Feds raise concerns around Scarborough gas demand

THE future gas demand growth in Asia used to bolster the argument for Woodside Petroleum’s Scarborough project – set to reach final investment decision in the second half of this year - has been questioned internally by the federal government.
Feds raise concerns around Scarborough gas demand Feds raise concerns around Scarborough gas demand Feds raise concerns around Scarborough gas demand Feds raise concerns around Scarborough gas demand Feds raise concerns around Scarborough gas demand

FOI documents question project fundamentals

Mark Tilly

Senior Journalist

Mark Tilly

Freedom of Information documents posted on the federal offshore regulator (NOPSEMA) last month show exchanges between NOPSEMA CEO Stuart Smith and the federal government's Climate Change and Innovation Group deputy secretary Jo Evans, within the Department of Industry, Science, Energy and Resources in March 2020. 

This was a month before NOPSEMA gave the Scarborough project initial regulatory approval. 

Operator Woodside plans to develop the Scarborough fields and build a second train at its Pluto LNG facility in north Western Australia to process the gas from the field at a cost of A$15.2 billion. 

In NOPSEMA's media statement when announcing the approval on April 2, it said "Woodside will be contributing to global efforts to reduce global greenhouse gas levels by actively displacing more carbon-intensive power generation with gas, as a less carbon-intensive source of fuel". 

However the email exchange between NOPSEMA and the federal government questioned that logic. 

Evans wrote that the Department provides energy data to the International Energy Agency to assist in the preparation of the World Energy Outlook (WEO), which is also used to inform the preparations of the Department's projections of greenhouse gas emissions.

Evans noted Scarborough's proposal refers to global energy forecasts by the IEA  WEO in 2019. 

She highlighted that the IEA commented in its Outlook that there is "significant uncertainty as to the scale and durability of the demand for imported LNG in developing markets around the world", that Woodside fails to mention in the extract Evans received.  

"The (IEA) have noted that emerging markets in Asia face higher costs for imports than domestically produced gas and imports of coal," she wrote. 

"I note this uncertainty is not mentioned in the extract of the Scarborough proposal.

"It is the Department's view that if anything, this uncertainty could suggest a downward influence on LNG demand from emerging Asian markets".

Woodside's full proposal, available on its website, does mention this uncertainty of energy mix forecasts, and the growing policy responses to climate change. More recently CEO Peter Coleman said during a full-year earnings call he saw LNG demand globally at 4% per annum, with China to lead that and Asian economies Vietnam and Thailand to increase imports this decade. 

Woodside argued in its proposal that many potential markets for Scarborough gas cannot build sufficient renewables to meet their projected 2050 electricity demand and gas is expected to be "a particularly important component of efforts to decarbonise energy supply".  

However much has changed since 2019 - Woodsides' key customers - China, South Korea and Japan- have declared their intention to reach net-zero emissions or carbon neutrality between 2050 and 2060, meaning all three will need to curb all fossil fuel consumption, including eventually gas. 

Another potential future market Woodside mentions in its proposal is India - however India has announced gargantuan renewable energy targets and is also considering a net zero emissions by 2050 target, though it has planned to add seven new LNG import and regasification terminals since 2017. 

Meanwhile, US President Biden has declared he will use every diplomatic and regulatory tool at his disposal to accelerate the global push to decarbonise. 

In its 2020 WEO, the IEA said "an uncertain economic recovery raises questions about the future prospects of the record amount of new LNG export facilities approved in 2019."

Similar concerns around future gas demand were also raised by the federal department and public submissions for Woodside's draft Environmental Impact Statement for Browse - where it stated gas demand would rise in Asia by 130%, whereas the IEA World Outlook put that figure at just 30%.

Woodside executive vice president Meg O'Neill told the audience at AOG Energy conference in Perth last month that the "fundamentals of LNG remain strong". 

O'Neill referred to the Wood Mackenzie's global gas report from January which expects LNG demand will increase by around 10% by 2025 and double by 2040. 

Woodside wants the first cargo from Scarborough to be shipped by 2025. 

Meanwhile the federal government has publicly backed gas developments as being crucial to the COVID-19 economic recovery.