Woodside takes impairment but is a US$80 carbon price the bigger news?

Following Woodside's announcement yesterday regarding its planned impairments, Wood Mackenzie analysts delved deeper into implications of the US$80 carbon price.

Principal analyst Obo Idornigie said: "The combined post-tax loss of the impairment and the onerous contract provision (US$4.37 billion) sees Woodside’s gearing rise from 14% to 19%, still on the low end of its 15% - 35% target range and one of the lowest in our Focused International peer group.

"But the revised long-term carbon price of US$80 per tonne piqued our interest. This is a big jump for an independent. Woodside is now in the ballpark with targets set by European majors such as BP (US$100/tonne from 2040) and Shell (US$85/tonne by 2050), although it did not state when the revised pricing will be effective. Nonetheless, it will likely adversely affect the projected returns of high-carbon pre-FID assets such as Browse."

Senior analyst David Low added: "Setting a higher carbon threshold will certainly strengthen the appeal of renewables and could accelerate the portfolio transition towards new energies. Woodside has touted blue hydrogen as an intermediary step towards green hydrogen. But more recently, it has taken steps towards green hydrogen technology, signing an agreement with Japan’s JERA Inc, Marubeni Corporation and IHI Corporation to investigate large-scale export of renewable hydrogen as ammonia.

"While, green hydrogen technology is in its early stages and presently still sub-economical, there is significant momentum building behind it. Woodside has identified green hydrogen as a ‘natural evolution of its export business’' and the introduction of a high carbon price may signal that its aspirations have turned into a more tangible strategic target."