By Mathew Murphy
THE giant Gorgon project in Western Australia has signed a binding agreement worth $70 billion with Japan and Korea to export almost 3 million tonnes a year of liquefied natural gas until 2039.
As the joint-venture partners prepare to deliver a final investment decision as early as next week, project operator Chevron firmed up three in-principle deals negotiated in 2005.
Under the deal, Japan's Osaka Gas will take 1.375 million tonnes a year over 25 years, starting in 2014. The larger Tokyo Gas will take 1.1 million tonnes a year over the same period. GS Caltex, a major South Korean energy company, will take 500,000 tonnes a year over 20 years, partly from Gorgon and the rest from Chevron's other gas projects.
Chevron, which has a 50 per cent interest in the project alongside ExxonMobil and Shell, which share equally the other 50 per cent, will sell down its equity in Gorgon. Osaka Gas will buy a 1.25 per cent share while Tokyo Gas will take a 1 per cent interest, leaving Chevron with 47.75 per cent. The equity deals will need the approval of the Foreign Investment Review Board but are not considered to be a concern.
The three deals leave about 2.7 million tonnes of LNG a year that Chevron will have to offload from the $50 billion project. Market sources say the company is in talks with China National Offshore Oil Corp and China Petroleum & Chemical Corp (Sinopec) to sell the remainder of its LNG. Chevron said it expected final sales to be completed ''in the coming months''.
China remains hungry for LNG even after ExxonMobil agreed last month to supply the state-owned PetroChina with 2.25 million tonnes of LNG a year from Gorgon over 20 years - establishing it as Australia's biggest trade deal.
Prime Minister Kevin Rudd said the $50 billion Gorgon project was on track to become Australia's biggest single infrastructure investment, creating up to 6000 jobs and generating $40 billion in government revenue.
''It has been a great four weeks for Australia's LNG sector,'' he said. ''More than 2250 cargoes of Australian LNG have been delivered to Japan since 1989 and these agreements mean there will be many more to come.
''Throughout the Asia-Pacific, Australian LNG will be increasingly important as a reliable, secure, clean energy source to power continued economic growth.''
Doubts have been raised about the headline figures for the Gorgon LNG deals. A recent Goldman Sachs JBWere report listed current LNG prices at about $US322 ($A374) a tonne. Forecasts for 2014, when the project is expected to start exporting, are about $A450 a tonne. Using $450 a tonne values the three deals at about $32 billion.
To generate a figure more than double that, even allowing for the 2.25 per cent equity interest, would mean the Government is forecasting oil prices, from which the LNG price is calculated, to skyrocket.
Chevron did not disclose the financial details of the sales agreements. Chevron Global Gas president John Gass said the three deals were a big step towards reaching a final investment decision.
''These agreements represent a significant milestone in Chevron's efforts to commercialise our equity natural gas and grow our LNG business,'' he said.