* Chevron gives final investment approval to Wheatstone
* Chevron positioning as one of Australia's largest LNG
* U.S. firm bets on Asian LNG demand
* Wheatstone goes forward with lower than usual LNG sold
(Adds quotes from Chevron vice chairman)
By Rebekah Kebede
PERTH, Sept 26 Chevron Corporation on
Monday gave the go ahead for its A$29 billion ($28.4 billion)
Wheatstone liquefied natural gas project in Western Australia,
seeking to tap into growing Asian demand with its second LNG
export project in the country.
The project is due to initially produce 8.9 million tonnes
per annum (mtpa) of LNG and have a domestic gas plant,
eventually expanding to 25 mtpa. First gas is planned for 2016.
Chevron is positioning itself to become one of the largest
LNG producers in Australia, with the construction of the $37
billion Gorgon project, also off the coast of Western Australia,
which is set to produce 15 mtpa by 2014.
Apache Corporation , Kuwait Foreign Petroleum
Exploration Company (KUFPEC), Royal Dutch Shell (RDSa.L), and
Kyushu Electric are all equity participants in Wheatstone, and
hold 13 percent, 7 percent, 6.4 percent and 1.83 percent,
respectively while Chevron holds the rest.
"The investment of just under A$30 billion means we now have
A$140 billion committed in Australia to new LNG investments, a
very very significant achievement," Resources Minister Martin
Ferguson told a news conference, noting that Wheatstone came
after six LNG projects had made final investment decisions since
"It effectively means that by 2014/15, we'll go from the 4th
largest LNG exporting nation to the 2nd largest export LNG
nation," Ferguson said. Australia currently ranks behind Qatar,
Malaysia and Indonesia in terms of LNG production.
The minister said that Australia would now have gas projects
ranging from offshore to floating LNG to coal seam gas on the
east coast, with further investment decisions due in the next
At $29 billion, Wheatstone is more expensive than some had
expected, with some analysts putting the figure around the $25
Chevron vice chairman George Kirkland said at least some of
the cost increases since the company approved its 15 mtpa Gorgon
project are due to a stronger Australian dollar.
"It's two years later, there is a difference in the Aussie
dollar exchange rate than it was when we first started Gorgon,"
In addition, the Wheatstone field is around 240 kilometres
from the coast, while the Gorgon field is around 70 km from the
coast, adding to the cost of connecting the project to a
liquefaction facility onshore, he said.
Kirkland said Chevron is still expecting its Gorgon project
to come in on budget.
"At this point in time, we are not forecasting and have not
come to the market and told them that we are seeing costs move
beyond ($37 billion). We are under cost pressures, there's no
doubt, with the foreign exchange, but in the case of Gorgon we
have the contracts in place," Kirkland said.
CHEVRON BETS ON ASIAN LNG DEMAND
Industry analysts had expected Chevron to move forward with
Wheatstone, but some noted the lower than usual amount of LNG
sold through long-term supply contracts.
"What is a surprise is that they've only got 5.9 mtpa
contracted at the moment," CLSA analyst Di Brookman said, adding
that 1.95 mtpa of that is sold under a preliminary contract to
Korea Gas Corp (KOGAS) .
"Is that going to turn into a binding agreement pretty
shortly? If it doesn't, what it tells you is that Chevron is
very positive on the market," said Brookman, speaking before
Chevron announced its approval on the project.
LNG projects typically secure long-term supply deals for
around 80 percent of their production before moving forward with
a final investment decision.
With 5.85 mtpa contracted, Chevron would only have around 65
percent sold in long-term contracts, and only around 44 percent
sold without KOGAS' preliminary contract.
Chevron is already in talks with customers in the Asia
Pacific region, Kirkland told Reuters on Monday, and aims to
have 80 to 90 percent of its gas from Wheatstone sold through
long-term contracts by the time it begins producing.
"Sixty percent is a pretty high number, we have confidence
and the market is strong... most people are saying the market in
the last six months has strengthened further and we are in a
great position," Kirkland said.
Long-term demand for LNG has grown in recent months, with
Japan, the world's number one importer of the fuel, depending on
LNG to replace the nuclear power it lost after the March
earthquake and tsunami.
Chevron has several supply deals in place, in addition to
its preliminary supply deal with KOGAS, including with Tokyo
Electric Power (TEPCO) for 3.1 mtpa and Kyushu Electric
Power for 0.8 mtpa.
KOGAS has signed a heads of agreement to acquire a 5 percent
interest in the project.
($1 = 1.021 Australian dollars)
(Writing by Ed Davies; Editing by Michael Urquhart)