Woodside approves US$12bn LNG investment and BHP oil merger

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WOODSIDE has approved a US$12bn investment in the Scarborough gas field and expansion of its Pluto LNG plant in Australia, alongside a A$40bn (US$28.8bn) merger with BHP’s oil and gas business.

The Scarborough field is located around 375 km off the coast of Western Australia and contains an estimated 11.1trn ft³ of gas. Plans are to initially drill eight wells, expanding to 13 wells, which will supply a floating production unit. The unit will contain separation, dehydration and compression facilities and will be remotely operated from Perth. The gas will be sent through a 430 km pipe to the Pluto LNG facility near Karratha in the northwest of Western Australia. The Pluto LNG facility already has one LNG train capable of processing around 5m t/y of gas. This will be modified to process up to 3m t/y of dry gas from Scarborough. And a second train called Pluto 2 will be built with the capacity to process a further 5m t/y of gas from the Scarborough field. The EPC contract for Pluto 2 and the integration work with Pluto 1 has been awarded to Bechtel.

Woodside will also build a new plant at Pluto with the capacity to supply an additional 225 TJ/d of domestic gas.

In a call with investors, Woodside CEO Meg O’Neill defended the decision not to send gas from Scarborough to the nearby NW Shelf LNG plant. Delays to investments in production from the Browse field mean the NW Shelf is likely to close one of its 5 LNG trains and investors had suggested that filling the supply gap there would be better than building new capacity elsewhere.

The Australian reports that O’Neill told investors that the NW Shelf plant is ill-suited to process Scarborough’s dry gas, saying: “We looked many times at the possibility of taking Scarborough across to North West Shelf. The plant modifications required to do that at volume would be extensive. And for those of you who are concerned around capex risk, when you‘re doing that sort of complicated modification on a live plant the capital risk is tremendous.”

In the wake of COP26, the decision to invest in more fossil fuel production has faced severe criticism from environmental groups. The IEA has warned that no new fossil fuel projects can be developed if the world wants to limit climate change to 1.5^oC.

O’Neill has pitched the project as helping LNG customers in Asia transition away from burning dirtier fossil fuels, and the company has pointed to a series of technological options for reducing operational emissions. These include the use of aero-derivative gas turbines for liquefaction and inlet air chilling that the company says will provide higher thermal efficiency and lower greenhouse gas emissions; the use of waste heat from turbine exhaust to provide heating duty on the Scarborough floating production unit that removes the need for fired boilers; and pre-cooling of incoming gas using a gas-gas heat exchanger rather than refrigeration. The first cargoes of LNG from the new development are expected to begin sailing in 2026.

BHP merger

Woodside has also agreed to a merger with BHP’s oil and gas businesses that values the combined firm at A$40bn. The deal, which must be approved by shareholders, will be achieved through a share swap. The partners say the new firm will be one of the world’s top 10 independent energy companies by production volumes and the largest energy firm listed on Australia’s stock market. The deal will see Woodside take over BHP’s operating production assets in Australia, the Gulf of Mexico, Trinidad and Tobago, and Algeria and absorb its minority stake in the Scarborough development.

The mining sector also faces pressure to reduce emissions. BHP CEO Mike Henry said BHP’s petroleum business and Woodside “are better together” and the sale would create value for BHP shareholders.

O’Neill said BHP’s assets will fall under Woodside’s emissions reduction plans.

“Our emissions reduction targets will apply to the combined portfolio, supporting our aspiration to be net zero by 2050,” she said.

Last week Woodside sold a 49% stake in the Pluto train 2 to Global Investment Partners (GIP) to de-risk the investment.