21 APRIL 2023

WOODSIDE’S BURRUP HUB GAS PROJECT: INVEST IN SOLUTIONS OR COP A MULTIBILLION DOLLAR LIABILITY |

Our new Woodside financial analysis was published ahead of CEO Meg O’Neill’s National Press Club appearance this week – and became the subject of a question put to Ms O’Neill at that event. 

The analysis shows the gas giant and its JV partners will be subject to a cumulative liability of up to $63 billion to 2050 at its multi-facility Burrup Hub LNG export project as a result of the new Safeguard Mechanism (SGM) reforms. The report comes as Woodside faces a proxy battle and potential shareholder revolt at its 28 April AGM over its inaction on climate.

The impact of the Safeguard Mechanism on Woodside’s Burrup Hub gas project: invest in solutions or cop a multibillion dollar liability, by CEF director Tim Buckley and analyst Nishtha Aggarwal, quantifies the scale of increasing costs Woodside must absorb to offset the Scope 1 onsite emissions of its existing processing facilities (North West Shelf (NWS) and Pluto) – a clear commercial signal for the board to refocus on investing in decarbonising them – and proposed gas field expansions.

The report calls for Woodside to re-evaluate the investment case for the planned new Scarborough and Browse mega gas reservoirs, which are required to operate at immediate net zero Scope 1 emissions under the SGM.

The SGM also puts pressure on Woodside to prove whether carbon capture and storage (CCS) – which has so far spectacularly underperformed – can work consistently at the scale of industry lobbyists’ oft-repeated claims.

At the forthcoming AGM, shareholders will pressure Woodside to bring appropriate energy transition and climate science experience to its antiquated board, and to provide shareholders with a clearly articulated energy transition action strategy. 

Over 90% of Woodside’s emissions are Scope 3 exported LNG emissions – incredibly, the behemoth is responsible for a full 1% of the global carbon budget to 2050 – and although Scope 3 is not captured under the SGM, Woodside will be well aware of the material impacts of significant momentum in global decarbonisation policy, including the risk of carbon penalties for high-emitting companies.

>>> View the report here.

>>> View media coverage of the report in the AFR, AFR 2, The Australian, Renew Economy, a story syndicated via AAP to Canberra Times, The West Australian and 100+ mastheads, The Guardian, ABC News Channel (Press Club), and ABC NewsRadio (also covered in Carbon Pulse - paywalled).

___POLICY IS POWERING GLOBAL EV UPTAKE – AND AUSTRALIA NEEDS TO CATCH UP FAST |

The federal government announced its EV policy this week, flagging fuel emissions standards to incentivise supply of EVs into the Australian market, where only about 3.4% of sales in 2022 were EVs. 

A step in the right direction, but the Government is still too concerned about cost of living pressures to deliver the policy clarity that climate ambition requires.

A new report by CEF analyst Matt Pollard finds that globally, the electric vehicle boom is well underway, with sales continuing their explosive rise in the first quarter of 2023 (1QCY2023), led as usual by China.

EVs reached a 29% market share of passenger vehicle sales in China in 1QCY2023, and  grew 26% year-on-year (yoy) to more than 1.58 million, as fossil-fuel vehicle sales fell 15% over the same period. 

Globally EV sales were 15% of the passenger vehicle market in 2022, up from just 5% in 2020.

And highlighting the investment, employment, decarbonisation, technology and export opportunities from leading on zero emissions industries of the future, China continues its rapid climb in the global auto-export market, surpassing Germany as the second-largest exporter, behind Japan. China’s BYD, the world's largest EV manufacturer, continued its dominance into 2023, growing 93% yoy, while Tesla was dethroned as the leading producer in 2022 by volume, but continued to grow across its Chinese, European and US facilities.

Australia has momentous opportunities to leverage this trend as the world's leading lithium producer, but we need to do more to value-add our critical minerals and metals onshore.

