Santos, Mitsubishi Ink Oz Barossa LNG Pact

Australian Santos December 7 said it had signed a binding long-term LNG supply and purchase agreement with Mitsubishi Corp for the supply of LNG from the Barossa project.

Under the agreement, Santos will supply 1.5mn metric tons/year of LNG for 10 years to Diamond Gas International, a wholly-owned subsidiary of Mitsubishi, at a price based on the Platts Japan Korea Marker (JKM). Santos said it also has options to pursue further LNG transactions through commercial flexibilities negotiated with Diamond Gas.

Santos CEO Kevin Gallagher said the agreement was another “significant" step towards a final investment decision (FID) on Barossa, which is targeted for the first half of 2021.

"Barossa is a globally-competitive, low-cost brownfield LNG project providing new supply into a tightening LNG market, where JKM-based pricing is an increasingly deep, liquid and flexible marker for both sellers and buyers,” he said.

The agreement delivers an LNG offtake arrangement which represents over 80% of Santos' equity LNG volume from the Barossa project at the company’s expected 50% interest level following the previously announced sell-down to Japan’s Jera. Santos added that the JKM-indexation provides portfolio balance to its existing oil-linked LNG offtake agreements from Gladstone LNG and PNG LNG.

"It also represents the first Santos long-term equity LNG sale from one of our major LNG projects, demonstrating our marketing capability to meet customer needs in the market," Gallagher said.

In addition to the long-term agreement, Santos and Mitsubishi have signed a memorandum of understanding to jointly investigate opportunities for carbon neutral LNG from Barossa. These include collaborating on opportunities relating to Santos' Moomba carbon capture and storage (CCS) project, pursuit of carbon neutral LNG, bilateral agreements for carbon credits and potential future development of zero emissions hydrogen.

Santos said its Moomba CCS project was FID-ready and would have the capacity to safely and permanently store 1.7mn mt/yr of CO₂ deep underground in depleted natural gas reservoirs, subject to government approval regarding eligibility for Australian Carbon Credit Units.

Santos currently holds a 62.5% operated interest in the Barossa joint venture along with partner SK E&S (37.5%). Santos is also a joint venture partner and operator in Darwin LNG with a 68.4% interest.

Completion of the planned sell-downs to SK E&S and Jera, announced in early 2020, will see Santos' interests in Darwin LNG and the Barossa project change to 43.4% and 50%, respectively. The sell-downs are subject to customary consents, regulatory approvals and FID on Barossa, Santos said.