This BlowOut is for all you SM Fans

[Tree]

The Genius's at CVX, XOM and RDS in Gorgon likely face a $20 Billion post FID cost over-run.  I understand there are known experts in project finance available on YaZoo for these SM's to consult. Me no want any stinking part with a SM and their scheme for Gulf LNG. Me rather partner with a NOC which has the ability to print money.

Cost blow-out: the cost of Chevron's Gorgon LNG project are expected to rise more than A$20 billion according to reports

KENTZ

By Josh Lewis & news wires

 14 November 2012 02:44 GMT

The cost of Chevron’s massive Gorgon liquefied natural cost project in Western Australia could rise as much as A$20 billion (US$20.9 billion), according to reports.

The Australian Financial Review cited several sources with knowledge of Chevron’s current cost review of Gorgon as saying the US supermajor was expected to reveal the cost blow-out before year end.

Chevron’s current cost estimate for the 15 million tonne per annum LNG project is about US$37 billion.

The paper cited the high Australian dollar, union demands, high-cost local manufacturing and productivity issues as the reasons behind the expected cost increase.

Chevron’s general manger for operations in Australia, Brian Smith, told an industry conference in the West Australian capital city of Perth on Tuesday that he did not want to speculate on the extent of any possible cost increases.

“The cost is still the same number at this point in time,” he said.

“It may well be in the future or it might be some other number, but right now that is the cost for Gorgon.

“I think it’s no surprise that the exchange rate has gone up and is higher than when the project was approved. [But] we’re not going to speculate on what that number is. At least I’m not, I’m in operations.”

Smith also told delegates at the Australian Resources Conference that Gorgon was about 50% complete and on schedule to deliver first gas in 2014.

However, the Australian Financial Review claimed the cost review Chevron launched in July was expected to also reveal delay to the schedule of first gas.

Chevron operates the Gorgon project, holding a 47.33% stake, and its partners include ExxonMobil (25%), Shell (25%), Osaka Gas (1.25%), Tokyo Gas (1%) and Chubu Electric Power (0.42%).

The project is aimed at developing the Greater Gorgon Area gas fields, which lie about 130 kilmoetres off the north-west coast of Australia.

[jft310]

Where are these darn Thai classes????

[Palm]

All of these projects the "super majors" are heading up seem to be out of control on costs for various reasons. PNG LNG is actually now 27% over budget as the original estimate at FID was $15 billion and last year it was raised to $15.7 billion, and now $19 billion. I would guess we will see more upward revisions before it is done. Governments like PNG are growing weary of these blowouts (they have seen same in some mining projects) since they are able to opt in at 22.5% on petroleum and 30% on mining projects and must pay that % in sunk costs. The "carrot" has been to say, no problem because at the current oil slope pricing of 14.85% or so we will still make money. However a recent statement at an LNG conference was that due to rising competition from N American NG the slope is expected to drop to closer to $9/mmbtu.

"Browse and Arrow — a coalbed methane-LNG scheme led by Royal Dutch Shell — are seen as the most expensive unsanctioned Australian projects and so most under pressure from the pricing push. Investment bank Citi reckons both need a delivered break-even LNG price of above $14 per million Btu to achieve a 12% internal rate of return, and Gorgon and Wheatstone around $11/MMBtu. By comparison Anadarko’s proposed Mozambique project requires less than $9/MMBtu, Cheniere’s US Sabine Pass under $10/MMBtu, assuming a Henry Hub price of $3/MMBtu, and Exxon Mobil’s LNG project in Papua New Guinea less than $8/MMBtu (WGI Sep.19’ 12). But Citi analyst Mark Greenwood believes the biggest threat to Australian projects comes not from the calls for lower prices, but from cost blowouts, “which is why we will see a trend towards brownfield and floating developments.” Just over 50 million tons per year of capacity has been proposed in Australia, on top of 60 million tons/yr already sanctioned, but Greenwood says Citi doesn’t “see an Australian FID until Gorgon’s train four in 2014.” Even with oil-indexed pricing, Macquarie’s Wood does not expect operators of Pluto or Gladstone LNG — and perhaps others — to recoup capital costs, since cost increases and delays mean the profits outlook has already deteriorated since FID was taken. He reckons LNG projects generally will require a minimum price of around $9/MMBtu on an f.o.b. basis by 2020. Australian CBM-LNG schemes are already being scaled back as upstream costs mount and opposition grows to hydraulic fracturing. But two other regional projects — a ninth, 3.6 million ton/yr train at Petronas’ Bintulu complex in Malaysia and Inpex’s 2.5 million ton/yr floating Abadi project in Indonesia — look less vulnerable to competition. Petronas has said it will go ahead regardless, as the project will also serve the domestic market, while Inpex should benefit from its relationship with Japanese buyers and Shell’s involvement. Developers of Australian conventional LNG projects have typically priced supplies with an oil slope of at least 14.85% — full oil parity would be 17.24% — while CBM-LNG schemes command slopes of 13.85%. “Investors may have to revise their expectations of returns ... but they win some and lose some over a project’s shelf life of 20-30 years,” one investor says. And with oil slopes expected to flatten in new deals, buyers will get tougher with existing suppliers, demanding more flexibility in volume and destination clauses, lower prices, or even a complete overhaul of the pricing structure (WGI Oct.17’ 12)."

I think PNG is saying, "Super Major pricing is getting out of control and we have limited ability to continue to pony up as they incure cost overruns. Let's sanction this at a "minimum" startup of 3.8 mmtpa as it is easier to finance and see if EWC can deliver. They have proven to Indon that they are reliable and can get financing. Their mother company EWI has vast resources and access to funding. With them we can get highly efficient power plants and cost guarantees. Plus they can deliver modules more quickly."

These smaller LNG modules are starting to come on the scene. Yesterday CLNE announced a partnership with GE whereby GE will deliver mini LNG modules which CLNE will use to supply its filling station network across the US. Methods have advances and the "super majors" are showing their inability to deliver.

[Tree]

" I think PNG is saying, "Super Major pricing is getting out of control and we have limited ability to continue to pony up as they incure cost overruns."

AhSoo Duck-San.   Not only does a broke nation hate ponying up for cost blow outs more than the SMs do but those very same over-runs reduce the host nation treasury revenues via tax upon smaller profits.  That is a nasty double samuri.

[Spartina]

Enter - Henri A - incentify the the companies hired to help you build your lng plants AGAINST delays and over runs.
Enter - Phil M - Hire someone who has actually built an lng plant under budget and ahead of deadline.

[jft310]

Mr Market will figure this out soon.