UPDATE 2-Chevron Gorgon project clears environmental hurdle

Thu Apr 30, 2009 1:19am EDT

* Chevron's Gorgon LNG project faces stringent conditions

* Approval paves way for final investment decision

* Chevron says on track to sell its share of uncontracted Gorgon gas

* Chevron says targets first production in 2014 (Adds details and comments from Chevron)

By Fayen Wong

PERTH, April 30 (Reuters) - Chevron Corp (CVX.N) on Thursday won conditional approval from an Australian environmental regular for the multi-billion dollar Gorgon gas project, bringing a final investment decision closer.

The Environmental Protection Agency (EPA) of Western Australia said that although it was still opposed to the building of the Gorgon liquefied natural gas (LNG) facility on a nature reserve, the plan could pass with strict conditions.

"The EPA considers that the current proposal could only meet the EPA's environmental objectives if, and only if, stringent conditions were applied to it," the agency said.

The recommendations are subject to a two-week public appeal process, after which the state government will make a final decision on whether to allow the project and on any conditions to be imposed.

The U.S. oil major, partnered with Royal Dutch Shell Plc (RDSa.L) and Exxon Mobil Corp (XOM.N), wants to increase the size of Gorgon to 15 million tonnes per annum (mtpa), after having received state approval for a 10 mtpa project in 2007.

EPA approval clears one of the key regulatory hurdles and paves the way for Chevron to make a final investment decision on the project, which the Western Australian government has estimated would cost about A$50 billion ($35 billion).

Chevron said in a separate statement that it was working towards a final investment decision in the second half of this year.

In an interview with Reuters, Chevron Australia's Gorgon General Manager Colin Beckett said first LNG cargoes are expected in 2014, confirming several years of speculation that production would be far delayed from the original 2010-2011 target.

Beckett declined to forecast the project's cost, saying the venture is in the process of seeking and assessing bids for work contracts.

"We're getting contractors to update their costs with 2009 prices. This is to make sure we'll get the best prices and take advantage of lower construction costs in this downturn," he said.

Chevron has for several years avoided committing to a final investment target date for Gorgon, after saying in 2006 that it was not likely that year. Chevron's most recent cost update for Gorgon of A$11 billion was given five years ago.

Chevron, which owns 50 percent of Gorgon, said it may expand Gorgon to 25 mtpa in the future and that it was continuing to talk to a range of potential LNG customers for its share of uncontracted gas of about 3 mtpa.

When asked about potential regions Chevron was eyeing to sell the Gorgon gas, Beckett said: "Asia is obviously the most promising market and one that is the most buoyant."

ENVIRONMENTAL CONCERNS

Environmental concerns centre on the potential damage to a protected nature reserve on Barrow Island, the site of the proposed plant to process estimated gas reserves of 40 trillion cubic feet, around a quarter of Australia's known gas.

The EPA said the impact on flatback turtle nesting on the island, introduction of non-indigenous species to the island's ecosystem, and the potential damage inflicted by seabed dredging would need to be managed and closely monitored.

The agency has made its recommendations to Western Australian Environment Minister Donna Faragher. ($1=1.424 Australian Dollar) (Reporting by Fayen Wong)

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