Chevron ships its first LNG from Gorgon

Credit: Pieter van Marion

Chevron’s giant LNG processing facility Gorgon has shipped its first cargo of liquefied natural gas to Japanese utility Chubu Electric Power, according to the US oil and gas company.


Source: Chevron

The Gorgon LNG plant is located on Barrow Island, around 60 kilometres offshore Western Australia, close to Dampier and Karratha. It cost a reported US$54 billion, well over the initial budget of US$39 billion, and behind schedule. Gorgon was meant to ship its first cargo in 2014.

Gorgon has 3 trains (processing facilities) which can produce 15.6 million tonnes per annum of LNG. Joint venture partners include Chevron (47.3 percent), ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).

It becomes the latest Australian LNG project to ship its first gas, following in the wake of recent LNG projects Woodside Petroleum Limited’s (ASX: WPL) Pluto LNG in 2012, BG Group’s Curtis Island LNG in  Santos Ltd’s (ASX: STO) Gladstone LNG in September 2015 and Origin Energy Limited’s (ASX: ORG) Australia Pacific LNG project in December 2015.

Three more LNG projects are currently under construction including Chevron’s $29 billion Wheatstone in WA, Inpex’s US$37 billion Ichthys project in the Northern Territory and Shell’s Prelude LNG – which will be the world’s first floating LNG plant. By the end of 2020, Australia is likely to overtake Qatar as the world’s largest LNG supplier.

Despite the recent falls in the oil price, more than 80% of the LNG production from the Gorgon and Wheatstone projects is covered by long-term sales deals with customers in the Asia-pacific region. While Australian LNG pricing is linked to oil prices, the giant LNG projects are expected to continue producing LNG for many decades.

Australia’s North West Shelf was actually the first LNG project and delivered its first cargoes to Japan in 1989. In other words, it has been in production for 27 years so far. In 2008, Woodside estimated that it had used just a third of its existing reserves, so you can see how long they can produce for.

Foolish takeaway

LNG is likely to overtake iron ore as Australia’s main export with annual shipments surging to more than $50 billion by 2020 according to some forecasts. However, one estimate suggests 90% of the LNG facilities are owned by international companies, meaning most of the profits will flow offshore.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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