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.