* Higher labor costs, strong A$ boost costs
* Chevron's overall 2013 budget just shy of Exxon's
* Wheatstone LNG project in Australia still on budget
By Braden Reddall
Dec 5 Chevron Corp added $15 billion to
the cost of the Gorgon liquefied natural gas (LNG) export
complex, as the U.S. oil company's largest single development
joins a growing list of Australian LNG projects to run over
The new $52 billion estimate for Gorgon, now 55 percent
complete, came on Wednesday alongside Chevron's $36.7 billion
overall 2013 budget for capital and exploratory spending. That
compares with a 2012 budget of $32.7 billion, and is just shy of
the $37 billion annual budget of far-larger Exxon Mobil Corp
Like other Australian LNG projects, Gorgon's inflated cost
is largely due to labor shortages, logistics challenges and the
strength of the Australian dollar. Half of the six other LNG
plants being built in the country have sustained cost increases
averaging more than 20 percent.
Chevron said about one-third of the projected increase for
Gorgon from its 2009 estimate of $37 billion, or A$43 billion,
was due to the appreciating Aussie dollar and a change in the
mix of currencies since the project was sanctioned. Start-up is
still due in late 2014.
Chevron owns 47 percent of Gorgon, while Exxon and Royal
Dutch Shell Plc each hold 25 percent stakes and the
rest is shared by Japanese LNG buyers Osaka Gas, Tokyo
Gas and Chubu Electric.
The updated cost figure for Gorgon, located on a remote
island off Western Australia, is basically right in the middle
of analyst estimates that ran from $45 billion to $60 billion.
Analysts and executives say the economics work out
regardless, since Gorgon gas contracts are linked to oil. While
the Aussie dollar has strengthened by about 20 percent since
2009, and half Gorgon's costs are in the currency, oil prices
are up about 80 percent in that time.
Joe Geagea, head of Chevron's gas business, also points out
there will be few competing LNG suppliers over the next few
years. "I believe it will hit the market at the right time," he
said in an interview in Tokyo.
Shipping LNG to Asian markets is now a hot topic, with Shell
saying earlier on Wednesday it would move the headquarters of
its integrated gas business to Singapore from Europe to account
for the shifting center of gravity.
Also on Wednesday, the U.S. Department of Energy issued a
highly anticipated report that found exporting LNG from the
United States would benefit the country's economy more than it
would harm it.
Australian cost inflation could be felt well beyond Gorgon.
Chevron's $29 billion Wheatstone LNG, also in Western Australia,
is due to start up in 2016, though Chevron signed off on that
spending only a year ago when it had a better handle on costs,
and the company said on Wednesday it remained on budget.
"Our exploration program continues to discover additional
gas resources that could support future expansions of our
Australian LNG developments," Chevron Vice Chairman George
Kirkland added in a statement.
Chevron's overall LNG production, including Wheatstone as
well as a delayed plant in Angola starting up next year, will
grow to the oil-equivalent of 460,000 barrels per day (boepd) in
2017 from just under 200,000 boepd now. That is a huge
contributor to Chevron's goal of increasing its overall output
by 700,000 boepd to 3.3 million boepd over the next five years.
Apart from LNG, Chevron is going to spend heavily next year
on three projects in the Gulf of Mexico: Jack/St Malo, Big Foot
and Tubular Bells, with the first two due to start up in 2014.
Also included in its list of major projects were deepwater
developments off Nigeria, the Chuandongbei natural gas project
in China, Papa-Terra off Brazil, Hebron off the coast of Canada,
the UK's Clair Ridge, and the Tengiz expansion in Kazakhstan.
Reflecting the San Ramon, California-based company's shift
of focus away from refining, its "downstream" budget for 2013 is
just $2.7 billion, down from $3.6 billion this year.
As for Gorgon, Chevron's struggles with cost are only
exacerbated by the ambition of the project on Barrow Island.
Bringing in materials from the mainland adds to cost, and the
island is also Australia's most protected type of nature refuge,
so Gorgon managers face tight environmental guidelines.
Also included in the price tag is the world's biggest carbon
capture and storage project, which will collect up to 4 million
tonnes of carbon dioxide a year in a reservoir under the island.