Chevron Ships First Gorgon Cargo To Japan
US giant Chevron announced that the first cargo from its US$54bn Gorgon LNG complex departed Barrow Island in northwest Australia early on March 21 local time aboard the tanker Asia Excellence. The cargo will be delivered to one of Chevron's foundation buyers, Chubu Electric, for delivery into Japan, the US major said.
"Departure of the first cargo from the Gorgon Project is a key milestone in our commitment to be a reliable LNG provider for customers across the Asia-Pacific region," said Mike Wirth, executive vice president, Chevron Midstream and Development. "This is also important for our investors as we begin to generate revenue from a project we expect will operate for decades to come."
The 15.6mn metric ton/yr complex on Barrow Island in northwest Australia – to be opened in three phases over the next two years – is the most expensive LNG plant ever built and includes a $2bn carbon dioxide injection project plus a domestic gas plant that can supply 8mn m3/d to the local Australian market.
But Gorgon starts up just as northeast Asian prompt spot LNG prices have fallen below $5 per mn British thermal units – a fraction of their $20 peak when Japan’s demand surged in the wake of its nuclear plant shutdowns following the 2011 Fukushima disaster, and down from $8 a year ago. Many Asian prices are pegged to oil, now around $40 per barrel.
The current glut will impact Chevron particularly, as it is developing not only Gorgon – with partners Exxon and Shell – but also a second Australian LNG project called Wheatstone, with 8.9mn tons/y capacity due on-stream in phases in 2016-17. The 5.2mn t/y Angola LNG, briefly opened in 2013 but under extensive repair since April 2014 following a ruptured gas pipe, is set to re-enter the market in Q2 2016 after an almost two-year stoppage; Chevron is Angola LNG’s lead partner with four others.
In 2009 when Chevron opted to build Gorgon, the project’s $54bn price-tag was a good 30% lower and the world was hungry for LNG. Since then US shale gas production boomed and European gas demand collapsed, leaving many firms’ projects – especially in Australia – facing a glutted, depressed market. World LNG production reached 250mn metric tons (345bn m3) last year, said consultancy firm Wood Mackenzie in January, up slightly on 2014 – but Chinese demand fell by 2% in 2015 after years of double-digit growth.
Seven years ago Chevron was keen to catch up its four larger non-state rivals, Exxon Mobil, Royal Dutch Shell, BP and Total – all of which had more LNG production – so invested heavily in LNG to meet expected Asian demand. In the long run, that’s still expected to materialise but the short-term problem is that many other Australian and US Gulf Coast LNG export projects are coming onstream between now and 2020. When LNG prices began to decline in 2014, many of these projects were too far advanced for it to make sense to scrap or delay them. Thus, world LNG production capacity could grow 33% to 330-340mn t/yr by late 2020, but the number of new projects coming onstream after then may be fewer; only one LNG export project took final investment decision last year: UK-French firm Perenco’s small venture offshore Cameroon in West Africa, due for start-up next year.
Oil at $30 per barrel, as it has recently been, means all big oil companies are cutting back. Chevron recently said its 2016 capital spending would be $26.6bn, 24% lower than in 2015; in October 2015 it announced plans to cut 6,000-7,000 jobs. Wood Mackenzie this month said globally that some $380bn of upstream oil and gas project expenditure has been deferred, half of it from 2016 to 2020.
More than 80% of Chevron equity LNG from Gorgon and the Wheatstone project in Australia is covered by sales and purchase agreements or other agreements with Asia-Pacific customers – so Chevron will be hoping for a mid-term improvement in oil prices, to which contracts are indexed. Term prices have generally remained slightly higher than spot LNG prices.
The Chevron-operated Gorgon project is a joint venture between the Australian subsidiaries of Chevron (47.3%), ExxonMobil (25%), Shell (25%), plus Japan’s Osaka Gas (1.25%), Tokyo Gas (1%) and Chubu Electric (0.417%).
The LNG cargo is being delivered by the Asia Excellence, one of Chevron's new state-of-the-art LNG carriers. To support Chevron's growing position as a leading LNG supplier, Chevron Shipping Company is in the final stages of its largest shipbuilding and fleet modernization program in recent history, which includes the addition of six new LNG carriers to its operated fleet.
Two months ago, the same Asia Excellence tanker delivered an LNG cargo to Gorgon in order to commence cool-down of the complex, in readiness for initial production there which began two weeks ago.
Gorgon is supplied from the Gorgon and Jansz-Io gas fields, located within the Greater Gorgon area, between 130 km and 220 km from the northwest coast of Western Australia. The gas has a high CO2 content, hence the reason for the $2bn CO2 separation and reinjection plant.
Chevron made its announcement at 9.30pm on the evening of March 20, Californian time.
Mark Smedley