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Monday 21 September 2009

Chevron seals the deal on natural gas project

Chevron Corp. on Monday committed to building Australia's biggest natural resource project, a $37 billion facility that will pump natural gas from the ocean floor, cool it into a liquid and ship it to the hungry economies of East Asia.

Chevron and its partners, Exxon Mobil and Shell, said they would move ahead with the long-planned, often controversial Gorgon Project after Australian government authorities finally approved it.

Environmentalists objected to the project's location, off Australia's northwestern coast. Chevron and its partners will build a terminal for cooling and shipping natural gas on Barrow Island, a nature preserve covered in dry grass and termite mounds.

But Barrow Island already holds oil wells, which have been pumping petroleum for more than 40 years. After insisting on measures to protect turtles and corals nearby, the Australian government granted approval.

Gorgon is expected to generate 10,000 jobs during construction and $34 billion in government revenue during the life of the project. Gas production should begin in 2014.

"Gorgon represents a massive injection into the Australian economy, which means jobs, which means growth, which means new opportunities for Australia," Prime Minister Kevin Rudd said in a pre-recorded video on Chevron's Web site.

Despite its hefty price, the project could prove immensely valuable to San Ramon's Chevron.

Barrow Island sits within easy shipping distance of liquefied natural gas customers in China, India, Japan and South Korea.

Much of the gas is already spoken for, with Chevron announcing a series of long-term sales agreements in recent weeks. Analysts expect Asia's demand for liquefied natural gas to increase as the region pulls out of the global recession.

"Being located in Australia, they can ship it right in," said Allen Good, an analyst with the Morningstar market research firm. "Australia is really opening up as the new LNG frontier, so it's a good thing that Chevron and Exxon and Shell are really getting the jump on it."

Chevron will operate Gorgon and own the biggest share - starting at 50 percent and dipping to 47.75 percent after several customers take equity stakes in the project. Exxon Mobil and Shell will own 25 percent each.

The project takes its name from one of several undersea gas fields that will be tapped. Wellheads on the ocean floor will pump natural gas from the deposits - some of them more than 100 miles offshore - and feed the gas to Barrow Island via pipelines snaking along the seabed.

Taken together, those fields hold an estimated 40 trillion cubic feet of gas - a major supply. The United States uses roughly 23 trillion cubic feet of gas each year, according to the U.S. Energy Information Administration.

"Gorgon adds significant long-term reserves and production for Chevron, bolstering our strong resource replacement and underscoring the importance of Australia to our growing natural gas business," said George Kirkland, Chevron's executive vice president in charge of oil and natural gas production.

Due to the project's sensitive location, Chevron will be required to follow measures designed to lessen the impact on Barrow Island. For example, light and noise pollution must be minimized to protect the island's population of flatback turtles.

Once completed, Gorgon also will become the world's biggest experiment in carbon sequestration - the idea of storing carbon dioxide underground rather than releasing it into the atmosphere, where it adds to global warming. Carbon dioxide coming from the undersea natural gas fields will be injected into a reservoir beneath Barrow Island.

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