Owners of Woodside Petroleum Limited (ASX: WPL) shares might want to keep an eye on the upcoming COP26 climate change summit in Glasgow, as net-zero emissions could be disastrous for the company’s Scarborough Project.
That’s according to the International Energy Agency (IEA) which released its World Energy Outlook 2021 last week.
It found that unless the Scarborough Project could get its break-even price below US$5 per British thermal unit, it likely couldn’t profit in a world striving for net-zero emissions by 2050.
Let’s take a closer look at the body’s predictions for the world’s natural gas industry.
A quick refresher
The Scarborough Project is a natural gas resource located off the coast of Western Australia.
The project is a joint venture between Woodside and BHP Group Ltd (ASX: BHP). However, after the planned merger of Woodside and BHP’s petroleum division, the project will be operated by Woodside alone.
Recently, the Conservation Council of Western Australia found Scarborough will produce the same amount of greenhouse gas as 15 new coal-fired power stations.
The company is yet to make a final investment decision on the project.
What could net zero mean for Woodside shares?
The Scarborough Project and, by extension, Woodside Petroleum shares, could be in for a wild ride if global leaders agree to reach net-zero emissions by 2050, according to the IEA. Here’s what the body predicts the natural gas industry will look like if the globe reached net-zero emissions:
Until 2030, the world will see the price of natural gas drop considerably. Trade in the commodity will peak in the mid-2020s before falling to end the decade where it started it. The IEA stated:
Given the low prices of natural gas in the [net-zero emissions scenario], any LNG projects with a break-even price of more than US$5 per million British thermal units (MBtu) would be at risk of failing to recoup their investment costs.
Then, by 2050, less than 190 billion cubic metres of natural gas would be used for power generation globally. That’s 80% less than today’s levels. In fact, in a net-zero 2050, only 1% of electricity would be made using natural gas.
Further, more than 50% of the world’s natural gas would be used to produce low-carbon hydrogen, with another 15% used by industries.
Finally, only 60% of the world’s natural gas would be produced outside of the Middle East and Russia. At the same time, interregional trade in the commodity would drop to around 40% of current levels. The IEA notes:
Without any need for investment in new upstream projects, production in emerging producers in Africa and elsewhere is constrained, and large existing producers and resource holders increasingly dominate supply.
What if net zero targets aren’t met?
Investors might be wondering if the project and their Woodside shares would have a better chance without a strict net-zero target.
The IEA answers that query with 2 additional models. The first considers the scenario of global leaders sticking to their pledges and the second is based on nothing changing from current policies.
The outcome won’t be much better for natural gas projects if global powers stick to their current emission reduction pledges.
If they do, global demand for natural gas will likely have increased 5% by 2030, led by developing regions. However, by 2050, demand will be back to 2020 levels.
It’s a better story for liquid natural gas (LNG). The body predicts LNG would be used to replace other energy sources in Asia.
According to IEA, the best option for the natural gas industry is if nothing changes.
If global policies stay the same as those currently in place or being created, international demand for natural gas will have increased 15% by 2030. Growth in demand will then slow but won’t have peaked by 2050.
Woodside share price snapshot
At the time of writing, the Woodside share price is $25.13, 0.2% lower than its previous close.
That’s also 10% higher than it was at the start of 2021 and 36% higher than it was this time last year.