Santos announces Barossa project FID

Santos has sanctioned the Barossa project, which extends the life of Darwin LNG (DLNG) beyond 2040. Wood Mackenzie research analyst Shaun Brady provides the following commentary:

"This decision makes a lot of sense given the significant LNG demand expected across Asia Pacific through the next two decades. As Barossa was the only logical backfill option for DLNG, the Darwin facility would have had to shut down for an extended period if it was not sanctioned, with partners incurring significant decommissioning costs.

"Barossa is an economically attractive ‘backfill’ investment because it can utilise the existing DLNG infrastructure. As a result, it can compete with greenfield global projects that need to construct expensive new LNG infrastructure.

"Santos is looking to grow its production to 120 mmboe (329 kboed). A key part of this target is the Barossa project, which became a key strategic option after Santos purchased ConocoPhillips’ northern Australia business in October 2019.

"The oil price crash has helped Santos optimise the Barossa project plan and reduce its capital costs. BW Offshore swooped in and won the FPSO contract from MODEC by offering a hybrid lease that would defer significant capital spend for the Barossa joint venture.

"Santos has a goal to be net-zero by 2040 and reduce emissions by 30% through 2030. The Barossa field contains high levels of CO2. These emissions will need to be offset by a combination of land-based offsets, energy efficiency projects, electrification, and the Moomba CCS project. With such a high carbon intensity, Santos must now deliver the projects that can offset this impact.

"2021 is shaping up to be the most important year in Australian upstream investment in over a decade. Barossa is the single largest upstream project to be sanctioned since 2012. With Woodside also targeting Pluto T2 and Scarborough FID in H2, and Chevron aiming to sanction additional subsea spend at Gorgon LNG, 2021 could define the upstream capital landscape in Australia for the rest of the decade.

"With the Barossa FID made, it will be interesting to see if Santos can compete the JERA sell down and if it will reduce the equity of other assets in its portfolio."