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CSG leaks' carbon liability could end the industry
Media release 19/11/2012
Coal-seam gas (CSG) developers have been massively understating their carbon tax liability, throwing the whole future of the industry into question, according to climate and renewable energy think-tank Beyond Zero Emissions (BZE).
Researchers at Southern Cross University have recorded significant levels of methane at the Tara CSG gas fields, indicating the likelihood of high fugitive emissions associated with their operations.
This finding follows similar information from the US Department of Energy coming from CSG fields in Wyoming, and other results from US unconventional gas fields.
Unlike the United States, Australia has legislated liabilities for fugitive emissions, which are included in our carbon price.
Currently, CSG developers are using an assumed fugitive emissions factor of 0.12%. This is based on a 1996 American Petroleum Institute document intended for health and safety, which explicitly states it should not be used as basis for emissions inventory accounting standards.
Tara CSG wells
“This method is clearly unsatisfactory,” said Matthew Wright, Executive Director of BZE.
“While it is currently under review by the Federal government, companies have had the option to self-monitor, but have refused to do so.
“In refusing to carry out their own field monitoring, they have failed in their obligations to investors. Using the outdated API derived accounting system fails investors and the Australian community.
“Public pressure on the CSG industry means that it is inevitable the true fugitive emissions will come to light soon, and the government will have to then make the hard decisions on imposing the real carbon price liability.”
BZE has calculated that if a CSG well, producing a typical one terajoule of CSG per day, leaked a low 1% of fugitive emissions (nearly ten times the assumed figure), it would be liable for $31,700 per year at the current carbon price of $23/tonne.
Based on the existing US and the preliminary SCU data, fugitive emissions would likely exceed 4%. At 4%, each well's carbon price liability would be $126,800. This would create an overall annual carbon price liability of around $3.8 billion for the projected 30,000 CSG wells.
“Internal rates of return (IRR) on CSG projects are currently well under their desired rate of 15%,” Mr Wright said.
“When the real rate of fugitive emissions is established, and the correct carbon price liability calculated, CSG projects may no longer be profitable at all.
“17 more LNG trains which have been planned for liquefication and export of CSG would be abandoned. The three Gladstone LNG train projects under development may never return a profit and will most likely be forced to renegotiate their debt.
“Investors in these companies would have to ask whether the companies would be better off leaving their hard earned money in the bank, where at least they will make something – or investing in something with a proven track record of profitability, like solar panels.”