Expect more delay before signing SPA for Gorgon LNG

Vol 10, PW 23 (22 Mar 07) Midstream & Downstream

Gorgon LNG project promoters Chevron, Exxon and Shell have put back the date of a Final Investment Decision, dashing hopes of an imminent SPA with Petronet-LNG.

“They can’t sell something when they don’t know how much they have to sell and when you are going to sell it,â€‌ says a consortium adviser. “We don’t yet know how much the revised construction costs (of the project) will be.

You can’t price a car and then build it. You need to manufacture it first and then sell it.

â€‌ Until now most expected the Gorgon consortium to take the FID by 31st March, paving the way for a SPA with Petronet-LNG that would see the supply of 2.5m t/y LNG for the upcoming regassification terminal on Puthuvypeen Island off Kochi. One report suggests the new FID date has been fixed for December this year.

Still, delays in securing environmental approval, coupled with rising steel, cement and labour costs, have forced the Gorgon consortium to re-evaluate the project, and critically, the price at which it will sell future LNG to Petronet-LNG. “It’s being reported that the cost of the project will rise to more than $12bn,â€‌ adds a source, “and that the consortium wants to increase the capacity of each train to between 6.4m t/y and 7.5m t/y.

â€‌ Originally the Gorgon LNG project envisaged two trains with a capacity of 5m t/y each. Among the critical factors driving uncertainty is the (still unknown) cost of implementing environmental safeguards to preserve the unique status of Barrow Island off the northwest coast of Australia where the LNG complex will be built.

One of the conditions set by Australian authorities is that all construction materials and equipment used for the project are “quarantinedâ€‌ to reduce the risk of contaminating surrounding areas, home to a threatened species of â€کflat back’ turtle and other rare fauna and flora. How much this adds to the project cost will become clear only when Chevron, Exxon and Shell complete an Environmental Management Plan ordered by Australian authorities.

When this is ready they can make the Final Investment Decision and appoint an EPC contractor to start ordering â€کlong-lead’ items.

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