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NSW planning commission approves Santos’s Narrabri gas field project

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Shares of Santos fell after they emerged from an initial trading halt on Wednesday. In a statement to the stockmarket, the company said it welcomed the IPC’s approval and accepted the conditions. It would now work with the federal government to secure final approval under national biodiversity laws.

“Santos is excited about the prospect of developing the Narrabri Gas Project, a 100 per cent domestic gas project that can provide the lowest cost source of gas for NSW customers,” chief executive Kevin Gallagher said.

“As the economy recovers from COVID-19, game-changing projects like the Narrabri Gas Project are critical to creating jobs, driving investment, turbo-charging regional development and delivering more competitive energy prices.”

Once all approvals are in place, Santos would commence 12-18 months of appraisal drilling, which would inform the final plans for its phased development of the Narrabri project.

Santos says the Narrabri field can supply as much as half of NSW's gas needs.

Santos says the Narrabri field can supply as much as half of NSW’s gas needs.Credit:Brendan Esposito

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In an indication that Santos still has regulatory hurdles to clear, the IPC said its consent for the project does not extend to the proposed gas-fired power station at Leewood, the Westport workers accommodation or non-safety flaring infrastructure.

The phased approval covers four stages of the project’s development, covering appraisal, construction, production and finally rehabilitation once the two decade-plus project involving 850 gas wells ends.

Addressing some of the concerns – the project drew some 23,000 submissions, most of them opposed to the gas field – the commissioners laid out a range of conditions that indicate Santos still has a lot of work to do before the first joules of gas get piped to customers.

Among the key conditions are those relating to groundwater, greenhouse gas emissions and the need to dispose of as much as 840,000 tonnes of crystallised salt during the project’s life.

On groundwater, the IPC said that while the proponent’s impact modelling was “fit for purpose for this approval”, it still needs more information before the project can proceed to construction “to reduce the level of uncertainty”.

“The imposed conditions do not permit [Santos] to establish the production field (Phase 2) if the revised groundwater model predicts an exceedance of the water management performance measures identified in the consent,” the IPC said.

On the contentious issue of whether tapping methane from the coal seams will have less of a climate change impact than coal, the IPC said such an emissions advantage “may be jeopardised by an underestimation of fugitive emissions” escaping to the atmosphere.

Santos's CSG storage ponds in the Pilliga State Forest. Approval will open the way for 850 wells in the gasfield.

Santos’s CSG storage ponds in the Pilliga State Forest. Approval will open the way for 850 wells in the gasfield.Credit:Dean Sewell

To counter that, the IPC will require Santos to fully offset any exceedances of its emissions prediction during the extraction and transport, or so-called Scope 1 and 2 greenhouse gas emissions. Santos said the Scope 1 emissions would be the equivalent of 15.5 million tonnes of carbon dioxide equivalent, with 18 million tonnes for Scope 2 and 94.3 million tonnes from so-called Scope 3 or downstream combustion.

“The applicant will also be required to consult with an expert advisory group in measuring, minimising and reporting these emissions,” it said.

Santos, too, will have more work to do to proceed even to the first phase of the project when it comes to disposing of the mountains of salt expected to be brought to the surface along with water as Santos tries to extract the gas.

While the commission was “satisfied” the waste salt could be disposed of appropriately, with landfills considered a last resort, it added extra conditions.

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The NSW Environment Protection Authority, as lead regulator, will have to confirm Santos is meeting its pledge to minimise on-site storage of the salt, and will “require arrangements for beneficial reuse or landfill disposal at an appropriately EPA-licensed facility to be in place prior to Phase 1” of the project.

Georgina Woods, a co-ordinator of the Lock the Gate Alliance, said the approval was “disappointing” but the conditions mean Santos “is a long way from the starting gates”.

The requirement for the company to redo the groundwater model so that it meets a Class-3 confidence level before project construction can proceed will be particularly challenging, she said.

“Santos is really going to struggle to proceed with this gasfield,” Ms Woods said.

Ms Woods noted the IPC had highlighted that some 71 per cent of the local submissions were opposed to the project, dousing commentary that the region supported the gasfield.

The panel of three commissioners – chaired by Stephen O’Connor with John Hann and Professor Snow Barlow – said that “on balance” the project was likely to provide “a net economic benefit for the local community, region and state”.

Opponents are not likely to give up on their battle to prevent the Narrabri gas field from proceeding even with the IPC's verdict.

