Chevron cuts 25-year Gorgon LNG deal

Agreement with Japanese utility calls for billions of dollars worth of fuel to be shipped

Allen Baker

Petroleum News Contributing Writer

Chevron Corp. has reached a second agreement with a Japanese utility for sale of liquefied natural gas from the huge Gorgon Project off Australia. The Nov. 21 Heads of Agreement with Chubu Electric Co. Inc. mirrors a deal announced in October with Tokyo Gas Co. Ltd., Japan’s largest gas utility.

The two transactions are worth well in excess of $10 billion over their lifetimes.

The Japanese pacts, both spanning 25 years, came after an agreement for a huge sale of Gorgon fuel to China National Offshore Oil Corp. fell through.

Chevron executives say the sale of Gorgon LNG to China is still part of the company’s plans, and negotiations are continuing. They say there’s no bad blood after Chevron’s victory in the contest with CNOOC to take over Unocal.

The new deal with Chubu Electric calls for purchase of 1.5 million tonnes annually of Chevron’s share of Gorgon LNG. That comes on top of 1.2 million tonnes annually from the Tokyo Gas deal.

Shipments would begin in 2010 in both cases, and the two agreements amount to more than 67 million tonnes in aggregate. That’s the equivalent of 130 billion cubic feet of natural gas, or more than 350 million cubic feet a day. By comparison, Marathon Oil Co. currently produces just under 300 million cubic feet daily.

In announcing both sales agreements, Chevron said that the Japanese companies were discussing equity stakes in Gorgon.

CNOOC’s tentative Gorgon deal called for purchase of as much as 100 tonnes of LNG over a quarter of a century. The Chinese firm walked away after it was unable to get a price close to the figure it negotiated for its purchase from North West Shelf LNG, also offshore Australia.

In the North West Shelf agreement, CNOOC has agreed to take 3.3 million tonnes of LNG annually. Woodside Petroleum is operator of the North West Shelf operation.

But recent problems with gas supplies in North America in the wake of the Gulf Coast hurricanes have strengthened prices in the LNG market, and the two Japanese deals show customers are willing to lock for the long term to get the supply they need.

Chevron still is looking for buyers for nearly half of its 5-million-tonne share of the $8.5 billion Gorgon project, expected to get the formal go-ahead sometime next year.

Chevron has 50 percent of Gorgon and is the operator. ExxonMobil has 25 percent and Shell 25 percent. Shell has said its Gorgon LNG will go to the Energia Costa Azul terminal being developed by Sempra in Baja California. Shell has half the initial capacity at the Baja site, or the equivalent of 3.7 million tonnes annually.

No sale announcement has come from ExxonMobil, but India has been rumored to be interested in that company’s share.