The reason this line doesn’t make any sense is because it’s in direct reference to a line that was later cut. During the sequence in the Nibelheim reactor, Sephiroth was to explain that it was “not just a reactor,” as it was also being used for human experimentation. Because the line no longer exists, this one no longer makes any real sense, even if you can kind of put the pieces together.
Significantly, this means that Cloud’s first real “freakout” is, in fact, a memory, not some precognitive warning of the scorpion boss by a foreign entity in his mind. The identity of the voice in Cloud’s head has always been a point of mystery and confusion for players, and I can’t imagine this line helped matters any.