Still no announcement of critical FID for Gorgon LNG

Vol 12, PW 11 (16 Oct 08) Midstream & Downstream
     

Petronet-LNG can rest assured the Gorgon LNG project in Australia will not be hit by the global credit squeeze.

“Gorgon is entirely self-financed by the promoters,â€‌ confirms a source. “There is no project finance involved.

â€‌ More worrying for Petronet-LNG is the serial delay in announcement of a Final Investment Decision (FID) fixing the construction price of the 15m t/y project, promoted by operator Chevron (50%), ExxonMobil (25%) and Shell (25%). Originally promised for July this year, the FID is still proving elusive, and unconfirmed reports suggest it has been put back again, this time till the middle of next year (2009).

If true, this means that when or if Petronet-LNG signs a SPA with ExxonMobil for its 3.75m t/y share of the three-train facility (still in negotiation) the first LNG carriers won’t sail away from the LNG terminal site on Barrow Island before 2014, at the earliest, assuming construction takes five years after the FID is sanctioned. Until now the only explanation offered for the delay in FID approval was the soaring cost of steel, cement, labour, and significant cost overruns to the original $7.6bn price tag, coupled with environmental concerns.

Another problem has now reared its ugly head: a proposal last year by former Australian premier John Howard to introduce a (â€کcap and trade’) scheme beginning 2011 forcing Australian industry to sharply reduce its CO2 carbon emissions – a move that directly impacts Gorgon. “The Australian LNG industry is in turmoil about this,â€‌ adds a source.

“Controlling CO2 emissions is not a free option. You need to capture, it, store it and dispose it.

This is a significant additional cost.â€‌ Chevron has announced plans to re-inject C02 from the project into sub-surface aquifers, but at what cost In September this year Chevron awarded a $239m contract to a joint venture of US-based engineering and construction company KBR, Japan's JGC, Australia-based Clough and Canada's Hatch Associates for a fresh FEED study of Gorgon.

Only when this is submitted can Chevron, Exxon and Shell work out the construction cost of a 15m t/y facility at Gorgon and announce the FID.