Woodside’s deal poses a new green conundrum
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Antony Currie
MELBOURNE, Aug 13 (Reuters Breakingviews) -Woodside Energy's WDS.AX latestattempt to win over its climate-conscious shareholders smells a bit off. The Australian oil and gas driller is paying $2.4 billion to buy an ammonia plant that OCI Global is building in Texas. The facility aims to produce the commodity, used in fertilisers and chemical processes, with less carbon pollution than current methods. But the deal raises more questions than it answers.
The project will still largely make ammonia the old-fashioned way, using natural, or fossil, gas, rather than renewable energy, to generate the hydrogen which is then mixed with nitrogen. The goal, once the factory is fully operational in 2026, is to trap and pump the emissions underground; Woodside says the deal is a material step towards hitting its Scope 3 targets, including to invest in lower-carbon services.
However, this so-called carbon capture and storage technology has a patchy record. And some of the forecast articulated by Woodside CEO Meg O'Neill for a doubling of demand for ammonia by 2050 relies onnew applications, such asreplacing some coal in power stations and replacing diesel as a shipping fuel. But ammonia is toxicand when burned can produce nitrous oxide, almost 300 times more powerful a greenhouse gas than carbon.
Even were these new uses to thrive, they might not be enough to improve the $31 billion company's battered green credentials. One reason 58% of investors gave its climate transition plan the thumbs down in a non-binding vote in April was the lack of concrete plans to reduce the 73 million tons of carbon emissions each year from clients burning its products.
O'Neill argues the ammonia made at the Texas facility could lop up to 3.2million tons off the tab - or two-thirds of the 2030target it had set that shareholders deemed unconvincing. That would only be valid if customers swapped Woodside's gas for its ammonia. Moreover, Woodside wouldn't be capturing and storing the carbon; Exxon Mobil XOM.N would, so it would arguably have a claim to the emissions-reduction credit.
The acquisition's expected internal rate of return of around 10% is not much to cheer, either. It's less than the 12% O'Neill targets from fossil-fuel investments - though last month's $1.2 billion acquisition of Tellurian, a liquid natural gas business, will struggle to hit that, Citi analysts reckon. How to get shareholders onside for her greener and dirtier plans alike is becoming a conundrum.
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CONTEXT NEWS
Australia'sWoodside Energy on Aug. 5 said it hadagreed to buy an ammonia project in Texas from OCI Global for $2.4 billion. The plant is still under construction and is expected to open in 2025. Initial annual production capacity is 1.1 million tons, which could eventually double.
The plan is for the project to use so-called blue hydrogen, which is made using natural, or fossil, gas, with some of the methane and carbon emissions captured and then stored underground rather than being released into the atmosphere. This part of the project is not expected to begin until 2026.
Linde is under contract to supply the hydrogen, while ExxonMobil will run the carbon capture and storage.
Woodside saysthe fully operational project could help customers reduce their emissions by 3.2 million tons of CO2-equivalent a year, assuming all production was used to replace diesel as a fuel for ships.
Graphic: Woodside stock lags rivals since its mini-M&A spree https://reut.rs/46Hd0Sf
Editing by Una Galani and Aditya Srivastav
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