Chevron Gorgon: Into full production

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 06 Jun 2017   Posted by admin

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All images: Chevron.


RAMP up at the Gorgon Project has not been trouble free, but Train 3 of the 15.6 million tonne per annum “nation defining” development is now up and running.

For the first quarter of 2017, Chevron Corporation reported earnings of $US2.7 billion, compared with a loss of $US725 million in the respective 2016 period.

Sales and other operating revenues in Q1 2017 were $US32bn, compared to $US23bn the year before.

This was influenced by a $600m bump from the sale of an upstream asset and reduced foreign currency effects, which reduced Q1 2017 earnings by $241m compared with $319m a year earlier.

“First quarter earnings and cash flow improved significantly from a year ago,” Chevron chairman and chief executive John Watson said.

“We benefitted from increasing crude oil prices and ongoing efficiencies being implemented across the company.”

Chevron also continued to make “good progress” on reducing its spend, slashing

operating expenses and capital expenditure by about 14 per cent and 30 per cent respectively, from the same period in 2016.

“We started up several new projects and have all three trains at Gorgon online. We also progressed our asset sales program. The combination of these actions contributed to a cash positive first quarter,” Mr Watson said.

“Overall net oil-equivalent production in the first quarter increased 3 per cent compared to

the 2016 full year and we are on track to meet the 4 [per cent to] 9 per cent growth goal for 2017 before the effect of asset sales.”


The Gorgon liquefied natural gas (LNG) project is one of the world’s largest natural gas projects, with a total production capacity of about 2.6 billion cubic feet of natural gas and 20,000 barrels of condensate per day.

During construction and operation, the project has spent more than $34bn on Australian goods and services, awarded more than 700 contracts to Australian companies, and directly employed more than 10,000 workers.

Furthermore, the project is helping secure domestic supply for WA.

In December last year, Chevron Australia announced the start of domestic gas supplies to the WA market from Gorgon, comprising an initial 150 terajoules per day (Tj/d) of gas supplied to foundation customer Synergy and an industry customer under long-term contracts.

The Gorgon project is the most significant entry into the WA domestic gas market for almost 30 years.

At full capacity and subject to market demand, Gorgon could supply up to 300 Tj/d of gas to the WA market; equivalent to generating enough electricity for 2.5 million households.

The three train, 15.6 million tonne per annum (mtpa) LNG plant on Barrow Island reached its first production milestone on 9 March 2016.

In late March 2017 LNG production started from Gorgon Train 3; almost eight years on from the final investment decision made on the project in 2009.

“This is a key milestone for the Gorgon joint venture participants, our workforce, customers, government and all those associated with the project over its lifetime should be extremely proud,” Chevron Australia managing director Nigel Hearne said.

“Along with our partners, we are delighted with the significant economic benefits generated by the Gorgon project.”

But ramp up has not been without its issues.

On 16 May it was plagued by problems once again, with one of the three processing trains down for about a month due to a problem with a “flow measurement device”, according to the company.

“Production on Gorgon Train 1 was stopped on 12 May  due to a failure of a flow measurement device,” a Chevron spokesperson told The West Australian.

“Train 1 is expected to be down approximately one month for this replacement and we will take this opportunity to perform other routine maintenance. Trains 2 and 3 are running normally and we are continuing to ship cargoes.”

Yet Chevron has a long-term view on Gorgon, with a life that is expected to span more than 40 years.

In an article published in The West Australian in April this year, Mr Hearne called the Chevron-led Gorgon project a 21st-century nation-defining development delivering reliable natural gas to WA, and across Asia, for generations to come.

“There’s a lot to be proud of — Australia is demonstrating its ability to bring together the technology, innovation and human ingenuity to deliver world-class projects on a scale never seen before,” he said.

“The project has one of the biggest subsea installations in the world, weighing 230,000 tonnes, 500 miles of pipeline placed onshore and offshore, and as much steel in the plant as four Sydney Harbour Bridges.

“Since the Gorgon joint venture participants farewelled the maiden cargo of Gorgon LNG in March last year, more than 60 cargoes have been delivered to customers in Asia hungry for cleaner burning natural gas.

“To put this in perspective — one cargo alone has enough energy to supply about 80,000 Japanese homes for one year.”

Across the 40-year life of the project, Chevron expects it to continue delivering far-reaching benefits for the local economy through reliable natural gas supplies, jobs, community investment and Government revenues.

Creating an investment climate

Mr Hearne expressed concern about the pressure placed on Government to reform the Petroleum Resources Rent Tax (PRRT), which could negatively affect future investment.

“Gorgon will continue to pay a dividend to Australia for generations to come and is the result of Australia’s energy policy creating an investment climate that attracted more than $200 billion investment in Australian LNG,” he said.

“Good policy supported these record levels of investment and we need to ensure future policy continues to do so.

Of concern to the industry is pressure being placed on the Government by special interest groups asking for policy interventions on issues such as the PRRT.

“Ill-informed policy decisions can have unintended consequences and can retrospectively have an impact on project economics and future investment as well as on Australia’s global competitiveness,” Mr Hearne said.

His comments came as the Federal Government undertakes a review of the tax paid by companies with massive oil and gas reserves on the North-West Shelf, and after an extension of the Senate inquiry into corporate tax avoidance with a specific focus on offshore oil and gas.

Also in April, a Federal Court unanimously dismissed the appeal against an Australian Tax Office (ATO) ruling that Chevron used a high interest, $US2.5bn loan from a Chevron subsidiary in Delaware to Chevron Australia, in order to shift profits offshore and avoid tax on its Australian income.

This decision could cost Chevron more than $300m, and have implications for similar settlements the ATO is pursuing.

“As recognised by the trial court in the dispute, the financing is a legitimate business arrangement and the parties differ only in their assessments of the appropriate interest rate to apply,” Chevron said in response.

On 19 May, Chevron decided to seek special leave to appeal to the High Court of Australia in relation to the financing dispute.

“Chevron Australia pays a substantial amount of tax in Australia, including royalties, payroll tax, fringe benefits tax, excise and interest withholding tax. Since 2009, we’ve paid almost $4 billion in federal and state taxes and royalties,” it stated.

“We are one of Australia’s largest investors and employers. In addition to tax payments, Chevron will continue to deliver substantial economic benefits for decades to come.”

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