The ABC reports that Chevron's Wheatstone liquefied natural gas project in WA has been given the go-ahead - Wheatstone LNG project to make Aus second largest global producer.

The Chevron-operated Wheatstone liquefied natural gas (LNG) project will officially go ahead.

The project was given the federal environmental approval last week and the outcome of a final investment decision (FID) of $29 billion by Chevron was really little more than a formality.

Wheatstone is a joint venture project with Chevron 73.6 per cent, Apache 13 per cent, Kuwait Foreign Petroleum Co (KUFPEC) 7 per cent, Shell Australia 6.4 per cent.

The Wheatstone gas field is about 250 kilometres off the coast of Onslow, north-west Western Australia.

Gas from the field will be pumped via subsea pipelines to the onshore processing facility just north of the town of Onslow.

The project has come on stream in record time, from discovery in 2004 to first gas production by 2016.

Up to 3,500 jobs and 3,000 indirect jobs will be created during the construction phase of approximately six years.

A permanent workforce of 300 will operate the rigs and plant.

WA Premier Colin Barnett says Wheatstone will confirm WA as the world's second-largest supplier of LNG behind Quatar, and CEO of Shell, Ann Pickard, went one step further.

She says Australia will soon strip the title of leading producer from Qatar, in the Middle-East, within the decade.

Federal Government counting the royalties before they flow

The Federal Resources Minister, Martin Ferguson, says the revenue stream from the Wheatstone project is estimated at $20 billion over the 20-year life of the project.

And he welcomes the commitment by the company to spend $17 billion on Australian goods and services over the lift of the project. "The investment of just under $30 billion means that we now have $140 billion committed in Australia to new LNG investments" he says.

Chevron aren't talking much about gas to liquids at their proposed Wheatstone LNG plant lately, but the project itself seems to be making steady progress - Shell to join Chevron's Australia Wheatstone LNG project.

Chevron Corp said on Sunday Royal Dutch Shell (RDSa.L) will join its Wheatstone liquefied natural gas project off the coast of Western Australia as an equity participant and natural gas supplier to the project.

Chevron will sell 6.4 percent of its stake to Shell, and remain the operator of the project with 73.6 percent stake. Shell will also assume an 8 percent participating interest in the Wheatstone and Iago natural gas fields, which will supply the first two trains of the Wheatstone project.

The agreement comes as Chevron prepares to make a final investment in the project.

"A final investment decision is expected in the second half of this year once environmental approvals and other associated agreements are finalized with various levels of government," Chevron Australia managing director, Roy Krzywosinski said in a statement. He also said front-end engineering and design (FEED) activity on Wheatstone is nearly complete.

The first phase of the Wheatstone project will have a combined capacity of 8.9 million tonnes per annum (mtpa) of LNG as well as a domestic gas plant.

Chevron is positioning itself to become one of the largest LNG producers in Australia, with the construction of the A$43 billion Gorgon project, also off the coast of Western Australia, which is set to produce 15 mtpa by 2014.

Shell is also developing several LNG projects in Australia, and is set to make a final investment decision on its 3.5 mtpa Prelude floating LNG project this year. Shell has also proposed a coal seam gas to LNG project in Australia's eastern Queensland state.

The Australian reports Korea Gas Corp has signed up for delivery of LNG from Chevron's Wheatstone project - Korea Gas signs up for Wheatstone LNG

KOREA Gas Corp has signed a preliminary agreement for delivery of LNG for up to 20 years from the Wheatstone project offshore Australia.

The agreement between Chevron and its partners and the state-run KOGAS is the latest in a string of deals to supply LNG between major oil companies and customers in East Asia.

The agreement also is a significant step for Chevron in adding credibility to Wheatstone, which faces stiff competition from other projects to secure customers.

It also helps Chevron to keep on track the development of the project, about which the company confirmed there will be a final investment decision in 2011.

Oppenheimer & Co analyst Fadel Gheit said: "There is plenty of LNG coming out of Australia and obviously securing long-term supply contracts is very critical for the development of any major project."

