SNP China Petroleum and Chemical Corp

MELBOURNE, Australia—Chevron Corp. has lined up a Chinese buyer for natural gas from its multibillion-dollar developments in northwestern Australia, helping shore up their commercial health as crude-oil prices hit multiyear lows.

Chevron said it had signed a nonbinding agreement with China Huadian Green Energy Co., a subsidiary of state-owned power company China Huadian Group, to supply up to 1 million metric tons of liquefied natural gas a year over 10 years.

If a deal is finalized for the full volume, Chevron's massive Gorgon and Wheatstone gas-export projects will have commitments for more than 80% of production for the duration of the agreement with the Chinese company.

"As Chevron continues to grow into one of the world's largest LNG suppliers, this agreement represents further progress and diversification of our sales portfolio," said Pierre Breber, vice president of Chevron's gas and midstream division.

Chevron and a host of other energy companies have bet big on vast LNG developments that freeze gas into liquid form for export, with the expectation that demand in Asia for cleaner-burning fuels will continue to climb as the middle class grows. More than $200 billion has been invested in Australia alone, although delays and cost blowouts, plus the hit to gas prices from a link to crude levels, have made many projects uneconomic in the near term.

Roy Krzywosinski, managing director of Chevron Australia, said the supply heads of agreement with China Huadian Green Energy demonstrated its Australian gas was well placed to meet demand in the Asia-Pacific region.

The Chevron-led Gorgon project, which saw its costs balloon 45% to $54 billion, is one of the next massive LNG projects set to begin operations. The Australia Pacific LNG venture between ConocoPhillips, Origin Energy Ltd. and Sinopec Corp. as well as Santos Ltd.'s Gladstone project began producing this year, and BG Group PLC's $20.4 billion Queensland Curtis LNG project began late last year.

According to Chevron's website, the Gorgon project is in the final stages of commissioning systems to allow the startup of the first production line and for the first cargo of LNG to be loaded early next year. Chevron has an about 47% stake in Gorgon, which is being built on remote Barrow Island some 60 kilometers off Western Australia state, and Exxon Mobil Corp. and Royal Dutch Shell PLC each own 25%. Japan's Osaka Gas Co., Tokyo Gas Co. and Chubu Electric Power Co. hold the remainder.

The project is designed to produce 15.6 million tons of LNG a year and will have a domestic gas plant with the capacity to supply 300 terajoules of natural gas a day to Western Australia.

The $29-billion Wheatstone project on Western Australia's Pilbara coast is scheduled to ship its first cargo of LNG by the end of 2016 as it ramps up to production of 8.9 million tons a year. It is 64%-owned by Chevron and counts among its partners Kuwait Foreign Petroleum Exploration Co. and Australia's Woodside Petroleum Ltd.

Chevron, the second-largest energy company in the U.S. by revenue, in late October said it would cut 10% of its workforce as it sought to weather the drop in oil prices over the last year. The San Ramon, Calif., company is trying to scale back capital spending by 25% next year to between $25 billion and $28 billion and said it expects to cut its budget further in 2017 and 2018.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

December 21, 2015 17:25 ET (22:25 GMT)

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