-- Chevron ups Gorgon cost estimate from initial A$43
billion
-- Cites labor shortages, currency swings and bad weather for
budget overrun
-- Plant on track to start up in late 2014, first cargo due soon
after
-- Chevron says Wheatstone remains on budget, schedule
SYDNEY--Chevron Corp. (CVX) raised the cost of building the
Gorgon gas-export project in Australia by 21% to 52 billion
Australian dollars (US$54.4 billion), citing a strong local
currency, labor shortages and bad weather.
The increase from an initial estimate of A$43 billion comes just
weeks after ExxonMobil Corp. (XOM) announced a 20% increase at a
rival multibillion dollar facility in Papua New Guinea, and
highlights the mounting cost pressures facing international oil
companies as they develop Australia's vast natural gas reserves for
export to energy-hungry Asia.
A more than 20% jump in the value of Australian dollar since
Gorgon was approved in 2009 has made it more expensive for Chevron
and others to pay for locally sourced equipment, services and
labor. The currency's value been driven higher by ongoing demand
for the country's raw commodities, including iron ore and coal from
fast-growing Asian economies.
Analysts don't expect the value of the Australian dollar to drop
below parity with the greenback any time soon, citing the country's
high interest rates compared to other developed nations and the
increasing popularity of its sovereign bond market.
Large mining projects are competing with Gorgon and another six
LNG developments under construction in Australia to attract skilled
workers, often to remote locations with unpleasant weather
conditions and few social amenities.
With a population of around 23 million people, less than ten
times smaller than the U.S., Australia lacks a deep labor pool to
supply mega-projects and bulging pay packets are often required to
entice workers out west or up north. Australia has also launched a
controversial program to offer special visas to workers from
overseas to help fill a skills shortage.
Chevron said Wednesday that Gorgon's economics remain attractive
following an 80% increase in oil prices since construction began.
It added the plant is due to start up in late 2014, with the first
LNG cargo expected to be shipped in the first quarter of 2015.
Gorgon, which will have an annual production capacity of 15.6
million metric tons of LNG and will ship to customers in Japan and
China, is the first of two LNG developments being undertaken in
Australia by Chevron. Construction on the US$29 billion Wheatstone
development began last year and Chevron said it is currently 7%
complete and is on budget and on schedule.
"Our exploration program continues to discover additional gas
resources that could support future expansions of our Australian
LNG developments," Chevron Vice Chairman George Kirkland said in a
statement.
Write to Ross Kelly at ross.kelly@wsj.com
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