Emissions cuts won't run deep: analyst

Sydney Morning Herald
Friday 26/9/2008 Page: 22

AN ENERGY analyst has contradicted dire warnings from the sector about the ramifications of a carbon emissions trading scheme and said it will pose little threat to Woodside's $29 billion liquefied natural gas project at Browse. Woodside, with the rest of the sector, has lobbied for Government assistance to cope with the introduction of any scheme and said earlier in the year that without compensation it would have to reduce spending on Browse. But an energy analyst for JPMorgan, Mark Greenwood, said even if LNG prices halved, the likely costs of carbon trading were not enough to stop the project.

"Based on our estimate of economics for Browse. we cannot fathom why the [emissions trading scheme] alone would prevent the Browse project from being pursued vigorously by Woodside," he said in a note to investors. Operating costs could more than double in a "bearish" scenario, with carbon priced at $50 a tonne and oil fetching $US50 a barrel, but the project's internal rate of return would still be economic at 13 per cent, he said.

LNG prices reflect movements in the oil price - which is now over $US100 a barrel - and $50 a tonne for carbon is at the upper end of the cuts suggested by the Federal Government's climate change adviser, Professor Ross Garnaut. Woodside's chief executive, Don Voelte, is one of the most vocal critics of the proposed scheme. After the publication of a green paper on the subject in July, which did not give the sector protective assistance, Mr Voelte said Woodside would "dramatically reduce the spending [on Browse] in 2009 and beyond".

Mr Greenwood estimated Woodside's earnings per share would decrease 0.5 per cent under Professor Garnaut's recommendation of a $20 a tonne carbon price from 2010. The company posted an 86 per cent increase in profits to $1 billion in the first half of the year. Mr Greenwood's estimates contrast with economic modelling commissioned by the industry. A study by Concept Economics that was published this week said a 10 per cent reduction in carbon emissions - which equates to a carbon price of $34.50 a tonne - would cut the LNG sector's output by 26 per cent in 2020.

The industry has argued that higher costs in Australia will take LNG projects offshore. But recent events suggest players are unperturbed by the prospect of cuts in emissions. This week Chevron lodged plans for an LNG project of up to 25 million tonnes a year on the Pilbara coast, and up to five projects are planned in Queensland's coal seam gas sector. The carbon dioxide at Browse is thought to be almost double that in Queensland's LNG fields.