Chevron Announces Detailed Cost Review for Australia's Gorgon LNG Project

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Researched by Industrial Info Resources Australia (Perth, Australia)--The Gorgon Liquefied Natural Gas (LNG) project is being developed in a nature reserve on Barrow Island in Western Australia by Chevron Australia Pty Limited (NYSE:CVX) (Perth, Australia). The large-scale LNG project was given the development go-ahead in September 2009 and was initially forecasted to cost about $39.17 billion. Three years later, the expected investment value of the project has increased to $45.52 billion, and Chevron expects the costs to continue to rise. Chevron recently announced the need to perform a detailed cost review for the LNG project to determine how much the billion-dollar budget is likely to increase.

Chevron is working with Kellogg Joint Venture (M W Kellogg 25%, Hatch 25%, Clough 25% and JGC 25%) (Perth) and Gorgon Upstream Joint Venture (J P Kenny 50% and Technip Oceania 50%) (Perth) to develop the project, which, once operational, will produce about 15 million metric tons of LNG per year, with the possibility of a production expansion.

About half of Chevron's costs for the Gorgon project are in Australian dollars. Chevron has stated the main reason for the budget review is the rising cost of labor in Australia, and that it is directly related to the strengthening of the Australia dollar by 20% since the project was approved. Chevron reports that weather-related delays also have complicated the project's progress.

A detailed cost review process is now under way and will be completed by the end of the year. The project's schedule also is under review; however, Chevron still expects a production start date of late 2014.

The Gorgon project consists of three production trains. An output expansion has been proposed that would increase production of each of the three trains from 5 million to 5.2 million metric tons per year.

Chevron is continuing with construction of the LNG tanks on Barrow Island, and eight of the 18 development wells have been drilled. Site preparation is continuing, and work on the upstream facility and submarine pipelines is on track. Hyundai Heavy Industries Corporation Limited (Ulsan, South Korea) is continuing with production module fabrication. These works are part of a set of complicated logistics for building such a large project on a nature reserve.

Industrial Info is tracking seven large-scale LNG production projects under construction in Australia, with a total investment value of more than $173.58 billion. These projects, when in full operation, will increase Australia's LNG export capacity from about 24 million metric tons per year to more than 80 million metric tons per year.

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