Plans to produce battery precursor materials are emerging, with Andrew Forrest’s Wyloo Metals and IGO developing a nickel sulphate refinery in WA, and setting their sights on a nickel precursor chemicals facility to feed into the global EV battery manufacturer supply chain. A real value-add leadership move – but one that reinforces the need for government support such as an advanced manufacturing tax credit. 

The race is on, and pressure is building for a domestic response to policy landmarks such as President Biden’s Inflation Reduction Act (IRA), which has supercharged cleantech including EV supply chain in the US, and the EU’s Net Zero Industry Act, as nations seek to position themselves at the forefront of the transformation.

>>> Read our full report, also published in Renew Economy’s The Driven

___LITHIUM UPDATE: FIRB, MARKET REVIEW, STRATEGIC RESPONSE |

The federal Resources and Energy Quarterly released this month projects booming lithium export earnings of $18.6bn in 22/23, more than triple 21/22 – context for our new analyses of US giant Albemarle's bid for Liontown Resources; and of Australia's once in a century opportunity to position itself as a globally dominant player in value-added critical minerals supply chain – with annual value-added exports of $40bn next decade clearly in the realm of possibility.

Guest contributor Owen Evans and CEF director Tim Buckley took a deep dive into Albemarle’s bid for Liontown, proponent of the $895m Kathleen Valley lithium project in WA. The bid values Liontown, which 2 years ago had 4 employees, at $5.5bn. Reviewing the history of the Foreign Investment Review Board (FIRB) and its remit to preserve our national interests, they find that the strategic risks are too great. If Albemarle is allowed to gain strategic control of Liontown it could leverage the IRA to expand its US lithium operations and restrict production in Australia to sustain global price.

>>> Read our full analysis.

CEF's Matt Pollard reviewed the exponential growth and planned investments by key Australian lithium producers including Liontown, IGO, Pilbara Minerals, Allkem, Mineral Resources and Rio Tinto.

With new firms across the states set to come online across the value chain, Australia is just at the start of its critical mineral industry development opportunity relative to the future economic growth and export earnings potential. This can be accelerated if industry and public policy align in Australia’s national interest.

We urge a strategic response in the form of a  version of the IRA tailored to Australian conditions to rapidly incentivise further refining value-added investment.

>>>Read our full analysis.

China is our biggest trade partner and the export destination for nearly 100% of our lithium. Rising geopolitical tensions between North America and China have seen growing trade barriers. In Australia, Senator Penny Wong is making headway to improve our relationship with China after a dramatic deterioration over the decade of the LNP government. 

In February, after the Treasurer approved China Baowu Steel Group’s involvement in the $2bn Rio Tinto Western Range, WA, iron ore project, he rejected Chinese-linked investment fund Yuxiao Fund’s request to increase its stake in lithium miner Northern Minerals from ~10% to 19.9%. 

In a piece for Energy Insights, Tim Buckley advocates a continued pragmatic approach to rebuilding our relationship with our foremost trade partner, as we navigate Australia’s place in the global cleantech economy. 

>>> Read the full analysis.

>>> Tim Buckley also provided a comprehensive overview of Australia’s critical minerals opportunity for global financial services firm and investment manager UBS.

>>>For further background see our comprehensive report released in March, A Critical Minerals Value-Adding Superpower

___INDIA LIFTS AMBITIONS ON RENEWABLES |

As Tim Buckley writes in a new analysis, there was a significant acceleration in decarbonisation ambition in India this month. The Government announced plans to treble renewable energy tenders to 50GW pa, targetting 250GW of RE by 2027/28, and Canada’s Brookfield Asset Management committed US$1bn to Avaada Group, which has aggressive solar expansion plans.

CEF sees these announcements, and a run of new investments by global and domestic capital into renewables that the analysis tracks, as a signal the fastest growing large economy in the world, with strong GDP growth underpinned by 8-11% annual growth in electricity demand, may be starting to rebuild momentum after 3 years of stalling delivery on energy transition. 

