The Gorgon liquefied natural gas project in Western Australia
state will come with a A$43 billion price tag, operator Chevron
Corp. (CVX) said Monday after its partners signed off on the
development as expected.
The project's 50%-owner, Chevron said initial works will begin
immediately and that it and its partners, Exxon Mobil Corp. (XOM)
and Royal Dutch Shell PLC (RDSB.LN), with a 25% holding each, are
still aiming to ship first gas by 2014.
If completed to plan, Gorgon will provide a key source of fuel
to fast-growing Asian economies nearby and reinforce Australia's
status as a significant global energy producer.
Chevron reiterated that it will fund its share of the project's
construction from its own balance sheet.
The final corporate approval of Gorgon, designed to ship 15
million metric tons of LNG a year from three production units,
follows hot on the heels of it obtaining final regulatory approvals
from the Australian government this month and last.
George Kirkland, Chevron's global executive vice president for
upstream and gas, said Gorgon could grow by another two processing
trains pending government and partner approval.
The company will have "a lot more information about the next set
of trains" in another year, Kirkland told reporters.
He said that the third processing train at Gorgon will come
online at least one year to one-and-a-half years after the first
train.
"So we've got a little bit of time here (on trains four and
five)," Kirkland said, adding Chevron will be completing gas
reservoir studies in the meantime.
To get government approval for the initial phase of the project,
Chevron had to meet strict environmental conditions, including
providing safeguards for a rare species of carnivorous turtle that
populates the nature reserve of Barrow Island, where the LNG
processing terminal will be constructed.
Industry sources were expecting Chevron, Exxon Mobil and Shell
to make their final investment decision Monday.
One of the world's largest natural gas projects, Gorgon will be
an "important pillar" of the Australian economy for the next 40
years, Chevron Australia Managing Director Roy Krzywosinski said in
a statement.
"We anticipate A$33 billion will be spent on Australian goods
and services with flow-on effects cascading through the Western
Australian economy," he said.
Krzywosinski later told reporters that the project partners
expect to award A$10 billion of construction contracts in coming
weeks and months in addition to the A$2 billion worth already
awarded.
Chevron played down concerns it could experience a shortage of
skills and labor to build Gorgon and its other proposed Australian
LNG project, Wheatstone, for which it hopes to make a final
investment decision in 2011.
The company intends to source labor from around Australia, often
externally through contractors, and will benefit from a downturn in
the mineral resources market, Chevron said.
"We view both Gorgon and Wheatstone as quite independent
projects," Krzywosinski said. "We're fully committed to moving both
forward without delay."
The Australian government said Gorgon is expected to generate
A$300 billion in export earnings and A$40 billion in government
revenue.
Named after the nearby Gorgon gas field discovered about 30
years ago, the project will tap into 40 trillion cubic feet of gas,
the equivalent of 6.7 billion barrels of oil.
It is considered one of the frontrunners of close to a dozen LNG
projects planned for construction in Australian and Papua New
Guinea, partly because it's the only one so far to have made a
final investment decision, and partly because it has underwritten
its construction with binding offtake contracts.
Chevron last week said it signed three binding sales agreements
to supply nearly three million metric tons a year of LNG from
Gorgon to Japanese and South Korean energy companies.
Subject to Australian foreign investment approval, the Japanese
companies, Osaka Gas and Tokyo Gas, will also acquire 1.25% and 1%
interests in the project respectively.
Exxon Mobil last month struck two deals over Gorgon LNG,
including a 20-year deal with PetroChina Co., the listed unit of
China National Petroleum Corp., and a 20-year agreement with
Petronet LNG Ltd., India's largest LNG importer.
Shell last year agreed to sell LNG from its share of Gorgon to
PetroChina. "Shell's access to LNG import terminals around the
world provides further options for Gorgon gas," Shell said in a
statement Monday.
Krzywosinski told reporters that Chevron hopes to convert a
preliminary offtake agreement with Japan's Chubu Electric Power Co.
(9502.TO) for more of its Gorgon LNG into a binding agreement by
year end. Chevron is "actively out marketing the balance to other
high quality customers," he said.
Colin Beckett, Chevron's general manager for the greater Gorgon
area, said the outlook for LNG demand in Asia is strong.
While the world's biggest supplier of LNG, Qatar, is also
ramping up supply, Beckett said it's predominately targeting Europe
and the Atlantic Basin.
Although, he added that Qatar is "obviously a competitor in the
international market".
-By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957;
ross.kelly@dowjones.com