Isramart : Chevron Australia CO2 Liability Deal May Be Precedent

Isramart news:
Sept. 18 (Bloomberg) — Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell Plc agreed to invest in the $37 billion Gorgon natural gas venture only after Australia’s government assumed liability for potential damages hundreds of years from now. That may set a precedent in this resource-rich nation.

The three oil companies said Sept. 14 they will proceed with the liquefied natural gas development, the continent’s biggest single investment, at Barrow Island off the northwest coast. The national and Western Australia state governments removed a key obstacle last month when they accepted “any long term liability” should carbon dioxide captured from the project escape sequestration, or storage, two kilometers underground.

“Letting taxpayers ultimately take responsibility for any problems with the CO2 sequestration is a calculated risk by the government,” said Craig Wallace, a senior associate of Lavan Legal in Perth who has advised companies on Australia’s draft climate-change legislation.

“It sets a precedent. It’s probably very likely other operations would get on the bandwagon.”

Gorgon is the largest of 10 proposed LNG projects that Resources and Energy Minister Martin Ferguson says will make Australia “an energy superpower.”

‘Long Term Liability’

The project’s importance in creating wealth, jobs and investment justified government acceptance of liability, Ferguson said Aug. 17. Gorgon may generate A$300 billion ($261 billion) in sales in its first 20 years, Prime Minister Kevin Rudd said. Exxon and Chevron have deals to supply LNG to China, India, Japan and South Korea.

Rudd didn’t detail the carbon agreement when he addressed parliament Aug. 17. A press release said the governments accept “any long term liability arising from the storage of CO2” under Barrow Island.

The governments will accept responsibility “only after they are absolutely satisfied that the stored CO2 poses no significant risk,” Michael Bradley, a spokesman for Ferguson, said Sept. 15 in an e-mail.

Chevron estimates Gorgon will start exporting gas in 2014 and have a lifespan of at least 40 years. The partners are liable for carbon storage during construction, operation and for at least 15 years after closure, government officials said.

That means government liability may start in 2069. The Commonwealth government in Canberra will assume 80 percent liability and the state 20 percent, Western Australia Premier Colin Barnett said Sept 9.

African Disaster

“That was a very big point that needed to be covered,” George Kirkland, Chevron’s executive vice president for upstream and gas, said Sept. 14. “I hope to see that dealt with similarly in many other places in the world.”

Carbon dioxide is denser than air and can be hazardous if it accumulates in low-lying or confined areas. Typical concentrations in the air are about 0.004 percent.

Levels above 5 percent can be fatal, a draft Gorgon environmental impact statement shows. The chances of gas escaping through natural clay and cement seals and reaching Barrow’s surface are “unlikely,” Gorgon General Manager Colin Beckett said in an Aug. 27 interview in Perth.

On Aug. 21, 1986, a naturally occurring mixture of carbon dioxide and water droplets erupted from the floor of volcanic Lake Nyos in western Cameroon, asphyxiating about 1,700 people nearby.

Earthquake Faults

“There is potential for some very substantial third-party claims,” Marius Toime, a corporate projects and finance lawyer focusing on resources at Holman Fenwick Willan Singapore LLP, said of carbon capture and storage projects.

The Gorgon site 50 kilometers (31 miles) off the coast is scarred by geologic fault lines. Since 1986, there were eight tremors of a magnitude greater than 3 within 100 kilometers of Barrow Island, Geoscience Australia data show. None measured greater than 4.

A 1906 earthquake about 400 kilometers east of Barrow Island had an estimated magnitude of 7.5, according to University of Western Australia data, and is probably the largest recorded temblor around Australia.

“We can’t really rule out earthquakes anywhere in Australia,” said Nelson Lam, a University of Melbourne seismologist.

Chevron owns 50 percent of the project and The Hague-based Shell and Irving, Texas-based Exxon 25 percent each. The partners will monitor surface pressures at the waste gas injection wells and any potential flow of carbon dioxide to the surface, Chevron Australia said on its Web site.

Taxing Emissions

“There’s always a risk it might bubble to the surface,” Barnett said. “If it ever happens, it could be thousands of years away.”

The closest major mainland town is the iron ore export center of Karratha, population about 12,000. Karratha is about 1,535 kilometers (954 miles) north of state capital Perth.

Oil and gas producers are paying to bury carbon instead of releasing it into the atmosphere because developed nations want to tax emissions. Australia plans to introduce a carbon trading and pollution reduction system in 2011.

Carbon storage projects are being developed in the U.S., Germany, Canada and Norway. Companies burning coal in Europe, including Germany’s RWE AG, are demanding governments pay for research into the technology and assume responsibility for gas leaks.

Locals Approve

The Paris-based International Energy Agency says carbon capture and storage must contribute nearly 20 percent of the reductions necessary to halve global emissions by 2050.

Capturing the carbon dioxide extracted during the liquefaction process at Barrow Island and injecting it into porous rock more than 2,000 meters (6,600 feet) below will cut project emissions by 40 percent, Gorgon partners say. It is the world’s biggest effort to store greenhouse gases.

Norway provides unlimited liability for carbon capture and storage projects run by Oslo-based StatoilHydro ASA in Norway and Algeria. The government is preparing legislation to cover future projects, said Olav Kaarstad, senior adviser on carbon dioxide for Statoil.

“No company can take on unlimited liability for 1,000 years,” Kaarstad said.

There have been no leaks from Statoil sites.

Residents near Barrow Island don’t oppose the storage project, said Brad Snell, 47, who heads the local council in Dampier, about 100 kilometers east.

“The carbon capture and storage plan has received environmental approval from the state and federal governments, so we’re comfortable with it,” Snell said.