“Gas is here to stay!” Ted O’Brien promised attendees at the Australian Pipelines and Gas Association (APGA) Convention in Adelaide earlier this month.
The Shadow Minister For Climate Change and Energy’s speech was the latest shot in the gas culture clash where – depending on who you care to listen to – the planet cannot cope with any more gas projects or we will continue needing gas through to 2050 and beyond.
O’Brien’s words would have been music to the ears of Australia’s largest gas pipeline operator, the ASX-listed APA Group, who this week will be fending off activist securityholders at its 2024 annual general meeting (AGM).
Gargantuan
Led by climate lobby group Market Forces, a group of APA securityholders, owning approximately 0.006 per cent of APA’s stapled securities on issue, has put forward three resolutions that will be on the 24 October AGM agenda.
The resolutions are all about pressuring the APA board to not be involved in constructing pipelines that would enable the development of gas projects in the Beetaloo Basin by Tamboran Resources and Empire Energy.
Market Forces and other groups such as The Wilderness Society and the Australian Conservation Foundation, believe “developing any new gas field, let alone the gargantuan Beetaloo Basin, is incompatible with the climate goals of the Paris Agreement”.
“APA’s Beetaloo plans also threaten APA’s own climate goals. Initial analysis suggests if Empire and Tamboran were to achieve their full – admittedly optimistic – Beetaloo production forecasts by 2030, APA’s potential involvement could cancel out the company’s 30 per cent emission reduction target multiple times over,” the groups wrote in an open letter addressed to APA CEO AdamWatson in May.
Meanwhile, Market Forces has been soliciting donations so that it can hire mobile billboards to drive around the AGM and “make it clear to APA and its investors they need to say no to fracking”. The group said, “we want to crash the party in style!”.
Carbon bomb
Pressure is also being applied to APA’s largest single shareholder UniSuper, who for some time has held a rather more substantial 9.9 per cent stake in APA. However, that may be about to change, given a report in the AFR’s Street Talk column suggesting UniSuper is trying to offload a 5.3 per cent stake in the company.
More than 1,000 members of UniSuper – including climate scientists and academics – signed an open letter to the UniSuper board calling on it “to take a public position against APA’s potential development of large-scale pipelines” that would connect the Beetaloo Basin to the East Coast gas network and Darwin’s Middle Arm precinct.
The letter from UniSuper members said the asset owner “is uniquely placed to influence APA, and the fund’s climate commitments and claims require active ownership efforts to pursue and deliver real-world emissions reductions”.
“These commitments cannot be met unless UniSuper is willing to use all the tools at its disposal to ensure APA does not light the fuse on the Beetaloo carbon bomb”.
In its 2023 Climate Risk and Our Investments report the fund says “while we all accept the need for the world to ultimately wean itself off fossil fuels, there is growing acceptance that gas has a fundamental role to play in the transition”.
The fund said, “we do not envisage APA’s gas pipelines are at risk of becoming a stranded asset for a very long time”.
The diagram above shows that UniSuper views APA as a ‘transition enabler’ that has sound ‘operational emissions reduction targets’.
UniSuper voted to approve APA’s Climate Transition Plan at APA’s 2022 AGM. Although it did say it had identified some gaps in APA’s decarbonisation approach “we got comfort that APA was well progressed in addressing many of our concerns”. Nevertheless, Unisuper may have now decided to reduce its overweight position in APA.
Second strike?
APA’s 2024 AGM will also be interesting, given that at last year’s AGM, the company received a first strike on its remuneration report when UniSuper and others voted against its adoption.
UniSuper did so because it “viewed the financial metrics as being insufficiently challenging”. The fund said it had undertaken significant engagement with APA and was “comfortable that our concerns have been heard”.
In its 2024 annual report, APA said it had reviewed the EBITDA targets for its Short Term Incentives (STI) and was satisfied they were now “appropriately challenging”.
Under APA’s Corporate Governance Framework, if at two consecutive AGMs, at least 25 per cent of the votes cast on the remuneration report are voted against its adoption, a board spill resolution would have to be put to security holders within 90 days.
