Woodside is proceeding with Louisiana LNG! But it won’t come cheap with a US$11.8bn price tag

Yesterday, Woodside Energy (ASX:WDS) revealed that Louisiana LNG is go! The company has made a final investment decision on the project, which it expects to derive the first LNG from in 2029. It won’t come cheap…but the company thinks it’ll be worth the price tag.

Louisiana LNG: A high price tag, but potentially high returns

The project (formerly known as Driftwood) will be on the Gulf of Mexico/America cost in between Houston and New Orleans. It will deliver 16.5Mtpa LNG when fully operational, which will be over 5% of supply and roughly two thirds of the anticipated 24Mtpa that Woodside aspires to deliver from its whole portfolio.

It is estimated to deliver an IRR of 13%, a payback period of 7 years and over $2bn of annual net operating cash in the 2030s, making for over US$8bn for Woodside’s entire portfolio. It will also account for more than two thirds of Woodside’s production.

Louisiana LNG won’t be a cheap exercise as it will cost US$17.5bn and Woodside will contribute $11.8bn of that. The balance will be contributed by Stonepeak, an alternative investment firm which owns 40% of the project and these will amount to 75% of capex in 2025 and 2026. Once in production, it could remain so for over 40 years.

CEO of Woodside Meg O’Neill declared that,’ Louisiana LNG is a game-changer for Woodside, set to position our company as a global LNG powerhouse and enable us to deliver enduring shareholder returns’. It was only a year ago when her company bought the project for $1.2bn from then owner Tellurian, including debt.

A strategic play

Impacting all companies with anything to do with the US has been Trump’s tariffs. Woodside has been no different in facing these threats. Only a week prior to the announcement of the FID on Louisiana LNG, Woodside released a quarterly update where O’Neill said the company was ‘assessing the potential impacts of recent tariff announcements and potential further trade measures on Louisiana LNG’.

Either they were not enough to dissuade the company from going ahead, or maybe it was beneficial for the company to go ahead. The perceived trouble was that it would import a significant portion of the required materials and equipment. Even though it was allowed in a zone allowing deferred tariff payments, it was still subject to them.

At the same time, there was strong demand from would-be customers for American gas. Woodside signed the first LNG offtake deal for Louisiana LNG, securing a contract with Germany’s Uniper for 1 million tonnes per year. Moreover it is not as if other LNG providers could defer tariffs, of which there are plenty of them on the coastline, led by a US$28bn export hub being built by Venture Global.

As well as this, the project is just as important for America as it is for Woodside, being the first greenfield US LNG project to go to FID in nearly 2 years. It will support 15,000 jobs during construction. Louisiana Governor Jeff Landry declared the FID was the biggest single foreign direct investment in the state’s history.

Woodside pivoting from Australia

But probably the biggest implication from the market is that Woodside is clearly looking away from Australia for oil fields. Its Scarborough and Browse projects have taken a lot longer than expected to get through the hurdles, with both being weaponised politically by politicians who loathe the gas industry.

With this project, Woodside has less headaches to deal with – at least as long as the Trump administration remains in charge. But perhaps it should also signal to investors that this company, one that has substantial history in Australia, is now looking offshore for its future.

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