Woodside Faces Cost Increase at $11B Scarborough Gas Project

Woodside Petroleum is in the final stages of working out costs on its Scarborough gas and Pluto LNG expansion project, as it faces rising labor and steel costs, the company’s boss said on Tuesday.

The Scarborough development offshore Western Australia will feed an expansion of Woodside’s Pluto LNG (liquefied natural gas) plant, with the combined project previously estimated at $11.4 billion.

Acting CEO Meg O’Neill, who took the reins in April, said the company is facing skyrocketing steel prices for a project where raw steel costs amount to 10% or 15% of total costs, and acknowledged that there is tight competition for workers amid a mining boom in Western Australia.

At the same time, she said Woodside had been able to work out some cost savings in the project design with its contractors after putting it on hold last year, when oil and gas prices crashed amid the COVID-19 pandemic.

“It’s probably too early to say, but there’s some cost pressures on the ledger, there’s some cost savings on the ledger and as soon as we have those updated bids from our contractors, we’ll be communicating with our shareholders,” O’Neill said at Credit Suisse’s 8th Australian energy conference.

The Scarborough and Pluto LNG expansion project is the company’s only big growth option in the near term.

Woodside is targeting a final investment decision with its partner BHP Group within the next six months.

The Western Australian government said on Tuesday it had approved Woodside’s plan to cut emissions from the Pluto LNG project by 30% by 2030 and reach net zero by 2050, which the state’s environment minister said represented a sharp reduction in emissions from levels approved in 2007.
The gas industry two years ago fought to block a proposal by the state’s environment regulator that would have required all new projects with carbon emissions of more than 100,000 tonnes to fully offset their emissions.

(Reporting by Sonali Paul; editing by Jason Neely)

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