Net-zero emissions and Woodside’s Scarborough LNG a mismatch: IEA

Woodside’s $16.4 billion Scarborough LNG project could be a dud investment if the world commits to net-zero emissions by 2050, according to projections in the International Energy Agency’s World Energy Outlook released on Wednesday.

The LNG giant’s schedule to sanction Scarborough late this year puts the company-defining decision just after November’s COP 26 conference in Glasgow, where world leaders are expected to commit to additional greenhouse gas emissions reductions.

Woodside plans to expand its Pluto LNG plant to process gas from Scarborough

The IEA issued its influential annual report earlier than usual to spell out what was at stake before delegates arrived in Glasgow.

The independent agency outlined a “narrow but achievable” path to limiting global warming to 1.5 degrees.

The net-zero emissions by 2050 scenario first published in May required no new gas fields to be developed beyond those already approved.

Further details published by the IEA on Wednesday indicate sending Scarborough gas to an expanded Pluto LNG plant file may be detrimental to the finances of Woodside shareholders, as well as the climate.

In the net-zero scenario the global LNG trade, which Australia had a $32 billion share of last financial year, peaks mid this decade and then goes into decline. By 2030 the capacity of existing LNG plants and those under construction will be double the demand, according to the IEA.

Under the Paris-based agency’s net-zero scenario, gas prices will fall with demand and “any LNG projects with a break-even price of more than $US5 per million British thermal units (MBtu) would be at risk of failing to recoup their investment costs”.

This is an unattractive scenario for Woodside, that touted Scarborough as having a “globally competitive cost of supply” of $US6.8 an MBtu in a presentation to investors in August.

Woodside calculated the cost of supplying LNG from Scarborough using a 10 per cent rate of return but claimed the project would achieve a return of more than 12 per cent, indicating it is assuming an LNG price somewhat greater than $US6.8 an MBtu.

If the IEA and Woodside are correct in their respective assessments of the global gas market and the Scarborough project, then Woodside’s vision that it “prospers in a low-carbon world” appears out of reach.

Woodside’s LNG price forecast is realised for its targeted Asian markets in two IEA scenarios, where the world warms by 2.6 degrees under current climate policies or by 2.1 degrees, if announced policies are also enacted.

The IEA warned the difference in the scenarios had “stark consequences for global ecosystems and human wellbeing”.

“The higher the temperature rise, the greater the risks of severe weather events such as extreme heat, drought, river and coastal flooding and crop failures,” the report said.

Woodside’s website states it supports the Paris Agreement’s goals to “limit the rise in global temperature to well below 2 degrees from pre-industrial levels and to pursue efforts to limit it to 1.5 degrees”.

Many investors driven by ethical concerns and a wish to minimise risk now seek investments that will perform in a decarbonising economy.

Any perception that Scarborough is only suited to a world where efforts to limit global warming fail is another hurdle for the company to jump, to achieve its aim of extending the life of its two LNG plants near Karratha.

A Woodside spokeswoman said the company would comment once it completed its review of the IEA report.