PERTH (miningweekly.com) – Oil and gas major Santos has inked a binding long-term liquefied natural gas (LNG) supply and purchase agreement with a wholly owned subsidiary of Mitsubishi Corporation, for supply of LNG from the Barossa project.

The long-term agreement covers the supply of 1.5-million tonnes a year of Santos equity LNG from the Barossa project for an initial period of ten years, with options to extend, with the LNG price to be based on the Platts Japan Korea Marker (JKM).

Santos MD and CEO Kevin Gallagher on Monday said that the agreement with Diamond Gas International (DGI) was another significant step towards a final investment decision 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.

“Santos is delighted to establish a long-term relationship with Mitsubishi, a major Japanese company with deep LNG expertise.”

Gallagher said that the agreement delivered a firm LNG offtake arrangement that represented over 80% of Santos’ equity LNG volume from the Barossa project, at the company’s 50% interest level, after a sell-down to joint venture partner JERA.

Gallagher also said that the JKM-indexation provided portfolio balance to the existing oil-linked LNG offtake agreements from the Gladstone and Papua New Guinea LNG projects.

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

In addition to the offtake agreement, Santos and Mitsubishi have signed a memorandum of understanding to jointly investigate opportunities for carbon neutral LNG from Barossa.

This would include collaboration 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.

The Moomba CCS project is investment-decision-ready, and will have the capacity to safely store 1.7-million tonnes a year of carbon dioxide deep underground in depleted natural gas reservoirs, subject to government approval regarding the eligibility for Australian carbon credit units.