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UPDATE 2-Chevron approves A$29 bln Australia LNG project
September 26, 2011 / 7:10 AM / 6 years ago

UPDATE 2-Chevron approves A$29 bln Australia LNG project

* Chevron gives final investment approval to Wheatstone

* Chevron positioning as one of Australia’s largest LNG producers

* U.S. firm bets on Asian LNG demand

* Wheatstone goes forward with lower than usual LNG sold forward (Adds quotes from Chevron vice chairman)

By Rebekah Kebede

PERTH, Sept 26 (Reuters) - 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 September 2007.

“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 six months.

At $29 billion, Wheatstone is more expensive than some had expected, with some analysts putting the figure around the $25 billion range.

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,” Kirkland said.

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)

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