Opponents are not likely to give up on their battle to prevent the Narrabri gas field from proceeding even with the IPC’s verdict.Credit:Nic Walker

It also had the potential “to improve gas security for Australia’s east coast domestic market”.

Santos chief Mr Gallagher told the IPC in July his firm has spent $1.5 billion on a gasfield with the potential to meet half of NSW’s gas needs. The state currently imports 95 per cent of the fuel, much of it from Santos’s operations in the Cooper Basin of South Australia.

During construction, Santos has said the venture would employ as many as 1300 people, with up to 200 of the jobs ongoing. Royalties will tip $1.2 billion into state coffers.

Whether the added conditions will make the project commercially unviable remains to be seen. Likewise, it is not clear whether added supply will make much if any difference to gas prices.

Santos has pointed to a 2020 report by the Australian Energy Market Operator where the production cost in Narrabri was put at $6.40 per gigajoule – excluding transportation costs.

The Australia Institute has pointed out modelling for that figure had from Santos itself. Previous AEMO estimates put the cost at $7.28-$9.36 per gigajoule.

By contrast, the Australian Competition & Consumer Commission is predicting gas prices to average $5.63 per gigajoule in 2021.

Pressure transmitters display readings on a Santos pilot well operating in the Pilliga forest in Narrabri.

Pressure transmitters display readings on a Santos pilot well operating in the Pilliga forest in Narrabri.Credit:Bloomberg

The push to lift gas supply in Australia’s south-eastern states has been taking on increasing urgency in recent years as gas-reliant manufacturers struggle in the face of a three-fold hike in contract prices.

Union officials in the manufacturing sector, which uses gas for energy or as a feedstock, said the Narrabri green light had the potential to greatly alleviate supply-and-demand pressure and drive down prices.

“More gas should mean more affordable gas; more affordably gas means more competitive manufacturing and cheaper electricity,” Australian Workers Union secretary Daniel Walton said.

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“New South Wales should be a thriving global heavy manufacturing hub, and that’s exactly what we can become if we better harness our gas wealth. This approval is an excellent step.”

Mr Walton called on the NSW government to ensure that Santos remained committed to ensuring that Narrabri gas would be kept for local consumption and not be sold on the export market.

Oil and gas industry representatives say the Narrabri project would unlock gas reserves for NSW homes, small businesses, major industries and electricity generators.

“The clearest way to put downward pressure on gas prices for customers, including manufacturers, is to increase supply and competition,” Australian Petroleum Production and Exploration Association chief Andrew McConville said on Wednesday. “The Narrabri Project does just that. This is an important outcome for energy security and reliability for the state of NSW.”

Graeme Bethune, chief excutive of advisory firm EnergyQuest, said Narrabri “certainly should be extremely competitive on the east coast”.

Mr Bethune described the project as “critical…if it doesn’t go ahead the [gas] price will go back up”.

Remaining hurdles include securing investment and approvals for a gas pipeline to take the Narrabri gas to market, and also possible legal challenges.

Tony Pickard, a local farmer in the region near the proposed Santos coal seam gasfield near Narrabri inspects vegetation killed from saline water produced from pilot wells.

Tony Pickard, a local farmer in the region near the proposed Santos coal seam gasfield near Narrabri inspects vegetation killed from saline water produced from pilot wells.Credit:Jacky Ghossein

David Morris, chief executive of the Environmental Defenders Office, said giving approval of the gasfield placed “the groundwater, ecosystems and local communities around the Pilliga at risk”.

“It adds another source of powerful greenhouse gas emissions to our atmosphere at a time when what is urgently needed is rapid and deep reductions in emissions,” he said, adding the organisation would be meeting clients in coming days to discuss legal options to block the project.

The venture involves contruction of as many as 425 well pads and the clearing of about 1000 hectares within the 95,000 hectare project area.

Eleanor Lawless, a campaign manager at the Wilderness Society, said the approval was “devastating for Australia’s natural and cultural heritage”.

The long-running campaign including from the Morrison government to pressure the IPC to approve the gasfield “undermined our democracy and corrupted proper process”, Ms Lawless said.

Market analysts described Wednesday’s decision as positive news for Santos following years of public opposition and long delays that forced the company to write down the value of the asset to zero in its accounts.

“We view this final regulatory decision as a positive outcome for Santos, particularly after the company has struggled with this asset for many years,” said Gordon Ramsay, a Sydney-based energy analyst with the Royal Bank of Canada.

Several companies have lined up to buy gas from Narrabri, including brick manufacturer Brickworks, gas wholesaler Weston Energy and fertiliser maker Perdaman.

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