How Woodside Energy (ASX: WDS) Could Benefit from Inflation Trends

In a World of Rising Prices, Energy Still Rules

Inflation is no longer a short-term headache—it’s a long-term reality for consumers, central banks, and investors. With interest rates higher and consumer spending under pressure, one key question arises: Which companies can actually benefit from inflation instead of being harmed by it?

Enter Woodside Energy Group Ltd (ASX: WDS).

As Australia’s largest independent oil and gas producer, Woodside stands tall in the energy sector—a sector that historically does well when inflation is rising. Whether it’s the surge in commodity prices, higher global demand, or supply disruptions, inflation often strengthens the outlook for oil and gas players like Woodside.

In this blog, we explore why Woodside Energy is not just surviving inflation—but positioned to thrive. Let’s unpack the reasons that make WDS a solid inflation-friendly stock in today’s uncertain environment.

Why Energy Stocks Like Woodside Love Inflation

Inflation usually eats into profits for companies with rising costs and limited pricing power. But energy stocks operate differently. Here’s why:

1. Commodity prices rise with inflation – Oil and gas prices tend to move up when inflation climbs, especially during global supply constraints.
2. Built-in pricing power – Energy producers often pass rising costs to consumers through higher spot prices and long-term contracts.
3. Contracts linked to inflation or oil benchmarks – Woodside’s LNG supply deals often include indexation to oil or inflation.
4. High fixed asset base – Once their infrastructure is built, operational costs stay mostly stable, so higher revenues mean fatter profit margins.

In short, energy companies are structurally aligned with inflationary environments—and Woodside’s business model is a textbook example of that advantage.

Woodside’s Unique Position in an Inflationary World

1. Global Oil and LNG Exposure = Built-In Pricing Power

Woodside exports LNG, crude oil, and condensate—all of which are priced in U.S. dollars and heavily influenced by global inflation trends.

With OPEC+ cutting oil output, geopolitical tensions, and tight LNG supply chains, commodity prices have stayed elevated throughout FY23 and into FY24. That’s good news for Woodside’s revenue.

Moreover, its long-term LNG supply contracts to Asia are often indexed to oil benchmarks or inflation rates. So even if spot prices fluctuate, Woodside still receives inflation-adjusted income through these agreements.

Advantage: Revenue rises with global price trends, offering a natural hedge against inflation.

2. Strong Free Cash Flow = Flexibility and Shareholder Returns

In inflationary times, cash flow is king—and Woodside has plenty of it.

1. In FY23, Woodside generated strong free cash flow, allowing it to fund both growth projects and shareholder returns.
2. It has continued this trend into FY24 by:
   1. Paying robust dividends
   2. Executing share buybacks
   3. Reducing debt
   4. Investing in growth projects like Scarborough (Australia) and Sangomar (Senegal)

This financial strength makes Woodside resilient in tough economic environments. While other companies scramble to cover rising costs, Woodside enjoys liquidity and flexibility.

Advantage: High cash generation supports dividends and long-term investment, even during inflation shocks.

3. Operating Model That Resists Inflation

Unlike companies in manufacturing or retail, Woodside isn’t hit hard by rising labor or raw material costs. Most of its capital costs are already sunk into long-term infrastructure like:

1. Offshore drilling rigs
2. LNG processing terminals
3. Pipelines

Once these facilities are operational, ongoing costs are relatively low, and profit margins increase when oil and gas prices climb.

Advantage: Low variable costs mean rising revenues go straight to the bottom line.

4. Scarborough Project = Future-Proof Growth

The Scarborough gas project, expected to start production by 2026, is one of Woodside’s largest investments—and a strategic asset.

Key features:

1. Construction costs are largely fixed and already committed
2. Will produce 8 million tonnes of LNG per year
3. Meets growing global energy demand, especially from Asia
4. Designed with a lower carbon footprint, improving ESG alignment

As energy demand grows and global prices stay firm, Scarborough is expected to deliver strong, inflation-protected cash flows over the long term.

Advantage: Scarborough adds long-term upside with limited cost risks.

Risks to Consider

While Woodside is well-positioned, it’s not immune to external risks. Some inflation-related and general challenges include:

Environmental regulations and carbon taxes could raise project costs or delay approvals.

A global recession might lower demand for oil and gas.

Currency risks: Most of Woodside’s revenue is in USD, but it reports in AUD.

Geopolitical instability could affect supply chains or global LNG trade.

However, the company mitigates these risks through hedging, project diversification, and long-term contracts.

Financial Snapshot: Woodside in FY24

Woodside’s financial performance supports the inflation-hedge narrative:

Final dividend: $0.85 per share

Dividend yield: Approx. 7.73% (one of the strongest on the ASX)

Revenue (H2 FY24): $12.11 billion

Net Profit After Tax (NPAT): $2.47 billion

These numbers reflect both strong operational performance and effective cost control, making it attractive for income-seeking investors.

Final Verdict: Woodside is an Inflation Hedge with Yield

In a world where prices are rising and uncertainty is high, investors are looking for protection, not just growth.

Woodside Energy offers both:

 Exposure to inflation-linked commodity prices
 Strong free cash flow and dividend yield
 Low-cost, high-margin operations
 Major growth projects with inflation protection
 Solid financials and a resilient balance sheet

Whether you’re a long-term investor seeking stability or a value-seeker in volatile markets, Woodside is worth considering as an inflation-beating asset. As global energy demand and inflation persist, WDS has all the elements to deliver strong returns and income, even as the world gets more expensive.