Woodside’s LNG projects a risky bet: Paris Agreement chief

Woodside risks LNG demand squeezed by cheaper renewables not lasting long enough for decent payback from its Scarborough and Browse projects.

Woodside’s LNG projects a risky bet: Paris Agreement chief

The leader of the Paris climate agreement negotiations thinks “the writing is on the wall” for gas and questions the economic wisdom of Woodside betting its future on the Scarborough and Browse LNG projects.

Christiana Figueres took the reins of the world’s climate negotiations in 2010 after talks collapsed in Copenhagen. Six years later, every country in the world signed the Paris Agreement and committed to keep global warming to well below 2℃ and to aim for 1.5℃.

Figueres, who spoke in Perth on Saturday, was asked by Boiling Cold how Woodside’s plans to build the $US11.5 billion Scarborough LNG project and the $US20.5 billion Browse LNG project fitted with the goals of the Paris Agreement.

Production of the LNG will create millions of tonnes of carbon dioxide every year. Woodside has argued that these emissions in Australia are more than offset by emission reductions from its customers burning gas instead of coal.

The former Costa Rican diplomat said gas, or methane, was cleaner than coal provided there was complete control of leaks.  Methane has a warming effect 85 times greater than carbon dioxide over 20 years.

“But I don't think that is the question,” Figueres said.

“I think the question is, what is the future of that industry?”

Figueres said she worked with many chief executives of large oil and gas companies and they were of one mind about gas.

Christiana Figueres. Source: Global Optimism

“They know that there's going to be a demand for gas, for sure, over the next five years.”

“They also know that there's likely not going to be any demand, or very little demand, 30 years from now.”

Figueres said the chief executives were uncertain when between five and 30 years gas would feel the crunch.

“But they totally know that it is not a technology that can continue in a fully decarbonized economy unless they invest enough into carbon capture and storage.”

There are 19 projects around the world that store carbon dioxide underground. Figueres said thousands of carbon storage projects would be needed in the next 30 years for the gas industry to thrive.

“It’s not doable.”

Figueres said the smaller gas companies were most reluctant to believe the demise of gas as they had less flexible business models.

“A company knowing that it has a thirty-year lifetime. Is that the legacy of a CEO?”

“The very, very large oil and gas companies are already moving…the writing is on the wall.”

Cleaner and cheaper competition

Figueres said solar already provided cheaper power than gas in most of Asia, and as the cost of solar and wind power continued to drop more developing countries would choose renewable energy.

She said financial institutions increasingly saw oil and gas as a risky investment, tracking the recent experience of coal.

“So, if you have cost of capital, or in fact starvation of capital, on the one side and you have dwindling demand on the other side you are kind of getting squeezed in the middle,” Figueres said.

"It's going to be very difficult to have any decent payback."

Woodside executive vice president development Meg O’Neill last week cited a Woodside-commissioned report by consultancy Environmental Resources Management in defence of LNG’s climate credentials when speaking at at the Australasian Oil and Gas Conference.

ERM calculated the overall greenhouse effect of gas from Browse and Scarborough going to different Asian markets. The report compared emissions from producing the LNG in Australia and burning it overseas the emissions from burning the current fuel mix.

The report confirmed the two concerns for investors in gas that Figueres identified – it is beaten by renewables on cost and has a limited life in a carbon-constrained world.

ERM stated renewable energy was “growing at an exceptional pace, supported by maturing technology and falling prices” and would take an ever-greater share of power markets.

O’Neill, who is charged with delivering the Scarborough and Browse projects, said under the International Energy Agency’s sustainable development scenario that describes a path towards meeting the upper bound 2℃ goal of the Paris Agreement more gas is needed.

When ERM looked at how that sustainable scenario played out in China power generated by burning gas from Scarborough produced more emissions than China’s average fuel mix by 2030, six years after the project is slated to start production.

The power generated from Browse gas produced more than the average CO2 per unit of electricity from 2027, just a year after the first cargo is scheduled to sail.

The trouble for Woodside's product is that as more nuclear, hydro and renewable power is installed in China the advantage of gas over coal is overwhelmed by its dirtiness compared to the growing sources of emission-free power.

For Japan ERM concluded that the market share of gas-fired power would halve by 2040 under the sustainable scenario.

Main Picture: Woodside headquarters in Perth.  Credit: Woodside Energy Ltd.