Chevron's Wheatstone gas field has long been the subject of a tug of war between Chevron (who want to develop it themselves - at one point talking up the possibility of building a GTL plant) and Woodside, who want to use the gas as feedstock for their second Pluto LNG train, which will shortly begin construction at the Burrup Penninsula.

It appears that Chevron have found a customer for the gas at last, with weekend press reports trumpeting a "$90 billion" gas sale to Japanese power company Tokyo Electric. The development is expected to produce 4.1 million tonnes of LNG exported each year. A final decision on the project is expected in 2011.

With Pluto, Gorgon and Wheatstone all looking to move forward after long delays, and the federal government's "use it or lose it" push to get holders of gas reserves to develop them quickly, we may see the Browse and Sunrise fields developed in the coming decade as well.

The Australian reports that Chevron are looking at building a new LNG plant in the Pilbara - an onshore one to process gas from the Wheatstone field, which would complement their other planned development offshore for the Gorgon field - Chevron wants to build LNG plant on Pilbara coast. I've talked about the Wheatstone field before a couple of times (particularly in Gas to liquids on the north west shelf and Australian Natural Gas - How Much Do We Have And How Long Will It Last ?) and the general feeling seems to be that it isn't big enough to justify an LNG plant on its own, so its possible that this is just a way of bargaining with Woodside (who would prefer the gas be used to feed into the Pluto 2 development).

IN what could become the nation's biggest development, US oil major Chevron is looking at building a giant 25 million-tonnes-a-year liquefied natural gas export hub on the Pilbara coast from which it plans to start producing from 2015.

The project, for which three sites are being considered, would start by producing 10 million tonnes of LNG a year through two trains. It would be underpinned by gas from the company's Wheatstone field in the Carnarvon Basin, Chevron said in documents submitted to the federal Environment Department. And in a move bound to rile rival Woodside Petroleum, Chevron is seeking approval to boost the plant to a five-train operation, if it can source enough third party gas and shore up gas from its own fields outside the Greater Gorgon area.

While the later phases are a long way down the track, if they came to fruition the hub would be larger than the current North West Shelf LNG project and the Chevron-operated Gorgon, which is currently Australia's biggest planned resources development. Chevron would not give a cost estimate for Wheatstone, but it would be expected to be in the same realm as Gorgon, which analysts say could cost $30 billion.

The plans for more trains flag competition for Woodside, which is building its $12 billion Pluto LNG project on the Burrup Peninsula and is trying to secure gas to approve a second train there. Wheatstone had been seen as a prime contender to supply the second train until earlier this year when Chevron said it would pursue development of its own LNG plant. ...

As well as an LNG plant, Chevron is planning a domestic gas plant that would produce 250 million cubic feet of gas a day, which represents 15 per cent of LNG sales from the first train, and would increase in with LNG sales line after that.

Chevron has said that the 4.5 trillion cubic feet of gas reserves at Wheatstone would underpin one LNG train, but in July said drilling at the nearby Iago field had led it to consider a three-train operation.

Iago spans two retention permits, one owned by Chevron, and another owned one-third by Shell and two-thirds by Chevron. Chevron did not mention Iago in the documents but this is likely to be the source of gas for the second train.

Chevron said the Wheatstone Development was expected to run for about 30 years and that it planned to select a final site in the second quarter of next year.

Chevron Australia has been in the news this week after announcing plans to develop a new LNG plant on the WA mainland to process gas from its Wheatstone discovery on the north west shelf. Interestingly, as well as feeding gas into the domestic network, they are considering developing a gas-to-liquids facility as part of the plant - which may slightly reassure those who look at both our trade deficit (in which imported liquid fuels are a major factor) and the possible impacts implied by the export land model.

Gas To Liquids

GTL projects have frequently been discussed over the years but there don't seem to be a lot of concrete examples, outside of some pioneering plants in South Africa and Malaysia and some large projects being developed by Shell and Sasol/Chevron in Qatar (which Qantas is apparently considering as a source of jet fuel). The Energy Blog has a good description of the GTL process and the players in the industry, for those interested in the technical details, and Robert Rapier has previously at TOD on the "Promise and the peril of GTL", quoting an estimate from Syntroleum that there is enough stranded natural gas to produce 300 billion barrels of fuel.

