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Gorgon gets the cash flowing

Gorgon gets the cash flowing

Jamie Freed

August 13, 2008

CHEVRON, ExxonMobil and Royal Dutch Shell have agreed to pump more than $1 billion into the Gorgon liquefied natural gas project over the next 12 months in hopes of making a final investment decision on the long-delayed development.

The Gorgon project, which would process gas on Barrow Island off Western Australia, is based on the largest resource of any LNG project in Australia – an estimated 40 trillion cubic feet in the Gorgon and Jansz fields.

It entered front-end engineering and design four years ago but was re-scoped last year to include three production trains rather than the two planned, to ensure the project was economic amid rising construction costs in WA.

Chevron Australia’s general manager of the greater Gorgon area, Colin Beckett, said yesterday the joint venture expected to receive the necessary government approvals for the three-train project over the next 12 months.

Mr Beckett would not estimate the capital costs of Gorgon, telling the Herald any numbers would be “speculative” until the partners did the final studies next year.

But earlier this year BHP Billiton’s head of petroleum, Mike Yeager, said the rival Browse joint venture would cost “north of $US25 billion,” and many analysts estimate Gorgon could cost more than Browse.

In a speech to suppliers expected to tender for Gorgon contracts yesterday, Mr Beckett said the partners intended to approve a domestic gas project capable of producing 300 terajoules a day at the same time they made a final decision on the LNG project. They had planned to hold off on a proposal to develop a domestic plant until December 2010.

The Gorgon site is spacious enough to support the eventual development of five LNG trains capable of producing 5 million tonnes a year each. But the initial development will comprise three production trains and the domestic gas project.

Mr Beckett said it would take five years to build the first production train, meaning the first LNG could be produced in 2014. The second train would enter production about six months later and the third train and the domestic gas plant would start production a year after the first train was completed.

The domestic gas would be piped into the WA market through a new pipeline, which would connect Barrow Island with the existing Dampier to Bunbury pipeline.

Gorgon gas is high in carbon dioxide and the partners will spend more than $US850 million ($970 million) to sequester the emissions in an aquifer beneath Barrow Island. LNG production would not qualify as a protected industry under the emissions trading scheme in the Government’s green paper. A Credit Suisse analyst, Andrew Williams, yesterday said the scheme would compress margins for producers, but was unlikely to affect the commerciality of most LNG projects.

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