Chevron Says Cost Pressures in Australian Resources Still Intense

PERTH - Chevron Corp. is finding cost pressures remain intense as it advances 80 billion Australian dollars (US $74 billion) of new gas-export projects in Western Australia, despite a recent slowdown in the state's economy, a senior executive said Thursday.

Chevron is leading development of the Gorgon liquefied natural gas project and the nearby Wheatstone terminal as it looks to meet Asia's rising demand for clean-burning fuels, but has repeatedly warned that labor costs and red tape is making investments in Australia less attractive.

In December, the U.S.-based company unveiled a 21% cost overrun at Gorgon to 52 billion Australian dollars (US$48.4 billion). Wheatstone, which is at an earlier stage of construction, remains within its US$29 billion budget.

"The cost pressures remain-there is no let-up, obviously, in wage demands," said Colin Beckett, Chevron's general manager of the Greater Gorgon area.

Many in the industry think "we can continue to increase wages, at the same time as having declining productivity", but this is misguided given Australia's emerging gas-export sector faces competition from new East African and North American suppliers in future, Mr. Beckett said at an industry conference.

"When it comes to the costs of goods and services I don't see any falling off in terms of costs," he said.

Resource companies contribute more than 120 billion Australian dollars (US$115 billion) a year to Australia's economy, with coal and iron the country's largest exports and China the largest buyer. However, most recent investment has been focused on developing the country's vast resources of natural gas for export, with Gorgon and Wheatstone among seven projects currently under construction.


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Copyright (c) 2012 Dow Jones & Company, Inc.

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