Regional LNG: China may be locked out from Gorgon: Report

China faces being locked out of the $11 billion Gorgon gas project off Western Australia's north-west coast after Chevron snared another long-term supply contract in the Japanese market for part of its share of production, with possible equity participation again on offer, The Age reported Tuesday.

The latest agreement is with Chubu Electric and covers the supply of 1.5 million tonnes-a-year of liquefied natural gas (LNG) for 25 years, starting in 2010. The $10 billion contract follows the recent $8 billion deal struck with Tokyo Gas.

Gorgon output could soon be fully sold without any Chinese participation. That is a radical departure from the position in October 2003 when it was trumpeted that a sales and equity deal with China, through China National Offshore Oil Corp, would underpin the development of Gorgon as a 10 million tonnes a year LNG project.

Differences between the Gorgon joint venture and the Chinese on pricing and scheduling have prevented a deal being struck with CNOOC, leaving the Gorgon partners to seek buyers in other markets, notably Japan, South Korea and North America.

China is still seen as an important market for Gorgon but marketing efforts by the the partners will now be on an individual basis, signally the formal end to the 2003 deal which would have seen CNOOC take equity in the project ? an offer now open to both Tokyo Gas and Chubu. Chevron said Chubu's entry as a foundation customer for Gorgon showed the momentum behind Gorgon's marketing effort.

Equity interests in Gorgon are split between Chevron (50 per cent), ExxonMobil (25 per cent) and Shell (25 per cent). A two-train 10 million tonne-a-year LNG facility with a gas plant on Barrow Island is planned, subject to environmental clearance and a final investment decision being made, due by mid-2006.

Chevron's deal with Chubu means that it now has 2.7 million tonnes a year of LNG committed from its 5 million tonnes a year entitlement. Earlier this year Shell agreed to take 2.5 million tonnes a year to a new LNG terminal it is building in Mexico. ExxonMobil is rumoured to be lining up an Indian buyer.

Last week Woodside, operator of the North-West Shelf gas project, said it was advanced with north Asian customers for base-load volumes that would underpin a $5 billion development of its Pluto gas field off the coast of WA as a stand-alone LNG project.(*)