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Bloomberg: Chevron Plans Second Australia LNG Project to Gorgon (Update2)

By Angela Macdonald-Smith

March 10 (Bloomberg) — Chevron Corp., operator of the Gorgon liquefied natural gas venture in Western Australia, started studies on a separate project in the same region, potentially blocking rival plans by Woodside Petroleum Ltd.

The Wheatstone project will tap fuel from a 100 percent- owned field to produce 5 million metric tons a year of LNG at a site on mainland northwest Australia, the San Ramon, California- based company said today in a statement. The plan doesn’t lessen the commitment to the delayed Gorgon project, it said.

Australia’s northwest, where Woodside, Inpex Holdings Inc. and BHP Billiton Ltd. are also working on LNG projects, is one of Chevron’s four principal exploration regions. The Wheatstone field lies adjacent to Woodside’s Pluto field, which the Perth- based company is developing in a rival LNG project that it wants to expand by using gas from other companies.

“It would make sense for one project, but maybe Chevron has plans for expansions down the track similar to Woodside,” said Mark Greenwood, an energy analyst at JPMorgan Chase & Co. in Sydney. “Maybe they don’t like” the terms Woodside is offering Chevron to process Wheatstone gas through the Pluto expansion project, he said.

Chevron is spending “a couple of hundred million dollars” on exploration and initial studies for Wheatstone LNG, including drilling appraisal wells, and expects to commit to starting engineering and design work in about 12 months, Roy Krzywosinski, managing director of the U.S. company’s Australian unit, said in an interview at a conference in Bangkok. The Gorgon project would still proceed before Wheatstone, he said.

`Independent Projects’

“We view Gorgon and Wheatstone as independent projects,” Krzywosinski said. “We will not reduce our sense of urgency or commitment to Gorgon.”

The Gorgon partners, which include Royal Dutch Shell Plc and Exxon Mobil Corp., are delaying making a decision to build the project as they work to improve the project’s economics after a jump in construction costs. The venture has 40 trillion cubic feet of gas, about nine times the 4.5 trillion estimated at the Wheatstone project.

Krzywosinksi today declined to comment on the latest budget for Gorgon, which was originally budgeted at A$11 billion ($10.2 billion). The proposed size of the project has since been raised by 50 percent to 15 million tons a year of LNG. Exxon said last year Gorgon LNG deliveries may start up in 2014.

Pluto Expansion

The Wheatstone venture will also sell gas to the local market in Western Australia, Krzywosinski said. Chevron has studied various options for Wheatstone over the past year, including using the fuel in a gas-to-liquids project, processing it at an expansion of Pluto or of the Woodside-operated North West Shelf venture in which Chevron has a stake, he said. Chevron decided a standalone plant is the best option for “commercial, strategic” reasons, he said.

Krzywosinski wouldn’t comment specifically on sending Wheatstone gas to a Pluto expansion. “At this point we’re committed” to a standalone project, he said, adding it was too early to estimate project costs.

“Wheatstone LNG is a tremendous growth opportunity for Chevron, providing another platform to commercialize the company’s significant natural gas resources in Australia,” Jim Blackwell, president of Chevron Asia Pacific Exploration & Production Co., said in the e-mailed statement.

Chevron discovered Wheatstone in 2004, and the deposit lies about 90 miles (145 kilometers) in the Carnarvon Basin in water depths of around 650 feet (200 meters).

Australia, which has two operating LNG projects, has the potential to more than triple exports of the fuel to 60 million tons a year over the next decade, Belinda Robinson, chief executive of the Australian Petroleum Production & Exploration Association, said last month at a conference in Houston.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by ships to destinations not connected by pipeline.

To contact the reporter on this story: Angela Macdonald-Smith through the Sydney newsroom at [email protected]

Last Updated: March 9, 2008 23:40 EDT

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