Chevron: an LNG powerhouse in WA

The Wheatstone Project is more than 65 percent complete.

The Wheatstone Project is more than 65 percent complete.

Chevron has a rich history in Western Australia with the pioneering North West Shelf Project, and is set to significantly expand on its presence in the state with start-up of the mammoth Gorgon and Wheatstone LNG projects. Gas Today looks at what makes these projects unique.

Western Australia’s LNG sector is experiencing a robust period of growth over a short period of time.

LNG production capacity is set to rise from 21 MMt/a in 2013–14 to almost 50 MMt/a by 2017–18, as the Chevron-operated Gorgon and Wheatstone projects start up in 2015 and 2016 respectively, which will cement the state’s position as one of the world’s largest exporters of LNG.

Gorgon, billed as one of the largest natural gas projects ever undertaken and the largest single-resource development in Australia’s history, is already an icon for the domestic LNG industry.

The project is developing the Gorgon and Jansz-Io gas fields, located approximately 130–220 km off the northwest coast of Western Australia (WA), and includes the construction of a 15.6 MMt/a LNG plant on Barrow Island, which is expected to begin production by the end of 2016.

Wheatstone, while smaller, is still a formidable prospect, and reinforces Chevron’s position as a key LNG supplier for the Asia-Pacific region given the extensive resources held by both projects.

Wheatstone will include an onshore facility at Ashburton North Strategic Industrial Area (ANSIA), 12 km west of Onslow in WA’s Pilbara region, which will process gas supplied from offshore permits WA-235-P and WA-17-R, located in the Wheatstone and Iago gas fields, offshore WA.

The project includes two LNG trains with a combined capacity of 8.9 MMt/a, a domestic gas plant, and two gas export pipelines.

ECONOMIC IMPACT
“The Gorgon and Wheatstone LNG projects are two of the largest resource projects ever constructed anywhere in the world,” WA Premier Colin Barnett told
Gas Today.

“They have already had an immense impact on the Western Australian economy through the creation of jobs, the construction of infrastructure, and the procurement of local goods and services,” he says.

“To date, the Gorgon Project has committed around $33 billion to local workers and industry, and has created more than 10,000 jobs in Australia.

“More than 200 Western Australian companies have been awarded contracts for the Wheatstone project, representing around 40 per cent of all Wheatstone contracts, while 7,000 Australian jobs have also been created.”

Mr Barnett says that with Gorgon nearing the end of construction, with first gas expected by the end of 2015, and first gas scheduled for Wheatstone in late 2016, WA will continue to see benefits through ongoing employment, LNG exports, and supply of gas to the domestic market.

WA GAS SUPPLIES
Chevron currently supplies around 10 per cent of the WA gas market through the North West Shelf LNG Project, with this figure expected to increase significantly as Gorgon and Wheatstone come online.

The Gorgon Project signed two significant long-term domestic gas sales contracts with WA’s largest energy retailer, Synergy, and the state’s leading energy generator, Verve Energy, in November 2011.

Additionally, the Wheatstone Project includes the development of a 200 TJ/d domestic gas plant, which will have gas marketed separately through the Chevron Natural Gas Australia (CNGA) entity.

Through this process, CNGA anticipates contracting domestic gas requirements from the project under a range of contractual agreements.

ENGINEERING WONDERS
The scale and long-term sustainability of both projects, however, wouldn’t be sustainable without significant resources to back them up.

Chevron, through its subsidiary Chevron Australia, is the largest holder of natural gas resources in Australia, ensuring that Gorgon and Wheatstone have the gas to meet growing Asian demand.

80 per cent of the Wheatstone Project’s foundation capacity will be fed with natural gas from the Wheatstone and Iago fields, while the remaining 20 per cent will be supplied from the Julimar and Brunello fields.

The project’s offshore processing platform is located in 70 m of water, about 225 km from the WA coast, and has already marked a number of key construction milestones, including the installation of one of the world’s largest ever offshore platform installations in early 2015.

The 37,000 t topsides structure was shipped approximately 6,500 km from South Korea, before it was successfully floated over and set onto the steel structure.

18 high-rate, large bore development wells – eight at the Gorgon field and ten at the Jansz-lo field – will provide the initial resource for the Gorgon Project.