The APA board, not surprisingly, is recommending securityholders vote against the two Market Forces resolutions seeking to amend the constitutions of APA Infrastructure Trust and APA Investment Trust (units in these trusts are stapled on a one-to-one basis to form a single ASX-listed APA Group stapled security).
In the AGM notice of meeting document, the APA board said the proposed trust amendments “could negatively impact the governance of APA Group” and is “ likely to disproportionately favour activist securityholders”.
The board said, “this could result in the business of future Annual Meetings being dominated by non-binding special and extraordinary resolutions which could be time-consuming and not necessarily aligned with the broader securityholder base”.
The APA board is similarly unimpressed with the Market Forces resolution that requests APA “to prepare and publish a report analysing the consistency of APA Group’s planned capital expenditure with its own climate commitments and a Paris-aligned scenario”.
The board said it “understands that there are differing views about the development of Beetaloo and other new gas developments. However, the Australian Government’s Future Gas Strategy has made it clear that new sources of gas supply are needed to meet demand during the economy-wide energy transition.
The diagram below highlights the role APA believes gas will play in renewables replacing coal and its view that gas will be needed through 2050 and beyond.
End-user emissions
For some time, Market Forces has also been asking APA to set a scope 3 emissions reduction target that is inclusive of end-user emissions.
However, APA said that in accordance with the GHG Protocol Scope 3 Accounting and Reporting Standard category boundaries “emissions associated with natural gas products we transport but do not sell to the end user, are not included in our Scope 3 emissions”. Instead, APA’s Climate Transition Plan is committed to continue disclosing estimates of these end-user emissions.
This is not an insignificant issue given Market Forces estimates that, based on Empire and Tamboran’s initial production forecasts, these Beetaloo pipelines “could enable the release of 1.1 billion tonnes of CO2 equivalent (CO2-e) in end-user emissions over the projects’ lifetimes”.
Market Forces claims that in 2030 alone the pipelines would enable over 47 million tonnes CO2 equivalent (mtCO2-e) of end-user emissions. This represents a 73 per cent increase in APA’s group-wide end-user emissions of 64 mtCO2-e in the financial year 2024.
“The Beetaloo pipelines present a serious threat to APA’s climate commitments, and by extension those of its major securityholders. To allay these concerns and to justify its claimed Paris alignment, the scheme must present a credible plan to avoid or abate the significant emissions associated with these pipelines,” Market Forces said.
APA is also fighting on another front over the development of the Australian Sustainable Finance Taxonomy, which is being led by the Australian Sustainable Finance Institute (ASFI) in partnership with the Commonwealth Treasury.
APA is concerned that despite acknowledgement from the government of the role gas must play, gas-powered generation (GPG) has been excluded as a transition asset in the draft taxonomy.
“GPG assets have instead been assessed as ‘phase down to phase out’ – a view that is out of step with the view expressed by the Federal Government and market regulators. We need to remember that we are aiming for net zero, not real zero emissions.” APA said.
In its submission on the taxonomy consultation paper, APA said it believed that gas firming should be included as a transition activity as it will enable the early retirement of coal generation and faster and greater penetration of renewables.
However, the consultation paper said, “there is no plausible future for high capacity factor gas generation in a 1.5°C future”.
Gas firming plants have been assessed as ‘phase down to phase out’ because “gas firming has an uncertain role in the 2050 economy” and the “risk of locking in future high carbon assets cannot be mitigated by investors/ taxonomy end users,” the paper said.
Pipe(line) dream
Abated GPG is currently not included as an electricity generation activity in the taxonomy due to the ‘abatement technology’ not meeting its Technology Readiness Threshold (TRL) and the immediate availability of low-carbon alternatives, the paper said.
This seems to be a polite way of saying that while carbon capture and storage (CCS) may have some limited industrial applications, when it comes to large-scale, commercially viable CO2 storage, CCS remains a pipe(line) dream.
