Gorgon Gas Project
Overview Developments, Future developments Stakeholders, Agreements, Grants Finance Government Acts, Policies, Attitudes CO2 Injection Technology Environment, Health & Safety
Gorgon Gas ProjectIt is one of the world's largest natural gas projects and the largest single resource project in Australia's history. Includes the construction of a 15 million tonne per annum LNG plant on Barrow Island. LNG tanks transport to international markets while domestic gas piped to WA mainland Approval in 2007, expected to start up in 2014.
1973 West Tryal Rocks field discovered 1976 Spar field discovered 1984 Gorgon field discovered 1994 Chrysaor field discovered 1996 Dionysus field discovered
1998 Reserves certified and gorgon JVPs start front end engineering and design (FEED) work Asian economic crisis delays project 1999 Io, Jansz, and Geryon fields discovered
2001 Chevron promotes Barrow island plant location 2003 Environmental, Social & Economic assessment completed Approved 300 hectares (1.3% of islands uncleared land) for development (barrow island act 2003) 2005 Front End Engineering and Design (FEED) commences for 2x5mt/a LNG trains with supply from gorgon, Io & Jansz Framework agreed & Signed
2006 Chandon & Clio fields discovered 2007 Environmental approvals for 2x5mt/a trains approved, 3x5mt/a trains scheme approved by JVPs
2008 Environmental review starts on revised expanded scope
2009 Revised & expanded scope approved for 3x5mt/a trains Gorgon downstream FEED completed
Arrival of ENSC7500Interest for domestic gas State & federal government environmental approvals completed Production licenses offered Gorgon Project final investment decision by JVPs
Gorgon: Drilling using the Atwood OspreyGorgon 8 Subsea Wells 3 Manifolds 3 PTS 84km Pipelines and Umbilical Jansz 10 Subsea Wells 2 Manifold/PTS Structure 135km of Pipelines and Umbilical
Jansz: Drilling using the Deepwater Frontier
Current Standing On schedule for first gas in 2014 Fabrication of PAUs/PARs and modules underway (ahead of schedule) Dredging and Horizontal Directional Drilling programs making significant progress Barrow Island and near shore workforce now in excess of 1,400 Native Title Agreements for domestic gas pipeline signed
Trees being assembled in Aberdeen Module estimated at 74 ton 20 trees being manufactured to support the project
StakeholdersOsaka 1% Tokyo 1% Chubu 1%
Chevron Australia (47.33% ) Project Operator Shell Development Australia (25%) Mobil Australia Resources (25%) Osaka Gas (1.25%) Tokyo Gas (1%) Chubu Electric Power (0.417%)
Mobil 25% Chevron 47%
Sales and Purchase Agreements for LNGJapan is the worlds largest importer of LNG. The Japanese based stakeholders also created Sales and Purchase Agreements with Chevron to secure delivery of LNG to Japan.
15 Mtpa of LNG predicted for the Gorgon Project- 7.05 Mtpa to Chevron.Osaka Gas 1.375Mtpa for 25 years Toyko Gas 1.1Mtpa for 25 years Chubu Electric 1.44Mtpa for 25 years
osaka gas 20%
Caltex, South Korea 0.25Mtpa for 20 yearsKyushu Electric, Japan 0.3 Mtpa for 20 years Nippon Oil, Japan 0.3 Mtpa for 15 years
toyko gas 16% nippon 4% kyushu 4% caltex 4%
Sales and Purchase Agreements for LNG15 Mtpa of LNG predicted for the Gorgon Project- 3.75 Mtpa to Mobil PetroChina 2.25 Mtpa over 20 yearspetronet india 40%
Petronet India 1.5 Mtpa over 20 years
Shell- portfolio selling
Domestic Gas Agreements Verve and Synergy have both entered into contracts for a combined 125 terajoules per day for 20 years term starting in 2015. This is equivalent to 0.8 Mtpa of LNG
Government GrantsThe Carbon Dioxide Injection Project (discussed later) is an $850 million project aimed at minimising greenhouse gases.
The government has contributed $60 million towards the project.Suggested reasons to contribute: The government will make $40 billion off the lifetime of the project Looks good to support environmental causes in the public eye
Overall Gorgon RiskThe Gorgon project had to evaluate upstream risks in LNG production, midstream risks in shipping, and downstream risks in LNG off-take agreements
Overall Gorgon Benefits
The Gorgon fields are jointly developed by Australian subsidiaries of three international energy companies Chevron, Royal Dutch Shell and Exxon Mobil. Each sponsor has a strong credit rating and is responsible for financing its share of the project costs. This combination of strong credits adds a strong layer of comfort to the syndicate of lenders.
