Chevron's Gorgon LNG Clears State Environment Hurdle

PERTH Sep 7, 2007 (Dow Jones Newswires)

U.S. energy group Chevron Corp.'s (CVX) long-delayed Gorgon liquefied natural gas venture cleared another hurdle Friday after the Western Australian government gave its final approval.

The state environmental clearance caps off an encouraging week for Gorgon, which was buoyed Tuesday when one of its minority owners, Royal Dutch Shell (RDSB.LN), signed a multibillion-dollar gas sales deal with PetroChina Co.

However, Gorgon's development timetable remains uncertain as Chevron - the 50% owner and operator of the project - tries to mitigate cost increases, possibly by increasing the size of the already huge project.

Managing director of Chevron Corp.'s (CVX) Australian unit, Jay Johnson, said Friday it is too early to predict the cost of developing the giant liquified natural gas field, which lies off the coast of north-western Australia.

Johnson was speaking to reporters on the sidelines of the Asia-Pacific Economic Cooperation business leaders summit in Sydney.

He said the Western Australian government's conditions on the approval were acceptable, although the company is yet to build them into its cost projection.

"We are going to do a due diligence now. They (the conditions) were issued last night. We are going to go through them now," he said. "I can say the partners are working well together. The final investment decision is one that each company has to make."

The state's environment minister, David Templeman, signed off on a set of "stringent" environmental conditions for the project, located on remote Barrow Island.

Among the 36 conditions is that Gorgon establish a reservoir for a carbon dioxide re-injection system, as well as expert panels to protect the biodiversity of the island and surrounding marine environment.

The environment plan includes a A$60 million extra commitment by Gorgon to conserve rare flatback turtles and other endangered species.

"The Minister's decision to issue state environmental approval for the Gorgon development proposal is an important project milestone," said Colin Beckett, Chevron Australia general manager for the Greater Gorgon Area, in a statement.

Chevron and its partners will incorporate the conditions into current design optimization work, Beckett said.

"Given the project's importance, the current high-cost construction environment and the need to be internationally competitive, we are doing as much work as possible to ensure this valuable Australian gas resource is developed responsibly, effectively and efficiently," he said.

The partners will now seek Federal Government approval for their plans, which include the world's biggest CO2 "geosequestration" venture.

Gorgon proposes to re-inject roughly 3 million metric tons of CO2 per year underneath Barrow Island, at a cost of around A$850 million in the first decade. However, the LNG plant will still emit as much as 4 million tons of CO2 per year into the atmosphere.

Aside from dealing with the greenhouse gas issues, Chevron has said it will try to "squeeze" more LNG out of the proposed 10 million metric tons per year plant to mitigate cost pressures.

Four years ago, Gorgon was seen as an A$11 billion project. Chevron is yet to revise the estimate, though some analysts put the figure at a minimum of $15 billion.

Given that Gorgon - Australia's biggest ever resources project - faces a 45-month construction period, the first LNG shipments will not occur until well into the next decade.

The partners have spent around $1 billion over the past two decades on exploration, development and marketing of the Greater Gorgon fields, which are estimated to contain more than 40 trillion cubic feet of gas.

Chevron has marketing agreements in place with Japanese power utilities for a significant proportion of its share of Gorgon LNG.

Shell's China agreement, for the sale of 1 million tons of Gorgon LNG a year over 20 years, is conditional on the Gorgon partners reaching a final investment decision.

Both Shell and ExxonMobil (XOM) own 25% of Gorgon.

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