While Adani Green was leading on clean energy, Adani Group's woes post the Hindenburg Research bombshell alleging the world's biggest corporate fraud open up the field for players including ReNew, Greenko, NTPC and Tata, as we detail in the piece, and they are more than capable. Adani was not in the top 10 in recent auctions.

Capital is ready, willing and able. If the country is to achieve its headline goal of 450GW by 2030 we need to see more policy resolve on the part of the government – a concerted commitment to decarbonisation, coupled with stable targeted, consistent, ambitious and sustained implementation to back it up. JMK notes some very promising tender efforts in the first few weeks of FY2023/24!

>>> Read the full analysis. 

___INVESTORS URGE PUBLIC-PRIVATE PARTNERSHIP & $400BN+ CAPITAL BOOST ON DECARBONISATION |

A report launched last week by the Clean Energy Investor Group (CEIG) and Investor Group on Climate Change (IGCC) – Collaboration to Support Transition: Investor positions on public ownership of renewable energy – highlights that stronger alignment of public and private capital is needed for energy transition. For all the positive momentum building over the last year under the Albanese Government, Australia is not currently on track to meet its 43% emissions reduction target by 2030, let alone the more rapid trajectory aligned with the climate science, such as 75% by 2035. 

The key message of the report, says CEF director Tim Buckley, is that the Australian governments collectively need to lift collaboration with private investors, and derisk the electricity sector sufficient to crowd-in private capital at the scale and speed required to deliver on our energy transition and climate objectives. 

>>> See our op ed on the report in Renew Economy

A subsequent report released this week by the CEIG, Decarbonising Australia: Accelerating our energy transition with a credible 1.5°C scenario, reinforces the message that  Australia needs to dramatically boost new zero emissions electricity capacity investment, including in grid modernisation and firming, and retire all coal power by 2033. The report estimates that decarbonising the NEM in line 1.5°C will require private investment of  $421bn, driving a $43bn social benefit for Australians in terms of the value of avoided emissions, and buying Australia time on hard to abate sectors. 

As Tim Buckley points out in this commentary for FS Sustainability, the scenario is ambitious but credible: the Australian landscape has changed with the new government, we have state and federal alignment, and decarbonisation is accelerating globally. While we can’t outcompete the IRA, there is the potential for government to derisk projects, accelerate approvals, crowd in public capital for infrastructure and so on – and to galvanise one of the world’s largest private capital pools, our super.

>>> Read the full FS Sustainability article and Tim Buckley's commentary in The Mandarin.

_____

>>> And this week we joined the Climate Capital Forum and Smart Energy Council in a valuable delegation to Canberra.

OUR WORK |

We remain active in analysis of a range of key issues – see Our Work.

MEDIA |

See our other media, including commentary on Brookfield’s deal to buy Origin Energy for the AFR,  on Glencore’s takeover bid for Teck Resources for the Financial Times, on a new report by Melbourne, Princeton and Queensland University researchers tracking the scale of the transition challenge here and the role of gas for ABC, and more.

PREVIOUS NEWS UPDATES |

Our previous newsletters covering major energy news can be accessed here.

Our highlights tracking decarbonisation progress in 2022, and our 2023 wishlist, are here.

__

Feel free to get in touch anytime at the email below, and enjoy your weekend! 

Tim, Annemarie, Nishtha, Matt, Xuyang (see more on our team here).

This newsletter is not intended to provide, and should not be relied on for, tax, legal, investment or accounting advice, nor is it an offer or solicitation of an offer to buy or sell, a recommendation, endorsement, or sponsorship of any security, company, or fund. CEF is not responsible for any investment decision made by you. Unless attributed to others, any opinions expressed are our current opinions only. Certain information presented may have been provided by third parties. CEF believes that such third- party information is reliable, and has checked public records to verify it wherever possible, but does not guarantee its accuracy, timeliness or completeness; and it is subject to change without notice.