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Lloyds List: Prospects for Australia’s Gorgon project brighten

Tony Gray, Lloyds List
Published: Sep 05, 2007

THE chances of Australia’s troubled Gorgon liquefied natural gas project going ahead have improved, with Shell striking a long-term supply deal with China, writes Tony Gray.

Shell Eastern LNG and PetroChina International have concluded a binding heads of agreement, covering the supply of 1m tonnes of LNG a year over 20 years.

The massive Gorgon project, off the north-west coast of Western Australia, would be the ‘primary source’ of the LNG, Shell said. The two companies would work together to conclude a detailed LNG sale and purchase agreement before December 2008.

The agreement is conditional upon a final investment decision being taken by the Gorgon joint venture partners which, in addition to Shell (25%), include Chevron (50%), and ExxonMobil (25%).

The Chevron-led project may be sanctioned next year, said Tony Hanna, vice president for Asia Pacific at Shell Gas and Power International.

However, ExxonMobil chief executive Rex Tillerson was recently reported to have said the project could not go ahead at current cost levels and that the partners were examining ways of reducing unit costs.

He also indicated the project might be moved from its proposed location at Barrow Island, where a two train liquefaction plant is planned. The project’s total budget was originally US$8.6bn, but has ballooned due to soaring labour and construction costs.

Shell Gas and Power Asia executive vice-president Jon Chadwick, acknowledged Gorgon was facing cost pressures but said the partners remained committed to the development.

‘We feel that what we have done only helps that project proceed,’ he said. ‘We remain very committed.’

Mr Chadwick said there was a ‘strong LNG market’ and that Shell was pleased with the price struck with PetroChina.

Chevron welcomed Shell’s deal with PetroChina and said it demonstrated confidence in the project.

The project is based on the development of the Greater Gorgon gas fields, which contain resources of about 40trn cu ft of gas, Australia’s largest-known undeveloped gas resource.

The initial plan involved a gas processing facility on Barrow Island, comprising two 5m tonnes a year trains. But Mr Hanna confirmed reports that the partners are studying an option to build three trains. Boosting annual production capacity from 10m tonnes to 15m tonnes would bring unit costs down.

Chevron said the project parameters remained unchanged.

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