Cost of Gorgon increases as LNG cargo is pushed back

THE recently-released 2013 capital and exploratory budget for Chevron revealed that the company anticipated a $9 billion cost blow out at its Gorgon LNG project in WA.
The company reported in a press release that following a cost and schedule review, the total price tag estimate for Gorgon – one of the world’s largest natural gas developments – had risen from $43 billion to $52 billion due to a number of factors including high labour costs, logistics challenges and weather delays.
Chevron attributed about one-third of the cost increase to a strong Australian dollar and “changes in the mix of currencies” since the project was sanctioned.
In addition, first LNG cargo from the Gorgon project – which has been under construction for three years and is 55 per cent complete – is now expected to begin in early 2015 instead of late 2014.
The project will commercialise the Gorgon and Jansz-lo gas fields, about 130km offshore northwest WA, and produce more than 15 million tonnes of LNG per annum.
Despite the setbacks, Chevron vice chairman George Kirkland said that the Gorgon project’s economics were attractive.
“While investment requirements have grown, oil prices, which directly impact the overall revenue stream, have increased by approximately 80 percent over the same time period. In addition, the LNG nameplate capacity has increased by 4 percent to 15.6 million tonnes per year,” Mr Kirkland said.
“Our exploration program continues to discover additional gas resources that could support future expansions of our Australian LNG developments.” Chevron’s Australian subsidiary operates the Gorgon project and holds a 47.3 stake. The remaining interest is held between ExxonMobil (25 per cent), Shell (25 per cent), Osaka Gas (1.25 per cent), Tokyo Gas (1 per cent) and Chubu Electric Power (0.417 per cent).
About 90 per cent of Chevron’s US$36.7 billion 2013 spending program was budgeted for upstream crude oil and natural gas exploration and production products, with another seven per cent designated for the company’s downstream business.
In addition to Australia, Chevron highlighted Nigeria, the US, the Gulf of Mexico, Kazakhstan, Angola and the Republic of Congo as areas of interest for the development of major capital investments.
Chevron chairman and chief executive John Watson said that, consistent with long-stated strategies, the company was investing in a portfolio of “very attractive” oil and gas projects that would deliver volume growth and “real value”.
“Next year’s program supports several projects currently under construction, including our Australian LNG projects and United States deepwater developments,” Mr Watson said.
“As these and other projects come online, we anticipate production will reach our 2017 goal of 3.3 million barrels per day.”

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