Bechtel Secures FEED Contract for First Phase of Chevron's Australian Wheatstone Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--The front-end engineering and design (FEED) contract for the massive Australian Wheatstone natural gas project in northern Western Australia has been awarded to Bechtel Group Incorporated (San Francisco, California).

The Wheatstone project, owned by Chevron Corporation (NYSE:CVX) (San Ramon, California), will process natural gas from the offshore Wheatstone gas field and the nearby Iago gas field at a domestic gas plant and two liquefied natural gas (LNG) trains in Ashburton North, Onslow. Chevron owns the Wheatstone gas field and operates the nearby Iago gas field.

The normal schedule for a FEED contract of this size is about 18 months, and Chevron hopes to make a final decision in 2011. Analysts have predicted a total investment of $30 billion in the project. Construction is expected to take about five years, which would enable production to begin in 2016.

Chevron hopes to process up to 25 million tons of gas from the Wheatstone project. Each of the two LNG trains will have a capacity of 4.3 million tons per year, and the domestic gas plant will produce 200 terajoules per day. The production is destined for both the local Australian market and for the export market.

Competition in the region is growing among the larger oil companies, as natural gas begins to make inroads in their energy mix and Australia surges in gas production statistics.

Chevron is also involved in the Gorgon project, located at Barrow Island, just 100 kilometers north of the Wheatstone site. The firm holds a 50% stake in the Gorgon project, in cooperation with Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, The Netherlands) and Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), each of which holds a 25% stake. The FEED contract and an option for the engineering, procurement and construction management contract were awarded in 2005 to an unincorporated joint venture, Kellogg Joint Venture-Gorgon (KJVG), owned 30% by KBR Incorporated (NYSE:KBR) (Houston, Texas), 30% by JGC Corporation (TYO:1963) (Tokyo, Japan), and 20% each by Clough Limited (ASX:CLO) (Perth, Western Australia) and Hatch Limited (Calgary, Alberta).

In September last year, KJVG obtained a work authorization permit from Chevron for more than $250 million to finalize the FEED for the project. The facility will consist of three LNG trains, each capable of producing 5 million tons per year of gas, and a gas plant with a capacity of 300 terajoules per day.

However, Chevron faces strong competition in the region from Woodside Petroleum Limited (ASX:WPL) (Perth, Western Australia), which is hoping to develop a second and third train at its $12 billion Pluto project on the Burrup Peninsula. Woodside is keen to begin the expansion so it can capitalize on potential third-party gas supplies from the developers of the Carnavon Basin, off Dampier.

Both Apache Corporation (NYSE:APA) (Houston, Texas) and Hess Corporation (NYSE:HES) (New York, New York) have indicated they are looking for processors for the Carnavon gas, with the construction timetables of the proposed facilities being a critical factor governing their decisions.

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