By Nick Toscano
Woodside, the largest Australian oil and gas company, has agreed to buy a huge liquefied gas export terminal under construction in the United States, doubling down on demand for the fuel even as the world tackles climate change.
Perth-based Woodside on Monday said it had struck a $US1.2 billion ($1.8 billion) deal to buy all of Tellurian’s stock and gain ownership of its Gulf Coast Driftwood liquefied natural gas (LNG) project, boosting its foothold in the Atlantic Basin.
Australia’s biggest oil and gas producer has struck a deal to buy a massive LNG export terminal project in the United States.Credit: Xabier Mikel Laburu
The project, while yet to receive a final financial go-ahead, has already secured permits to produce 27.6 million metric tons a year of LNG – natural gas that has been super-chilled to the point that it turns into a liquid and can be loaded onto special ships.
At full capacity, Driftwood would be able to produce more than double the current LNG output from Woodside’s LNG assets in Australia.
“The acquisition of Tellurian and its Driftwood LNG development opportunity positions Woodside to be a global LNG powerhouse,” Woodside chief executive Meg O’Neill said.
“It adds a scalable US LNG development opportunity to our existing approximately 10 million tonnes per annum of equity LNG in Australia.”
Houston-based Tellurian has invested more than $US1 billion ($1.5 billion) on its Driftwood LNG project so far, but has struggled to sign up customers for its gas, raising concerns about its ability to finish building the terminal and weighing on its share price.
MST Marquee energy analyst Saul Kavonic flagged that investors would have questions over the impact the development would have on the size of Woodside’s future dividends.
But the deal – comprising an all-cash payment of $US900 million ($1.2 billion), or US$1 a share – appeared attractive for Woodside, he said, offering it scalable US LNG exposure at a “bargain price around book value”.
“This is the right kind of M&A Woodside should be pursuing,” he said. “It is leveraging Woodside’s LNG expertise to access financially distressed yet otherwise advantaged LNG assets at good price, which Woodside can add real value to.”
Woodside shares closed the session 2.1 per cent weaker at $28.60.
The takeover would help position Woodside as one of the “largest and purest” LNG exposures in the market, Kavonic added, as other key LNG producers held a swath of oil, downstream businesses and other assets.
However, it also comes less than three months after Woodside investors staged a historic uprising against the company’s approach to climate change, with 58 per cent of its shareholder rejecting its decarbonisation strategies as inadequate.
Large Woodside investors across Australia, Europe and the United Kingdom have been criticising the company’s climate targets as too weak and growing increasingly concerned about the risks involved in developing new fossil fuel production projects at a time of accelerating international efforts to restrain rising global temperatures.
The Australasian Centre for Corporate Responsibility, an activist group, said Woodside’s Tellurian deal showed it was “thumbing its nose” at concerns about its management of climate risk.
“This adds to concerns about Woodside’s board’s ability to think creatively about strategy,” the group’s Alex Hillman said. “Investors expect a board that can do more than just pursuing marginal fossil fuel projects.”
As debate continues about the role of gas in the world’s transition to cleaner energy, Woodside and other LNG players point to projections that it will remain an indispensable part of the global energy mix, particularly as a “transition” fuel that is less emitting than coal but one that can still be used as a back-up to renewable energy sources.
Woodside boss Meg O’Neill is confident that LNG prices are going to stay higher for longer. Credit: Trevor Collens
O’Neill on Monday pointed to base-case forecasts from Wood Mackenzie that LNG demand would grow 53 per cent by 2033.
The fuel’s longer-term outlook, however, is less certain and may vary significantly depending on how aggressively countries decide to ratchet up ambitions to slash greenhouse gas emissions. Modelling from the International Energy Agency in 2021 found no new oil and gas fields could be developed for the world to achieve the Paris Agreement’s ultimate goal of limiting warming to 1.5 degrees.
Woodside on Monday said Tellurian’s proposed Driftwood LNG project had valid non-free trade agreement export authorisation and was not affected by US president Joe Biden’s pause on new LNG export approvals.
The energy giant is aiming to give the financial go-ahead to construct the first phase of the project, with a capacity of 11 million tonnes of LNG a year, by early 2025.
On a conference call on Monday, analysts asked whether Woodside was worried a second Trump presidency may push to lift US LNG exports and worsen the risk of a global oversupply.
O’Neill said new LNG projects would still face “long and complex” permitting processes, even if a future administration pushed to accelerate supplies.
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