Gorgon gas sales fall short
Chevron has quietly been forced to look for a new customer for $30 billion of Gorgon gas after the world's biggest LNG buyer walked out on offtake talks.
Chevron confirmed yesterday that Korea Gas, or KOGAS, had not followed through on a non-binding heads of agreement to buy 1.5 million tonnes of Gorgon LNG a year.
When Chevron announced the agreement with KOGAS in 2009, it trumpeted the proposed 15-year offtake as "the first long-term sale between KOGAS and an Australian supplier".
Analysts forecast the deal to be worth about $30 billion over its 15-year life.
Chevron Australia managing director Roy Krzywosinski yesterday did not provide a reason why the KOGAS talks collapsed.
Industry sources said KOGAS walked because of disagreement over price at a time when the Korean giant was playing off the prospect of US LNG exports against traditional suppliers in Australia.
The collapse of the KOGAS deal leaves Chevron with just 65 per cent of its share of Gorgon LNG committed under long-term contracts.
Chevron traditionally aims for long-term contracts covering about 80 per cent of output, as it has done with the $US29 billion Wheatstone venture. The remaining output is used for spot or shorter-term supply contracts.
Speaking on the sidelines of the Australian Petroleum Production and Exploration Association conference in Brisbane yesterday, Mr Krzywosinski said he was confident Chevron would achieve its 80 per cent target for Gorgon.
"The closer we get to first LNG the more valuable this (1.5mtpa) volume will be," he said. "We are not concerned. We are confident we will be able to market these incremental volumes."
The $US52 billion Gorgon development is 60 per cent completed and designed to deliver first LNG cargoes by early 2015. Chevron is the operator and biggest shareholder (47.3 per cent) in Gorgon.
The failure to secure KOGAS as a customer is unlikely to impact on Gorgon or Chevron's stake in what is the biggest resources development undertaken in Australia.
But it underscores that KOGAS has led the charge among LNG customers to become increasingly aggressive in offtake price negotiations amid the prospect of new uncontracted LNG projects emerging in North America and east Africa.
KOGAS is known to want to move away from traditional LNG pricing - where the gas price is linked to crude oil prices - and instead use the Henry Hub gas price in the US as a benchmark.
US gas prices have plummeted over the past three years because of the abundance of new supply from onshore shale developments.
Mr Krzywosinski said yesterday that Chevron and key Gorgon partners Royal Dutch Shell and ExxonMobil remained committed to beginning front-end engineering and design work for a fourth processing train this year.
Mr Krzywosinski would not go into specifics but said it was likely the fourth train would be similar in output size to the foundation three processing lines, of 5.2mtpa a piece.
He said a decision to go ahead with the fourth train would depend on "whether this investment climate settles".
