Costs blow out to $52b at Gorgon LNG
American giant Chevron has revealed a $9 billion cost blow-out on its massive Gorgon gas project in Western Australia, ending years of silence in regard to constant speculation about cost and schedule over-runs.
The size of the blow-out, which many feared would be even larger, means the project now has a total cost of $52 billion, making it almost certainly the most expensive resources project ever attempted in Australia.
Continuing the themes that have dogged Australia's resources sector in recent times, Chevron named the cost of Australian labour, and local productivity rates as some of the main factors in the blow-out.
The size of the blow-out is even larger if measured in US dollars, Chevron's reporting currency. In 2009 Chevron estimated a cost of $US37 billion (at the time: $43 billion), which has now blown out by $US15 billion, or 40 per cent.
Weather delays and logistical challenges were also cited, along with the strength of the Australian dollar.
First gas from the project is now planned to occur in early 2015 rather than 2014, and with only 55 per cent of the project complete, there appears to be plenty more potential for further schedule and cost blowouts for gas is delivered.
Chevron vice-chairman George Kirkland said the project remained financially attractive despite the blow-out.
"While investment requirements have grown, oil prices, which directly impact the overall revenue stream, have increased by approximately 80 percent over the same time period,'' he said.
Mr Kirkland said the blowout had been further offset by a 4 per cent increase in the volume of gas that can be delivered, with the project now set to have a capacity of 15.6 million tonnes of LNG per year.
Chevron is building the project on behalf of its joint venture partners which include Shell and ExxonMobil and three Japanese electricity companies.
The project is currently planned to have three processing ''trains'', and there has been speculation about a fourth, but today's announcements did not include any commentary on a fourth train.
However, Mr Kirkland did spruik Chevron's continuing search for more gas.
"Our exploration program continues to discover additional gas resources that could support future expansions of our Australian LNG developments,'' he said.
Gorgon will bring gas from offshore Western Australia into a processing plant on the environmentally sensitive Barrow Island, an important habitat for many species including some turtles.
The project is not Chevron's only venture in the region, with the company also developing the Wheatstone LNG project in WA.
Mr Kirkland said that project was only 7 per cent complete, and was on schedule and budget so far.
Australia's LNG sector has been dogged by cost blowouts this year, with several of the big developments in Gladstone already reporting significant cost blowouts.
As for Gorgon, Chevron's struggles with cost are only exacerbated by the ambition of the project on Barrow Island. Bringing in materials from the mainland adds to cost, and the island is also Australia's most protected type of nature refuge, so Gorgon managers face tight environmental guidelines.
Also included in the price tag is the world's biggest carbon capture and storage project, which will collect up to 4 million tonnes of carbon dioxide a year in a reservoir under the island.