Upstream Risks and Benefits Plant Construction Risk Each participant is responsible for financing its respective equity share of project costs. Cost overrun risk mitigated by Operator having substantial stake in project Strong experience of Engineering, Procurement, Construction contractors (JGC, KBR, Clough & Hatch)
Plant Operational Risk Excellent track record from Chevron
Gas Reserves Risk Greater Gorgon Fields have reserves of 40 tcf (trillion cubic feet)
Upstream Cont. Political and Environmental Risk Stable fiscal, legal and political environment in Australia Strategic importance to monetize Western Australias gas resources
Midstream Risk Vessel Construction Risk Vessel Operational Risk Charterer Risk Sponsor Risk Vessel Debt-Related Risk
Midstream Benefits - Strong track record in LNG shipbuilding for Hudong. - Vessel supervision to be carried out by both Mitsui OSK Lines and ExxonMobil - Project Development Agreement to enhance shipbuilding process and vessel quality. - Liquidated damages in case of construction delays, cost overruns to be covered by the sponsors. - Mitsui OSK Lines and China Shipping Development are large reputable and financially solid ship owners. - CEXIM (Export Import Bank of China) provided long term fixed rate loan to help mitigate interest rate risk.
Risks: Off-take Risk: which is an agreement between a producer of a resource and a buyer of a resource to purchase/sell portions of the producer's future production.
Benefits: Strong, robust off-taker (PetroChina & Petronet India) Global increase in demand for LNG.
Investment Analysis The budget for the total Gorgon project is USD $37 billion. A massive USD $869 million debt was raised to help finance the cost of 4 massive LNG tanker ships constructed by Hudong-Zhonghua Shipbuilding. The project is expected to spend about $20 billion on goods and services alone during the construction period.
Budget Increase for GorgonChevron has admitted that the $37 billion dollar budget will increase. -Increasing labour cost
Productivity issues The high Australian dollar -Half of Gorgons cost are in Australian dollars. Chevron is currently performing an assessment that will help them understand the movements in cost. Oil prices are 60% higher than at the time of the projects sanction.
Chevron is still very confident that production will still be commencing around the stated schedule in late 2014.
GDP Increase Gorgon will increase Australias GDP by $63 billion dollars. Australias gas export are predicted to quadruple over the next decade About $33 billion will be spent on local goods and services. Will create about 10000 direct and indirect jobs at peak construction.
Government Attitudes An integral role in making the project viable. A partner, directly and indirectly
Government Policies Under current arrangements, the commonwealth will receive all royalties from the batch of looming petroleum projects in WA because the gas sits in federal waters, even though the processing facilities will be on state land. it was only fair that WA should receive a share of oil and gas royalties -- Norman Moore
Tax Issues PRRT (used to exclude the North West Shelf and East Timor) The new tax - Minerals Resource Rent Tax The expanded PRRT (Petroleum Resource Rent Tax) Increased taxation based on their profits (super-profits tax), not on the quantity of resource extracted The power of government to introduce new taxes is essentially limited to what people are prepared to pay.
CO2 Injection Gorgon field contains about 14-16% CO2 which is removed during gas processing operations and is usually emitted via atmospheric venting The joint venture has invested about $2billion in the design and construction of the worlds biggest commercial CO2 injection facility and should reduce the projects emissions by 40% (3.6million tonnes/y) Approximately 120 million tonnes of CO2 will be safely injected underground during the life of the Gorgon Project (6x more than any project in the world), positioning Australia as a world-leader in CO2 injection technology.
The CO2 extracted from the reservoirs will be extracted as per normal gas processing, and then compressed and injected into the Dupuy formation underneath Barrow Island Once injected, the CO2 will dissolve into the sandstone and become permanently stored in the underground reservoir Dupuy
Once injection has started, a reservoir surveillance program will monitor movement of the injected CO2 and observe the effects on the reservoir. The movement of the injected CO2 will be monitored using time-lapse seismic data and surveillance wells to detect the arrival time and the volume of CO2 at the well
The EnvironmentBarrow Island was set aside as a nature reserve in 1910 in recognition of its outstanding flora and fauna values It is currently reserved as a Class A Nature Reserve for the purpose of Conservatio