Wheatstone steps on the gas

THE scale of Western Australia’s resources boom is set to go up a notch with the giant Wheatstone gas project, tipped to cost $25 billion, close to getting final approval.

The building blocks have fallen into place unusually quickly and easily for Wheatstone, which includes the construction of a liquefied natural gas (LNG) plant near Onslow.

Environment Minister Bill Marmion announced this week that final environmental approval has been given for the development.

The approval was granted with 24 conditions to protect marine fauna, including whales, turtles and dugongs.

The final regulatory step will be approval from federal Environment Minister Tony Burke, which if positive is expected to lead to a final investment decision by Chevron and its partners.

Project developer Chevron was recently asked to supply extra information to the federal environment department.

“The company has recently provided the additional information and this is currently being reviewed by the department,” a spokesperson said.

The regulatory developments follow progress on several commercial aspects of the project.

One month ago, Chevron signed the first gas sales agreement for Wheatstone gas, with Japanese energy utility Tokyo Electric Power Co.

It has awarded an engineering, procurement and construction (EPC) contract for the LNG plant to Houston-based engineering group Bechtel.

Bechtel, in turn, has entered agreements with GE Oil & Gas for the supply of compression technology for Wheatstone’s two LNG processing trains.

In addition, Chevron has awarded a letter of authorisation to South Korean shipyard DSME, for construction and delivery of an offshore platform by October 2014.

Wheatstone’s rapid progress stands in marked contrast to other proposed gas projects, such as Woodside’s James Price Point and Pluto expansion projects and Japanese company Inpex’s Ichthys development, which all face hurdles.

Wheatstone is a joint venture between Chevron (73.6 per cent), along with Apache, Kuwait’s Kufpec and Shell.

The initial phase of the project will consist of two LNG processing trains with a capacity of 8.9 million tonnes per annum and a domestic gas plant.

However, the environmental approval allows Chevron to process up to 25mt of LNG per annum.

The major land-based environmental issue for the Onslow site was expected to be the massive earth works required to provide a base for the LNG plant.

Chevron was planning to use two hills, which form islands in the nearby Mitsui Onslow Salt production facility, as landfill to raise the height of the area and fill in a floodplain subject to storm inundation.   

It has described the earth moved as enough to fill Perth’s CBD to level 31 of the QV1 tower where it has its Australian headquarters. 

The marine element is also significant, including one of Australia’s largest dredging operations to shift 48 million cubic metres over three to four years 

Craig McMahon, lead analyst with energy consulting group Wood Mackenzie, said Chevron had made impressive progress at Wheatstone and he was confident the project would proceed shortly.  

“The gas reserves are in place, they have concluded material gas sales agreements, and they have a site,” Mr McMahon told WA Business News.

Mr McMahon said a key step was Chevron’s 2009 deal with Apache and Kufpec to share gas reserves and equity in the project.

“That was critical because it made marketing the project much easier,” he said at the time.

The Wheatstone development will add to Chevron’s rapid emergence as a major player in the state’s LNG sector.

It is the operator and major owner of the Gorgon gas development, which at $43 billion is the state’s single largest project. Upon completion, the two projects will have combined output of 24mt of LNG per year.

Perth company Woodside, which manages the North West Shelf venture and its own Pluto gas development, will be looking on with envy.

Woodside is keen to expand Pluto, with two more LNG processing trains, but has faced two major hurdles.

Its Pluto foundation project has cost more and taken longer to complete than anticipated; it is budgeted to cost $14.9 billion and is due for completion in March next year.

In addition, Woodside has been unable to lock-in sufficient gas supplies, either from its own exploration program or third-party deals, to underpin its proposed Pluto expansion.

Woodside (with state government backing) has also been pursuing the development of a new gas-processing hub at James Price Point near Broome.

However, that development has divided the Broome community and attracted militant protesters.

Another project in the offing, but with some challenges, is the Ichthys development, owned by Japanese group Inpex and France’s Total.

Ichthys will exploit gas fields off the Kimberley coast, and pipe the gas to a new LNG plant at Darwin.