Chevron Begins LNG Production Off Australia

MELBOURNE, Australia—Chevron Corp. plans to ship its first cargo from its massive US$54 billion Gorgon gas-export facility off Australia's west coast next week.

The energy giant said Tuesday it had started producing liquefied natural gas from the Gorgon project on remote Barrow Island, a milestone for a development that has been hit by cost blowouts and delays and now becomes operational amid a slump in prices.

The project is a cornerstone in Chevron's efforts to become a major LNG supplier over the next four years, with Gorgon and a neighboring development in Western Australia known as Wheatstone targeting growing demand for natural gas in the Asia-Pacific region.

Chairman and Chief Executive John Watson said the long-term fundamentals are attractive for LNG, gas that is chilled to make it easier to store and transport. "We expect legacy assets such as Gorgon will drive long-term growth and create shareholder value for decades to come," he said.

The price tag for Gorgon ballooned since the partners made the decision to invest in 2009, by about 45% due to delays, higher labor costs and a jump in the value of the Australian currency against the dollar. Chevron is operator and majority owner of the Gorgon project, with Exxon Mobil Corp. and Royal Dutch Shell PLC each holding 25% stakes. Osaka Gas, Tokyo Gas and Chubu Electric Power each have minor interests.

It has been a similar tale for other LNG projects dotted around the country, which together have seen energy companies commit more than US$200 billion to developments that have positioned Australia to leapfrog Qatar in the coming years as the world's leading LNG exporter. LNG contracts are tied to crude-oil prices, which have fallen sharply over the last almost two years.

Gorgon will be one of the world's biggest new LNG operations and represents the single largest investment in Australia by a private company or government. Three production lines, or trains, will produce 15.6 million metric tons of LNG a year plus enough gas to generate electricity for 2.5 million Australian homes at full capacity.

In recent months, Chevron has lined up two Chinese buyers for gas from its Australian operations. In all, it has secured commitments for more than 80% of the volumes from the Gorgon and Wheatstone projects, the company said Tuesday. Still, Chevron in January pushed back the expected first output from the US$29 billion Wheatstone development by about six months to mid-2017, due to delays in building parts in Malaysia.

Gas for the Gorgon project comes from two fields between 130 and 220 kilometres off the northwest coast of Western Australia. LNG will be offloaded via a 2.1 kilometer long loading jetty on Barrow Island, a nature reserve located about 60 kilometers off the coast, while domestic gas will be piped to the mainland. At full output, there will be several hundred workers on Barrow Island, primarily operational and maintenance staff, who fly in for two-week stretches.

Write to Robb M. Stewart at [e-mail]

(END) Dow Jones Newswires

March 07, 2016 19:15 ET (00:15 GMT)

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