Feb 1 (Reuters) - Chevron Corp is sweetening its sales pitch to attract new buyers to the under-booked $54 billion Gorgon liquefied natural gas export plant off northwest Australia, hit by high costs as fuel prices and demand plunge.
The move is a departure for Chevron which has for years stuck to its ambitious asking prices, industry sources say, only yielding as global liquefied natural gas (LNG) demand slumped and new supply gave buyers cheaper alternatives.
Production at the giant 15.6 million-tonnes-a-year plant is due to begin within weeks.
“Lousy” is how Chevron Chief Executive Officer John Watson last week described the global LNG market which Gorgon - the world’s most expensive such venture - will sell into.
Chevron faces a unique double-blow from record growth in gas supplies from Australia and the United States and from battered crude oil markets pushing current LNG prices below Gorgon’s high cost of production, according to analysts.
And a scarcity of customers leaves Chevron on the hook for a quarter of its share of Gorgon’s unsold volume this decade, leaving it few options but to dump supplies onto already depressed spot markets, industry sources said.
Instead, Chevron needs more long-term buyers paying oil-linked prices, such as its five existing Japanese clients, to help guarantee earnings over the project’s 40-year lifespan.
Since December the U.S. firm has lined up two preliminary deals with Chinese buyers ENN and Huadian Green Energy Co for Gorgon LNG over a 10-year period, starting in 2019 and 2020, respectively.
“New agreements with Chinese customers ... are important steps in the commercialization of Chevron’s equity natural gas holdings in Australia, demonstrating the project’s competitiveness,” a Chevron spokesman said on Monday.
The price of the deals, on which Chevron declined comment, are estimated at 12.2-12.3 percent of crude oil, plus a small fixed fee and a floor price, two industry sources said.
That compares with higher prices paid by Chevron’s Japanese clients at 14.85 percent of oil for 25 years of supply, sources say.
While contract differences between Japanese and Chinese deals make direct comparisons tricky, a long-term LNG contract negotiator said lower prices offered to China may open the door to price reviews between Chevron and its Japanese clients down the line.
But even if the latest batch of deals puts Chevron’s Gorgon scheme on surer footing for 2020-2030 traders still see its unsold volumes sailing into distressed spot markets this decade.
“We’re going to go through a challenging period for any volumes that will be sold spot into the marketplace,” Watson said in a teleconference call with analysts last week. (Reporting by Oleg Vukmanovic in Milan; Editing by Greg Mahlich)
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