Gorgon LNG project clears environmental hurdle

Rick Wilkinson
OGJ Correspondent

MELBOURNE, Sept. 13 -- The Western Australian government has given final environmental approval for Chevron Australia-operated Gorgon LNG project proposed for Barrow Island off Western Australia (OGJ Online, Sept. 10, 2007). The approval comes with 36 stringent environmental conditions.

Among the government requirements, said Environment Minister David Templeton, were stipulations that the project include carbon geosequestration and panels of experts to protect the environment of Barrow Island and surrounding waters. Barrow is a Class A animal reserve containing species extinct on the mainland.

The environment plan includes an additional $60 million (Aus.) commitment by the Gorgon joint venture to conserve endangered species, particularly the rare flatback turtles that come to the island to lay eggs. The companies also must submit annual audits of compliance and environmental performance reports.

Chevron called the environment minister's decision an important project milestone. The company said the JV would incorporate the conditions into current design optimization work.

Chevron is well on its way to implementing the geosequestration proposal. As operator, it plans to reinject about 3 million tonnes/year of carbon dioxide into a reservoir formation deep below Barrow Island.

However, as currently configured, the LNG plant will still emit as much as 4 million tonnes/year of CO2 into the atmosphere.

The project's environmental approval is based on construction of a facility with two LNG trains, each having a capacity of 5 million tonnes/year.

Originally budgeted at $11 billion (Aus.), the project likely will now cost closer to $15 billion. Geosequestration costs for the first decade alone are likely to be $850 million.

With costs rising, it is believed that a new scoping study has resulted in the JV's considering a three-train facility producing a total of 15 million tonnes/year of LNG to recapture economies of scale.

However such a move would require another round of environmental studies and approvals along with the further delays they would inevitably entail.

LNG sales agreement
Meanwhile in another major advancement for the project, PetroChina International Co. Ltd. has signed a binding heads of agreement to buy 1 million tonnes/year of LNG for 20 years from Gorgon Shell Eastern LNG. The deal is conditional upon the Gorgon joint venture partners making a final investment decision.

China, seeking substantial quantities of gas supplies, has been in tough price negotiations with several potential suppliers in Asia Pacific. Talks with the Gorgon partners—Chevron 50%, ExxonMobil, and Shell, 25% each—broke down in 2005 when they refused to sell LNG as cheaply as China wanted on terms similar to its 25-year, $25 billion (Aus.) supply deal with North West Shelf LNG for Guangdong province.

Western Australia premier, Alan Carpenter, described the agreement as one of the most significant deals since the North West Shelf, and it firmly seals gas relations between Australia and China, the second of its kind.

Previously, Shell intended to market its 25% share of Gorgon LNG to the US market though Sempra's Costa Azul terminal under construction in Baja California, Mexico.

Both Petrochina and Shell plan to execute a detailed LNG sales agreement before December 2008.

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