Australia is poised to play a key role in Chevron’s ambitions for everything from hydrogen to carbon capture and storage (CCS). But the company remains the biggest CO2 emitter among major oil firms operating in the country and its flagship Gorgon CCS project has failed to live up to expectations. In an interview with Energy Intelligence on the sidelines of the Appea conference in Adelaide, Chevron Australia’s general manager for energy transition, David Fallon, explains how the US major plans to implement its strategy Down Under. An edited transcript follows.

Q: Chevron’s energy transition strategy is broadly focused on renewable fuels, hydrogen, and CCS and offsets. How does this translate into action here in Australia?

A: We're very much at the start of our journey. We are certainly looking at some hydrogen-type opportunities within Australia. They are [under] very early consideration at this point in time. I think we're probably a little bit more progressed in the offset space looking at some carbon offsets origination. I'm hoping we'll be able to make an announcement in the coming weeks. Unfortunately, I can’t give you any specific dollars, but we're highly committed to Australia because we're active in all of those three business lines and we see a longer-term opportunity for Australia and Chevron to provide CO2 storage opportunities for other North Asian trading partners. Bringing CO2 back from Japan or [South] Korea to store it within Australia is something that we see potentially as a business model.

Q: How do you make it work from an economic perspective?

A: There's lots of regulatory work that actually needs to be worked through. Taking CO2 across international borders is neither a simple nor straightforward process, so work needs to happen in that space, and I think we have support from the government that is starting to progress along. And then it just comes down to like many other business challenges: How much will it cost us to develop a storage opportunity? How much will it cost to ship it from the source to the sink? And what are people willing to pay?

Q: Chevron is agnostic when it comes to hydrogen and ammonia as long as it is clean. What are you looking at in Australia?

A: I think it’s fair to say our main focus initially within Australia has been on blue hydrogen. But overall, we're interested in low-intensity hydrogen or ammonia. Our focus in the short to medium terms is more in the space of ammonia — particularly when you're looking at transportation because that's probably the most feasible short-term way to transport hydrogen across international borders. So blue hydrogen is our focus, but we are open to green hydrogen.

Q: What is Chevron’s outlook on the hydrogen market? What are the demand centers?

A: Our main focus is the export market to start. We see opportunities in co-blending with coal, essentially in power generation. The reality is that some of our key partners like Japan and Korea still have some relatively new coal power plants. We see the opportunity to blend ammonia into those coal facilities, which they believe they can do with limited modifications and that's an opportunity to allow utility companies to significantly lower CO2 footprint while continuing using the infrastructure they've already gotten in place. What are the barriers? What's the way forward? It's really going to be what price can we produce a ton of blue ammonia for? And what someone is going to be willing to pay.

Q: As you consider green hydrogen, are you planning a foray into renewables?

A: We're not interested in getting into renewables as a power provider, but we remain interested in renewables to help both decarbonize our existing facilities and also as a source of power for green hydrogen. We have learnt a lot and we're certainly more interested in green than we probably were 12-18 months ago. But we do see green in the shorter term more as an adjunct or an add-in to a blue facility. So you have the blue facility that maybe is adding amounts of green hydrogen rather than being the sole provider.

Q: One of your missions is to reduce the carbon intensity of Chevron Australia’s LNG assets — Gorgon and Wheatstone. What are the levers you are planning to pull?

A: We're casting a very wide net, but at a very simple level there's three options to decarbonize an LNG facility. You can electrify and source green power from somewhere. You can use alternative fuels, like hydrogen, because a lot of our emissions come from the gas turbines used to power the LNG facility. The third option is capturing the combustion gases from your gas turbines in particular and storing them via CCS. So, we're open to all of them at the moment. We're trying to understand what the costs, the trade-offs, the benefits of all those options are to try and understand which are the better ones and which ones we want to start to take forward and mature a little bit more.

Q: On the carbon policy side, major reforms have been introduced by the Australian government. How is this impacting development of your business opportunities?

A: The Safeguard Mechanism makes it very clear what we need to do to reduce our emissions. So we need to look at what technical abatement options there may be available to us to achieve those reductions. And if we can't do that, then the opportunity is to use carbon offsets. So, we could get deeply philosophical about policy positions between the carrot and the stick. It's more of the stick approach here, but it does provide good clarity. Chevron was supportive of the Safeguard Mechanism. We do have some concerns around longer-term access to carbon offsets. Our preference would have been for the Safeguard Mechanism to be open to using international offsets along with Australian Carbon Credit Units.

Q: Did the restrictions on use of carbon offsets accelerate the pace at which Chevron is planning to invest in this space?

A: It hasn't accelerated it. Offsets are always going to be a key part of our business going forward. Even with great technical abatement, there are parts of our emissions that will be very hard to technically abate. We have been trying to be more active in the offset space for quite some time. So the Safeguard Mechanism does maybe heighten that, but the announcements that you'll hopefully see in the coming weeks or months really predate the Safeguard Mechanism changes quite significantly.

Q: Chevron is planning major drilling work work to increase the amount of CO2 stored underground at Gorgon. Can you share more details about this project?

A: The Gorgon CCS is working. It is not where we want it to be, but we are planning to take a first final investment decision in the second half of this year as part of a two-step process to get our rates to, or close to the 4 million tons per year that it was designed to take. When we take that investment decision, we will be better placed to say what the dollars will be because the project teams are still working on it. In the first stage we're going to drill some additional wells and recomplete existing water wells. The reason it's two phases is around the challenges of getting environmental permits to do work on Barrow Island, which is a Class A nature reserve. The first tranche of work is something we can do relatively easily within our existing permits. For the second tranche, we will need to procure additional permits.

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