Breakingviews

Greenwashing hostility crashes friendly gas deal

3 minute read
1/2

Santos-operated Moomba gas plant is seen outside Moomba, South Australia May 17, 2012. Picture taken May 17, 2012.

MELBOURNE, Sept 15 (Reuters Breakingviews) - The architect of a big fossil-fuel deal will have to persuade a court that he’s not just blowing smoke. Just as Santos boss Kevin Gallagher was finalising terms on the A$8 billion ($6 billion) acquisition of rival Oil Search (OSH.AX), the accuracy of his net-zero pledges were called into question. This new legal challenge presents a threat to his strategy and possibly the world’s carbon polluters.

The Australian fossil-gas giant seems in no hurry to slash emissions. Gallagher’s blueprint involves increasing fuel production by up to 45% between 2020 and 2026. The $9 billion company’s direct emissions – as opposed to those created by customers burning gas supplied by Santos (STO.AX) – are set to almost double by 2030 if left unchecked. They’ll increase even more if last week’s Oil Search merger is consummated. The extra cash flow would help “navigate the transition to a lower carbon future”, Gallagher said.

His plan is to use carbon capture and storage to reduce around 80% of the company’s direct emissions, both to clean up gas production and foster a switch to making hydrogen. Trouble is, Santos doesn’t envisage that properly kicking in until the 2030s. The technology, despite decades of development, is untested at scale. Gallagher himself last week called it a “sunrise industry” needing support from agencies such as the World Bank to attract private funding. He also described the company’s path to net zero, which is heavily dependent on carbon storage, as “credible”.

Perhaps it will turn out to be, but not everyone is as confident. The Australasian Centre for Corporate Responsibility, a shareholder advocacy group, sued in Australian federal court, arguing that Santos’ climate-related statements constitute greenwashing and represent, legally speaking, “misleading or deceptive conduct”.

The immediate penalty, if the court rules in the centre’s favour, looks minor. Santos would have to correct its statements and stop repeating them. It would, however, blow a big hole in the growth strategy, leaving the company with no net-zero target to tout while it pumps up emissions. That might be enough to inspire shareholders to agitate for anything from leadership changes to financial recompense. And it also would probably land other polluters and their rosy greenhouse-gas plans in the dock.

Follow @AntonyMCurrie on Twitter

CONTEXT NEWS

- Kevin Gallagher, chief executive of Australian oil-and-gas company Santos, said on Sept. 10 that the A$8 billion ($6 billion) agreed acquisition of Oil Search “would create a company with a balance sheet and strong cash flows necessary to successfully navigate the transition to a lower carbon future”. He made the comments on the same day the two companies finalised terms for a merger initially agreed on Aug. 2.

- In a speech on Sept. 7, Gallagher said the company has a “credible and fundable emissions-reduction roadmap to get to net zero by 2040”.

- The plan relies mostly on developing carbon capture and storage at three of its drilling sites: a facility in Moomba in South Australia; its offshore Bayu-Undan project near East Timor; and operations off the coast of Western Australia.

- The Australasia Centre for Corporate Responsibility and its legal representatives at the Environmental Defenders Office said on Aug. 26 that they filed a federal court case against Santos, arguing the company’s net-zero plan and its claims that fossil gas is clean energy amount to “misleading or deceptive conduct” under the 2001 Corporations Act and Australian consumer law.

- If the court rules in favour of the ACCR and EDO, it would grant an injunction requiring Santos to correct the record and would prohibit the company from repeating such claims in the future.

Editing by Jeffrey Goldfarb and Sharon Lam

Breakingviews
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

More from Reuters