Wed, December 08, 2021


A $12 billion gas project is sparking a new climate debate

A $12 billion liquefied natural gas investment approved in Australia leads a wave of projects betting demand will rise as the world shuns more polluting alternatives like coal.

The development of the Scarborough field, Pluto onshore processing facility and a 430-kilometer (267-mile) subsea pipeline led by Woodside Petroleum Ltd. will supply as much as 8 million tons annually for at least 20 years, with first cargoes expected from 2026.

It's a project that cuts straight to a key debate in the energy transition: the role of natural gas as nations aim to both curb greenhouse gas emissions and avoid supply crunches that triggered recent power shortages in Asia and record prices in Europe.

"One of the quickest ways for nations to reduce their emissions is to switch their energy system from coal to gas-fired," Woodside's Chief Executive Officer Meg O'Neill said Tuesday in an interview with Bloomberg Television. "We think the market for LNG will be very robust for decades into the future."

Climate campaigners estimate the project's direct carbon dioxide emissions will be about 4.4 million tons a year and that figure swells to 56 million tons if the burning of the gas by consumers, or so-called scope 3 environmental impacts, are included, the Australia Institute think tank said in a June report.

"Gas is still needed," and particularly in industrializing nations, said Henning Gloystein, global director of energy and natural resources at Eurasia Group. Yet sanctioning new spending on the fuel will also stoke debate over net zero commitments. "Investing into the future extraction of hydrocarbons certainly locks in future emissions," he said.

Woodside, which aims to sell a stake in Scarborough and retain about a 50% interest, advanced 3.5% in Sydney trading Tuesday, as BHP Group gained 4%.

Australia's LNG boom in the past decade saw companies from Chevron Corp. to Royal Dutch Shell pump about $200 billion into mega-projects that transformed the nation into a key exporter. Now there's a rising challenge in the seaborne market from Qatar and the U.S.

Emerging projects include Cheniere Energy Inc.'s Stage 3 expansion of its Corpus Christi export plant in Texas, Venture Global LNG's Plaquemines project in Louisiana, Qatar's North Field South development and Novatek's Arctic LNG-1 in Russia, according to Wood Mackenzie senior analyst Daniel Toleman.

"Woodside is not the only LNG player looking to take advantage of rising prices and strong demand," Toleman said. "Over the next 12 months we expect several low-cost projects to move toward sanction."

The outlook for natural gas will depend on how quickly national climate pledges are put into action. Consumption of natural gas would be about 25% higher by 2050 based on a continuation of existing policies, while demand would peak in 2025 and slowly decline if nations follow through on their promised commitments, according to the International Energy Agency.

Key LNG consumers including Japan and South Korea have already flagged they'll need to curb imports in the decades ahead to meet targets to zero out emissions.

"Woodside is aggressively progressing the Scarborough project even while major trading partners such as Japan and Korea are taking active steps to decrease LNG demand, effectively ignoring stranded asset risk," said Dan Gocher, a director at the Australasian Centre for Corporate Responsibility, a shareholder activist group.

BHP and Global Infrastructure Partners LP, which this month agreed to buy a 49% stake in the Pluto Train 2 part of the development, are backing the view that gas demand will remain firm as the world decarbonizes.

In a sharply criticized plan on how it'll achieve net zero emissions, Australia's government also endorsed that outlook, forecasting the nation's earnings from gas exports will rise 13% by 2050. The new Woodside project is likely to continue into the 2050s and add at least A$125 billion ($90 billion) to gross domestic product, Australia's Resources Minister Keith Pitt said Tuesday in a statement.

Published : November 24, 2021

By : Bloomberg