Wheatstone

The Wheatstone gas field is about 85 kilometres southwest of the Goodwyn platform of the North West Shelf project (180km offshore), with the two permits it encompasses containing an estimated 4.5 trillion cubic feet of natural gas. Chevron is talking about a single LNG production train producing five million tonnes of LNG per year (around a third of the size of Woodside's production at the nearby North West Shelf project) but has not given any indication of the volumes under consideration for the GTL option.

Nigel Wilson at The Australian has the most in-depth report on the development (and a shorter follow up article) - noting that while there has been speculation since 2004 that Wheatstone would be used for a gas-to-liquids plant, helping to offset Australia's ever-increasing dependence on imports, "few in the oil and gas sector believe Chevron will actually build an LNG plant based on Wheatstone".

The article goes on to speculate that it might make more economic sense to process Wheatstone gas at the North West Shelf facility as part of the development of Woodside's Pluto project, which would make a GTL facility highly unlikely, but that Chevron could be more interested in developing a standalone GTL plant than a small new LNG plant or sending the gas to the new Pluto LNG trains.

Chevron's LNG interests in Australia were seen as being its 50 per cent stake in the Gorgon project, which for more than a decade has been trying to commercialise Australia's biggest gas fields on the North West Shelf. In presentations to both the federal and West Australian governments recently, Chevron has been short on detail on what it wants to do with Wheatstone even though it has resolutely argued the reservoir will not be part of the supply for Woodside's $12 billion Pluto LNG development now under construction. ...

Chevron and its Gorgon partners, ExxonMobil and Shell, are in a bind. They want to commercialise some of Australia's best gas assets - ExxonMobil's contribution is the Jansz field, reputedly Australia's largest with an estimated 22 trillion cubic feet of gas - but the costs of the Gorgon LNG proposal are out of all scale to potential returns.

Gorgon is in the WA Government's books at $11 billion but that's a figure from several years ago. Now substitute a figure three times that for a plant that has a production licence for 10 million tonnes a year and the economics look more than a little shaky. Admittedly, Chevron has said it wants to know what environmental approval hoops it will have to go through to lift Gorgon from two trains to three and output up to 15 million tonnes a year, yet there seems little urgency in presenting the formal request to the WA Government.

And that's probably part of the problem concerning Wheatstone. For several years Chevron has talked expansively of its plans and has yet to deliver. That's why few in the oil and gas sector believe Chevron will actually build an LNG plant based on Wheatstone, even though that's what it is telling government it plans to do.

Wheatstone is about 85km southwest of the Goodwyn platform of the NW Shelf project but more than double that distance from the coast. As such, it looks logical that it should be tied into the gas reserves for the Shelf project, of which Chevron is one of the six joint venture partners, or tied to Pluto, which is only slightly further to the west.

For some years it has been reported that the gas available to the Shelf partners has been exhausted by their success in rolling over contracts with foundation customers in Japan, the $25 billion Guangdong deal in China and smaller commitments to Korea. This claim does not appear to take account of a number of small gas fields that are currently stranded on the Shelf. Having said that, any further expansion of the NW Shelf project would appear to be more commercially attractive than investing in a greenfield LNG operation virtually next door.

A similar argument evolves for Pluto where Wheatstone is regarded within the gas industry, if not within Chevron, as a possible supplier to the Pluto 2 plan, which Woodside's Don Voelte says is well into the planning stage. Pluto 2 would be located on the same site as Pluto 1 which Woodside is promoting as the Burrup LNG Park that Woodside says is being designed to process gas from Pluto as well as other regional fields.

There is also the view, not a million miles from Chevron's Perth headquarters, that that company does have to get some operational runs on the board. But why not gas to liquids or even domestic gas rather than the problematic returns from a small, stand-alone LNG plant?

At this point it is difficult to determine how much (if any) liquid fuel we could see flowing from Australia's offshore gas reserves, but the surge in LNG developments does raise the question, how long will Australia's gas reserves last and where will the gas go ? I hope to have a post up on this shortly.