KBR-Led Joint Venture Secures $2.3 Billion EPCM Contract for Gorgon LNG Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Chevron Australia Pty Limited (Perth, Australia), the regional subsidiary of Chevron Corporation (NYSE:CVX) (San Ramon, California), recently awarded an engineering, procurement and construction management (EPCM) contract valued at $2.32 billion to Kellogg Joint Venture - Gorgon (KJVG) (Perth) for the liquefied natural gas (LNG) downstream and logistics sections of the $37 billion Gorgon LNG project.

Under the five-year EPCM contract, KJVG will develop the LNG facility on Barrow Island. The facility will comprise three LNG trains, each with a capacity of 5 million tons per year; gas processing, treatment, storage and offloading facilities; offsite facilities; utilities; and accommodations. The gas facility will separate gas and light-oil condensates supplied from the Gorgon gas fields. The condensate component of the stream will be stabilized and shipped to the market. The gas component will be treated to remove carbon dioxide, hydrogen sulfide, and trace amounts of water vapor and mercury, before it is liquefied for export as LNG.

The firm also will develop a domestic gas plant with a capacity of up to 300 terajoules per day. Domestic gas will be transported through a pipeline from Barrow Island and will connect to a "tie-in" with the Dampier-Bunbury natural gas pipeline to address the rising energy requirements of Western Australia.

The facility is being designed to maximize reduction in greenhouse gas emissions through improved recovery of waste heat and injection of reservoir carbon dioxide into the subsurface. The Gorgon project is set to house the world's largest carbon capture and storage operation, which is expected to cost about $1.72 billion. The carbon dioxide injection location, situated on the central eastern coast of the island, is at a maximum migration distance from major geological faults and is expected to cause limited ground disturbance.

The EPCM contract will be executed under a modular construction strategy to minimize impact on Barrow Island during construction phase. All the requisite components will be prefabricated and assembled offsite into parts that can be transported to the island. While the contract will be implemented from operating centers based in Perth and London, KJVG also will build 250,000 tons of LNG modules in fabrication yards across Australia and Southeast Asia.

The venture also will put in place a quarantine management program over the lifetime of the project to secure the biodiversity and conservation values of Barrow Island, which is designated as a Class A Nature Reserve.

KJVG is a joint venture between KBR Incorporated (NYSE:KBR) (Houston, Texas), JGC Corporation (TYO:1963) (Tokyo, Japan), Clough Projects Australia Pty Limited (Perth), and Hatch Associates Pty Limited (Victoria, Australia). KBR and JGC each hold stakes of 30%, while Clough and Hatch each hold stakes of 20% in the venture. The venture recently completed front-end engineering and design activities for the LNG downstream section of the project under a $206 million contract awarded in July 2005. Clough won the largest share of 20% in the recent EPCM contract awarded to KJVG. The value of Clough's share in the deal is estimated at about $465 million.

Located in the range of 130 to 200 kilometers off the northwest coast of Australia, the Greater Gorgon gas fields are estimated to contain 40 trillion cubic feet of gas reserves. The Gorgon project is operated by Chevron, which holds a stake of 50% in the venture. Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) and Shell Oil Company (Houston) each hold stakes of 25% in the venture. The firms expect to award contracts worth $8.6 billion for the Gorgon project, which is scheduled to begin commercial production in 2014.

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