SK E&S blue hydrogen project awaits Australia approval on cross-border CO2 transport

South Korean energy company SK E&S is awaiting Australian government approvals on cross-border transport of CO2 before going ahead with plans to import LNG to produce blue hydrogen using carbon capture and storage, President and CEO Jeong Joon Yu, said at the World Gas Conference 2022 in Daegu.

The approvals underscore how global supply chains of new energy sources are grappling with delayed regulations and untested technologies like shipping hydrogen and CO2, which could take years to mature.

SK E&S had previously announced a plan to invest $1.4 billion to develop Australia's offshore Barossa gas field, under which it will import 1.3 million mt/year of LNG for 20 years starting from 2025. SK E&S holds a 37.5% stake in the field.

Yu said SK E&S expected to capture 99% of the carbon from the extraction of the natural gas, and when the LNG reaches South Korea, it will be turned into hydrogen.

"In that process also, we will extract more than 95% of CO2, and then all this combined CO2 is shipped back to Australia and reinjected into depleted gas fields," Yu said.

The total project cost was about $6 billion, out of which SK E&S was spending about $1 billion just for carbon reduction and CCS, which Yu said was one of the viable options to sustain the natural gas industry.

"Producing hydrogen still can work and we want to prove it. But in the process, there are many regulations and restrictions," Yu said.

He said CO2 captured in South Korea cannot be transported to Australia because of existing regulations such as amendments to the London Protocol of the International Maritime Organization that require more approvals.

The London Protocol is a global maritime treaty that governs environment pollution in international waters. The treaty has been amended to facilitate cross-border transportation of CO2 for offshore storage.

"We got approval from Korean government that we can ship those CO2 we gather to send it to Australia, but Australian government is still in the process of approval. So, this type of move itself is not allowed at the moment," Yu said.

Carbon neutral LNG

Yu told reporters SK E&S was seeking more long-term LNG contracts due to growing demand and for future projects like blue hydrogen, but the market had become complicated with decarbonization now supplemented by "de-Russianization".

Eventually all Asian countries need to answer the key question that to achieve net zero goals how quickly and with what energy source can coal be replaced, Yu said.

He said most countries have proposed either coal to gas or coal to renewables switching, but for the transition from coal to gas, there is a timing issue under current high gas prices.

"But it is the inevitable direction," Yu said, adding that gas might be "the only realistic alternative that can maintain the stability of power supply for the time being."

At the same time, the deployment of hydrogen and CCUS can utilize a significant portion of existing gas-based infrastructure and capabilities, Yu said.

When asked about carbon neutral LNG, Yu said it was important to establish a standard that can be recognized globally along with a proper governance structure to oversee it.

"At the moment we do some voluntary carbon reduction programs, but it is not publicly recognized as carbon reduction," he said, adding that institutions like the government needed to answer questions like what carbon neutral LNG is, who defines it, how it is defined, and which authority will recognize it.

"That standard should be settled and agreed in the market. Otherwise, everyone has different applications and understanding," Yu said.

"And then we need the marketplace. At the moment this is a private kind of negotiation or dialogue to buy voluntary credits," he said, referring to voluntary carbon offsets associated with carbon neutral LNG.

Creating an official marketplace where carbon credits can be traded may help further transactions and expedite the adoption of carbon neutral LNG, Yu said.