorgon's emissions and made estimates for the 2020-2021 financial year.

Carbon emissions from Gorgon have been terrible on several measures.

Annual greenhouse gas emissions and CO2 injection at Chevron's Gorgon LNG plant. Analysis by Boiling Cold.
Sources: Clean Energy Regulator emissions figures and Chevron reports to WA and Federal Governments. Analysis: Boiling Cold.

Total emissions have exceeded what Chevron planned every year except in 2015-2016 when only one train operated for a few months and 2020-2021 when only two out of three trains operated while Chevron repaired cracked propane vessels.

Emissions exceeded the generous Federal Government safeguard mechanism baseline for two years, but Chevron was allowed the flexibility to have performance measured over a three-year period.

About 26 million tonnes of carbon pollution has been emitted from burning gas to generate power or drive compressors.

Column chart showing the shortfall in CO2 injection at Chevron's Gorogn LNG project on Barrow island Western Australia.
Source: Boiling Cold

Almost 15 million tonnes of CO2 has arrived on Barrow Island with the gas produced from the offshore fields, and about 30 per cent has been injected underground, well short of the 80 per cent target.

If all reservoir CO2 vented because 80 per cent injection was not achieved counted, then Chevron and its partners would be liable for about seven million tonnes of CO2.

However, the EPA's determination that emissions before an operating licence is awarded do not count means the liability is about 4.8 million tonnes.

Purchase of Australian Carbon Credit Units to offset the shortfall at the recent spot price of about $20 a tonne would cost about $100 million.

Chevron's $47 million share of such a bill would be just over two days of its 2020 Australian revenue of $US5.9 billion ($7.9 billion).

Minister for Environment and Climate Action Amber-Jade Sanderson expects Chevron to provide an update regarding CO2 injection at Gorgon once the first five-year measurement period ends on July 18.

"The Minister has called Chevron in for a meeting to discuss her concerns and to seek an explanation of how the company intends to address the issue," a spokesperson said.

The Department of Water and Environmental Regulation has requested Chevron provide details regarding its CO2 injection performance by August 9.

Chevron declined to comment.

Chevron operates and owns 47 per cent of Gorgon. Shell and ExxonMobil own 25 per cent each, and three Japanese power utilities hold the remaining equity.


Updates:

18 July 2021, 7:00 PM: Added Chevron 2020 Australian revenue and equity shares of the Gorgon project.

July 2021: Added that Chevron must report to DWER by August 9.