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Australia: Gorgon LNG jumps another hurdle

CHEVRON's proposal to build the Gorgon LNG (liquefied natural gas) plant on Barrow Island, Western Australia (WA), has received the go-ahead from the state's environmental agency – albeit with strict conditions. The US major is expected to make a decision in the next few months on whether to proceed with the $35bn-plus scheme, a decision that remains subject to a host of variables in the present economic climate.

Chevron, which has a 50% stake in Gorgon LNG, and its partners ExxonMobil (25%) and Shell (25%), originally won permission from the WA government to build a two-train 10m tonnes a year (t/y) LNG plant in 2007, close to WA gas reserves estimated at around 40 trillion cubic feet. But forecasts for high demand for LNG persuaded the consortium to expand its plans to include a third 5m t/y train; this led to a reappraisal of the project by the authorities, against a background of growing concern over environmental issues.

WA's Environmental Protection Authority (EPA) said in April that it did not favour in principle the development of any new industry on the island, which is a nature reserve noted for its flatback turtles and other wildlife. However, EPA chairman Paul Vogel said that, as the Gorgon project had already been approved by the state government in its original version in 2007, the agency would provide environmental approval for the revised and expanded version, "provided stringent conditions are imposed".

These relate to issues such as the protection of turtle-nesting sites and the effects of dredging on the coral reefs around the island. The EPA also noted that the gas to be used in the facility is high in carbon dioxide and that if plans to bury this in an aquifer beneath the island are not realised, it may want to reconsider its approval.

Despite the caveats – and that WA government approval, while likely, was still pending in May – the environmental green light did give Chevron latitude to push ahead with the investment decision-making process. The company said it was comfortable with the EPA's conditions and it put out a statement in response to the EPA ruling, saying, "Chevron can now continue to assess the conditions as it works towards a final investment decision in the second half of this year".

What that decision will be is far from clear-cut. The plan to add another train – and indeed talk of adding a further two trains at some point in the future – was the product of a relatively buoyant prognosis for LNG demand before the global economic crisis – and a downturn in energy demand – took hold. But analysts say the main issue is likely to be when, rather than if, the three-train project proceeds.

Colin Beckett, Chevron's general manager for Gorgon LNG, said last month that the company is in talks with contractors over cutting their prices, given the slump in the construction sector. He also said the company still planned to expand the project from three to five trains, although a decision would not be made until the third train was under construction. First cargoes from the project would not emerge before 2014, three or four years later than initially envisaged, he added.

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