Fourth Gorgon train on ice

Fourth Gorgon train on ice

Chevron and its partners in the Gorgon LNG project on Barrow Island are expected to postpone work on detailed design and engineering of a fourth processing line at the mega project until at least next year as they battle to contain the soaring cost of the foundation development.

As reported by WestBusiness at the weekend, Chevron's latest internal cost review is understood to have placed a final cost on Gorgon's three-train venture of up to $US59 billion ($65.6 billion), or 13 per cent above the last confirmed budget revision of $US52 billion.

Chevron is refusing to discuss the status of the cost review and is understood to have told its Gorgon team to "value engineer" in the hope of substantially reducing the latest overrun on a project that was originally supposed to cost $US37 billion to complete.

Just a month ago, Chevron vice-chairman George Kirkland told investors there were no "major disconnects" with Gorgon's revised $US52 billion budget, and highlighted a weakening Australian dollar as finally easing some of the headwinds facing the project.

However, it is understood ongoing logistical issues, principally because of the complexities of operating on the nature reserve, have failed to stem the budget blowout and are again threatening the first-LNG timetable of early 2015, with a one-year delay likely.

Gorgon's construction of the 15.6 million tonne a year LNG operation is 70 per cent complete.

But the ongoing problems are thought to have prompted deep division among Gorgon's key partners - operator and 47.3 per cent owner Chevron, and Royal Dutch Shell and ExxonMobil, which each have a 25 per cent stake - about the timing of the fourth-train expansion.

Gorgon's gas resource is big enough to accommodate a fourth train.

But there is speculation that adding another processing line could cost as much as $US20 billion because of the substantial subsurface work in terms of pipelines and compression.

WA's high-cost construction environment, coupled with the challenges Chevron has faced as a first-time developer of a mega-LNG operation, has scared off many industry players who have instead pinned their hopes on floating processing technology to solve the issue of uneconomic land-based plants.