Woodside Energy says offtake interest in its planned hydrogen projects has been slower than expected, as it pushes its case for government tax credits on proposed US production.
Woodside Energy says offtake interest in its planned hydrogen projects has been slower than expected, as it pushes its case for government tax credits on proposed US production.
The H2OK project in Oklahoma has been Woodside’s flagship hydrogen project, but the company paused an investment decision at the project last year after doubt was cast on its eligibility for tax credits under the US government’s Inflation Reduction Act.
The tax credits, designed to incentivise spend on green energy projects, would improve the economics of the project by subsidising production as much as $US3 per kilogram of production.
Eligibility criteria is not finalised, but if early guidance from the US Treasury is implemented as proposed, then H2OK would not meet it.
Speaking at an energy transition investor briefing in Melbourne this morning, Woodside CEO Meg O'Neill said the company was “cautiously optimistic” that it would receive US government clarity and be able to make a final investment decision this year.
Ms O'Neill said while demand was expected to build for hydrogen, offtake interest was slow across the board.
“The progress in securing hydrogen offtake has been slower than initially anticipated,” she said.
“We will continue to maintain discipline in our investment approach, and we will make positive final investment decisions when we are confident they are compatible with our capital allocation framework.
“We are working with potential customers to develop demand.”
Woodside has a number of hydrogen projects in Australia and abroad, and is also pursuing carbon capture at its depleted Angel natural gas field off the North West Shelf.
Scepticism of carbon capture and storage (CCS) efforts by the oil and gas industry in recent years has centred around the challenges faced by Chevron at its Gorgon CCS project.
Chevron is a partner in the Angel joint venture, and Woodside’s executive vice-president of new energy growth and operations, Shaun Gregory, said their lessons had been shared in planning the Angel CCS project.
“They’ve been very open with us,” he said of Chevron.
“One of the things that differentiates Angel to Gorgon is it’s a much simpler CCS project.
“It’s injecting into a depleted gas field that we have known well. Angel produced for ten years, and we understand the reservoir really well.
“It’s a much simpler design, and I think that’s one of the key lessons that Chervon has shared on Gorgon.”
Mr Gregory said while Gorgon was not operating to its design capacity, it was still capturing millions of tonnes of carbon dioxide each year.
The comments came as Woodside mapped its vision for the years to come in response to shareholder questioning around the company’s longer-term value proposition and its climate efforts.
The company revealed its executive remuneration would be weighted more heavily on the achievement of climate outcomes, with climate metrics to make up 15 per cent of the overall executive scorecard.
But oil and gas will continue to be the core business, with demand strong.
Ms O'Neill highlighted the level of demand for coal power in China and elsewhere in Asian as a driving force behind the longer-term demand for natural gas and said recent buy-in to the developing Scarborough LNG project were evidence of the appetite.
“In many ways, it is the Pluto of the 2030s,” Ms O'Neill said of Scarborough.
She shrugged off the notion that carbon reduction efforts could be priced into the final LNG product sold into market.
“The reality is that LNG buyers are very price sensitive animals, and you can imagine they’re in a competitive landscape for market share as well,” Ms O'Neill said.
“Right now, they’re not paying for additional costs associated with lower carbon intensity LNG.”
The Woodside boss said the world had started to wake up to the challenges faced in developing hydrogen and CCS projects, but that her company was committed to meeting future demand.
“I think we’re at a point where people are realising that this is more complicated than first advertised,” Ms O'Neill said.
“Probably three years ago, everybody was like ‘green hydrogen, it’s gonna save the world and it’s super easy’. People were quoting numbers that were not credible.
“As work has matured and people have a better understanding of what it means to produce these products, what does it mean to consume them … there’s a bit of sobriety.
“But I do have absolute confidence that we will get there.”
