Woodside expects spot liquefied natural gas (LNG) prices to average $3 per million British thermal units (MmBtu) this year, before starting to rise from 2021, Kallanish Energy reports.
The Australian gas producer announced on Tuesday it expects post-tax impairment losses of $4.37 billion – including an onerous contract provision for the Corpus Christi LNG sale and purchase agreement.
Despite the hit, the company said its balance sheet strength and liquidity have not been materially impacted. On Wednesday, it reported its Q2 results and a 29% decline in revenue. The company didn’t publish its earnings, but CEO Peter Coleman said Q2 results would still record an adjusted net profit after tax.
After reviewing its asset values and commodity pricing and discount rate assumptions, Woodside said it expects LNG spot prices to average $4.4/MmBtu in 2021, $6.3 in 2022, $6.7 in 2023, $7.1 in 2024 and $8 in 2025.
It didn’t provide previous estimates.
Of the expected impairment charges in the first half of 2021, $2.76 billion relates to oil and gas properties, while $1.16 billion relates to exploration and evaluation assets.
“Approximately 80% of the oil and gas properties impairment losses are due to the significant and immediate reduction in oil and natural gas prices assumed up to 2025, impacting Woodside’s products in the prevailing economic climate,” the company said.
“Additional contributors are increased longer-term demand uncertainty impacted by the Covid-19 pandemic and macroeconomic dynamics, and increased risk of higher carbon pricing,” it added.
The company’s revised long-term carbon price assumption now stands at $80 per tonne, which Wood Mackenzie’s analyst Obo Idornigie described as a “big jump for an independent.”
“Woodside is now in the ballpark with targets set by European majors such as BP ($100/tonne from 2040) and Shell ($85/tonne by 2050), although it did not state when the revised pricing will be effective. Nonetheless, it will likely adversely affect the projected returns of high-carbon pre-FID assets such as Browse,” he added.
Wood Mac believes setting a higher carbon threshold will certainly strengthen the appeal of renewables and could accelerate the portfolio transition towards new energies.
“Despite the challenges of the current environment, the fundamentals of Woodside’s business remain strong, particularly the outlook for our core product, natural gas to Asia, and the opportunities for Woodside’s targeted future products such as hydrogen and ammonia,” said Coleman. “LNG is advantaged as an energy source in a decarbonizing world.
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