Woodside FY23 | Climate Transition Analysis
Woodside released its climate plan, with no change to its $5bn transition investment target by FY30. Emissions increased on FY22 and targets remain unchanged.
Key takeaways:
-
Woodside released its climate plan today, with no change to its $5bn transition investment target by FY30. There was no additional granularity on where the investment will go across hydrogen (7 material projects), and carbon capture and storage (3 material projects). The company stated the investment could deliver 5 Mtpa CO2e emissions that may either be avoided by customers outside their value chain (growing hydrogen offering, leaving scope 3 unchanged) or abated by capturing customers' emissions (addressing scope 3). The high implied average cost of avoiding (and maybe abating) emissions is $1,000 per tonne.
Woodside stated that abated emissions could count for up to 2.4 Mtpa of scope 3 across its CCS projects, however, upon looking more closely at the Bonaparte CCS project, the carbon captured appears to be from an LNG plant majority owned by TotalEnergies and Inpex, and not related to Woodsides customers. This highlights the risk that despite the company's promotion of its “abatement target” Woodside's significant investment may not lead to any material reduction in its own scope 3.
In FY23 Woodside had spent ~$235m ($335m to date), requiring a ~27% annual growth to FY30 to meet its $5bn target.
-
The seven hydrogen projects Woodside has visibility on, amount to an estimated 0.5 Mtpa H2 equivalent, with varying levels of maturity and potential uncertainty in reaching FID.
Woodside only has hydrogen as a low-carbon alternative to oil and gas, however, ambition appears to be lagging peers, even when adjusting for size. For example, BP, which is 4x larger than Woodside in oil and gas production, has a hydrogen pipeline 6x bigger at 2.9 Mtpa. Additionally, unlike Woodside, BP has other options as a low-carbon producer (biofuels, renewables, EVs).
Furthermore, FY23 may highlight risks to Woodside’s hydrogen ambition. Only the H2Perth refueller has reached FID (<0.1% of the total pipeline), while the US H2OK project is delayed due to proposed tax credit changes affecting green hydrogen production.
-
In FY23 scope 1 and 2 increased 15% to 6.2 MtCO2e(pre offsets) and increased 20% (post offsets, impacted by inclusion of BHP). FY23 scope 3 emissions increased 20% to 73 MtCO2e, in line with a 19% increase in total sales in FY23.
The company confirmed its scope 1 and 2 net equity target of 15% by 2025 and 30% by 2030. As disclosed on its investor day emissions reduction between now and FY30 will be reliant largely on offsets, we estimate ~70% (1.3 MtCO2e). Woodside reported a 12.5% reduction in net equity Scope 1 and 2 emissions relative to its base year (an average of 2016-20) at 6.32 MtCO2e. Offsets have accounted for 84% of the emission reduction to date.
Woodside confirmed FY24 oil and gas production +4% and reiterated group capex of $5.0–5.5bn, of which 65% is to be allocated towards its three major projects.
Engagement priorities:
Woodside needs to seriously consider its role in the provision of low-carbon fuels like hydrogen. To date, it has framed hydrogen as a way to reduce its own scope 3, but demand from its existing customers is unclear. Hydrogen could provide Woodside with a material lower emission revenue stream but only if it approaches it as a genuine business opportunity. Investors engaging with Woodside should ask it to:
1) Provide a production portfolio split between hydrogen, oil, and gas by FY40.
2) Bring forward projects to unlock more emission reduction (Scope 1 and 2) for its assets, reducing its significant reliance on offsets (84% of emissions reductions in FY23), and leveraging the skills of its new director, Ashok Belani.
3) Provide a clearer distinction between how its $5bn in transition spend is delivering avoided vs abated emissions, with quantification of the real scope 3 emissions reductions before FY30.
4) Provide the economics and opportunity for market share from hydrogen. Develop (lower carbon) projects that adhere to the most stringent criteria as set by the IRA, thereby limiting their exposure to future changes in future US regulation.
