Chevron Corp. and its partners in the Gorgon LNG project in Western Australia have agreed to buy carbon credits likely to cost more than $180 million as a penalty for failing to meet a five-year target for carbon capture and storage (CCS).

The costs, which could amount to well over AU$250 million (US$184 million) based on Reuters calculations, will be shared with its Gorgon LNG partners—Exxon Mobil Corp., Royal Dutch Shell Plc and Japan’s Osaka Gas, Tokyo Gas and JERA.

The AU$3.1 billion Gorgon CCS project, the world’s largest commercial CCS project, is being penalized by the Western Australian government for injecting far less CO₂ than planned since the LNG plant started up five years ago.

Chevron said in a statement that it would invest AU$40 million in “lower carbon projects” and would buy and surrender 5.23 million greenhouse-gas offsets to fulfill the Gorgon project’s obligations to the state government, ideally by mid-July 2022.

“The package we have announced ... ensures we meet the expectations of the regulator, the community and those we place on ourselves as a leading energy producer in Australia,” Chevron Australia Managing Director Mark Hatfield said in a statement.

Based on the current price of carbon offsets on the voluntary Australian spot market, which last week hit a record high of AU$37 a tonne, 5.23 million offsets would cost at least AU$195 million.

Amid short supply of Australian Carbon Credit Units (ACCUs), Chevron is unlikely to meet its obligation just with those offsets and said in a report to the government it would also use other internationally verified carbon units and offsets.

Gorgon CCS was designed to inject up to 4 million tonnes a year of CO₂. Since starting injecting CO₂ in August 2019, three years later than scheduled, it has injected a total of about 5.5 million tonnes of CO₂-equivalent.

The project was delayed by three years due to a range of technical problems.

(US$1 = 1.3563 Australian dollars)

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