17/10/2006 - 22:00

Chevron plays down Gorgon speculation

17/10/2006 - 22:00

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As a decision nears on the environmental viability of Gorgon, WA Business News reports on speculation surrounding the massive gas project.

Chevron plays down Gorgon speculation

Cost overruns, adverse recommendations by the WA Environmental Protection Authority, rumoured delivery delays and job layoffs have provided significant hurdles for the giant Gorgon gas project long before production has started.

In June this year, the EPA said the Gorgon Gas proposal, put forward by project operator Chevron Australia, did not “meet its environmental objectives and was considered environmentally unacceptable”.

The project has also succumbed to a substantial cost blow-out, an all-too-common affliction affecting many WA resource projects during the boom times, with costs estimated to be $4 billion-plus above the original $11 billion estimate made in 2003.

Possible delays in the delivery of LNG to customers, including Japan’s Chubu Electric and Osaka Gas, have also plagued the project, with talk of the delivery timetable being pushed back due to inability to meet deadlines.

There was also a major North American discovery by Gorgon’s key proponent Chevron, prompting speculation that the global giant may have bigger fish to fry.

Most recently, there has been an exodus of engineers working on the front-end engineering and design phase (FEED); highlighting further doubts that the massive resource development may not get off the ground.

The sum of these parts has got the rumour mill working overtime. Will Gorgon move from amber to get the green light, or will a red light end this icon project, casting a huge cloud over Western Australia’s oil and gas sector?

Chevron’s Greater Gorgon Area general manager, Colin Beckett, has been quick to put the rumours to rest, saying that Gorgon joint venture participants (including Chevron’s 50 per cent interest, Shell’s 25 per cent interest and ExxonMobil’s 25 per cent interest) remain committed to the development of the Greater Gorgon Area gas fields.

“The joint venture partners have said for some time now that the Gorgon Project is confronted with the overheated global construction market for large capital projects and that the partners are addressing the significant challenges to cost and schedule,” he said in comments provided by the project’s public relations staff.

Mr Beckett said the joint venturers were currently completing additional studies to offset cost increases and mitigate some of the uncertainty of execution before a final investment decision was considered.

“The joint venture partners are confident of being able to work through the remaining environ-mental issues during the government environmental approvals process,” he said in a statement.

“Understanding the conditions of environmental approval is critical for completing the FEED work.”

One particular environmental issue raised by the EPA in its recommendations to WA Environment Minister Mark McGowan was that the Gorgon proposal would significantly affect the large flatback turtle population on Barrow Island.

The EPA said flatback turtles would be put at risk from the proposal, with two of the most important nesting beaches located adjacent to the proposed LNG processing plant site and the materials off-loading facility.

The EPA’s recommendation also hinged on Gorgon’s lack of demonstrative ability in the reduction of risk, including the impact on the marine ecosystem from dredging, the introduction of non-indigenous species, and potential loss of subterranean and short range endemic invertebrate fauna species.

However, according to Chamber of Minerals and Energy director David Parker, the environmental issues, while fundamental to the project, were outweighing the potential benefits.

“We are concerned the EPA charter didn’t allow for the social and economic benefits of the project given the weight placed on the environmental issues,” Mr Parker said. “Barrow Island is a great example of the coexistence between industry and environment.”

He said it was important for the state’s economic prosperity that the gas was commercialised sooner rather than later.

“We will do everything we can to make sure that gas is commercialised and brought into the state as soon as possible,” Mr Parker said.  “The company has had a 50-year history on Barrow Island and has been able to maintain a balance between the environment and the industry.”

State environmental appeals convenor Garry Middle, who is currently considering the Gorgon partners appeal against the EPA’s decision, told WA Business News he would make a recommendation in a matter of weeks to Mr McGowan.

Premier Alan Carpenter has expressed strong support for the project.

Following the EPA’s adverse recommendation, he said the state government was still keen for the project to proceed.

Gorgon’s appeal to the EPA includes environmental research, funded by Chevron, which casts doubt on the size of the flatback turtle population on the island, suggesting fewer turtles inhabited the island than was previously believed.

In regards to the reports of departing engineers, Chevron spokesperson Scott Walker said the completion of the FEED phase over the next few months meant some work packages would be phased out.

“Once a package of work is completed, they move on,” he said. “So people aren’t being laid off, but rather finishing their work and moving on.

“Therefore, over the next few weeks, we will see some changes to contractor numbers and roles. This is not unexpected as we finalise FEED and close out work packages.”

The Gorgon gas development, which will initially be capable of producing 10 million tonnes of LNG annually, will require an investment of more than $11 billion to produce export income of $2.5 billion a year over its 60-year life.

More than $1 billion has been invested to date in exploring, marketing and developing Greater Gorgon resources, with $125 million spent this year on exploration in the Gorgon area.

More than 100 environmental specialists from 30 different organisations have worked on the Gorgon project, including experts from the WA Museum and WA government agencies, contributing to the project’s environmental review.

An EPA spokesperson told WA Business News it was presently inappropriate for the authority to make any comment on the Gorgon project during the appeals process.

Discussion of the Gorgon project’s future comes at a time when the state government is pushing its policy to reserve 15 per cent of future gas production for domestic use.

Mr Carpenter said the policy would be applied flexibly, and in Gorgon’s case the domestic gas phase would only proceed when it was judged commercially viable.

Nonetheless, the policy has been criticised by some industry leaders, who are of the belief that it may discourage gas field development and exploration in the future.

Chamber of Commerce and Industry chief executive John Langoulant said the CCI opposed the reservation concept and was currently researching the WA domestic gas market to develop its own model, which it would supply to the government in the near future.

APPEA WA director Richard Ellis said the government would be better off focusing on how to best promote the development of more onshore and offshore gas fields.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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