The Gorgon wells were originally drilled by the Atwood Osprey in 2012 and perforations campaign and final well operations completed by the Ocean America drill rig in late 2014, with the project’s subsea gas gathering system the largest ever installed in Australia.

More than 800 km of pipelines have been installed, including almost 200 km of main production pipelines, with the escarpment installation one of the most significant challenges in the upstream facilities scope, creating an unsupported span of some
270 m extending from the top of the continental shelf to the seabed in a water depth of around 750 m.

All offshore pipelines, including the corrosion resistant in-field pipelines, were installed in early 2014.

Meanwhile, all six onshore pipelines – three for each field – have been installed on Barrow Island, with the domestic gas plant tied in to the 1,539 km Dampier to Bunbury Natural Gas Pipeline.

DOWNSTREAM
The downstream section of Gorgon involves a three-train LNG facility and domestic gas plant, connected to the offshore facilities via a 12.5 km feed gas pipeline.

A total of 51 modules, weighing more than 200,000 t make up the main components of the trains, with the first module delivered in September 2012.

Five gas turbine generators will be used to power the LNG plant, with the capacity to provide 584 MW of electricity once operational.

The Kellogg joint venture group, a
KBR-led joint venture consisting of JGC, Clough and Hatch, was awarded the engineering, procurement and construction management (EPCM) contract for downstream and logistics on Gorgon in 2009, valued at approximately $2.7 billion.

CB&I was awarded the engineering, procurement, fabrication and construction (EPC) contract for the project’s LNG and condensate tanks, while a joint venture with Kentz was awarded a contract for the mechanical, electrical and instrumentation work on Gorgon in 2011, worth approximately $2.3 billion.

The Wheatstone Project’s downstream EPCM contractor, Bechtel, is overseeing the construction of two 4.45 MMt/a LNG trains, plus a 200 TJ/d domestic gas plant.

ENVIRONMENTAL INNOVATIONS KEY
In addition to Gorgon’s impressive scope, the project has been recognised for its efforts to maintain biosecurity integrity on Barrow Island, taking out the 2015 Biosecurity Awards Industry category for its Barrow Island Quarantine Management System (QMS).

The Barrow Island QMS is the world’s largest non-government quarantine initiative, and provides an unprecedented level of quarantine intervention across all operations, preventing the introduction of non-indigenous animals and plants that could potentially establish on the island, predate native species or compete with them for food, water and shelter.

“The Gorgon Project is being constructed on an island that has been designated a Class A Nature Reserve since 1910,” says Mr Barnett.

“While the strict quarantine provisions imposed on this project have posed some challenges, overall this project has demonstrated that large-scale resource activities can be balanced with a sensitive environment.”

In addition to the QMS, which was also recognised at the 2012 United Nations Association of Australia World Environment Awards, winning the Business Award for Best Practice Program, Gorgon’s carbon dioxide injection project is another significant innovation by Chevron.

In order to further minimise the project’s environmental footprint on the island, separated CO2 is injected into a deep reservoir unit, known as the Dupuy Formation, and more than 2 km beneath the island.

The process, which goes against standard industry practice, has been supported by both the WA and federal governments, providing it with post-closure indemnity.

An ongoing monitoring program, which includes observation wells and seismic surveys, will assist in managing the performance of the Dupuy Formation.

A PLACE IN THE GLOBAL LNG MARKET
“Never before has there been growth of this magnitude in an energy industry… anywhere in the world,” says Chevron Australia Managing Director Roy Krzywosinski.

Speaking at the 2015 Australian Petroleum Production and Exploration Association (APPEA) Conference, Mr Krzywosinski said that together, Gorgon and Wheatstone will position Chevron as Australia’s largest LNG producer and Australia, as one of the world’s largest LNG exporters.

“In 2009, when we took a final investment decision on the Gorgon Project, the capital cost was described by some as equal to the then federal government’s post-GFC economic stimulus package.

“Some would credit Gorgon with playing a supporting role in turning around the economy at the time.”

Echoing Mr Krzywosinski’s comments, IBISWorld senior industry analyst Ryan Lin says “there has been unprecedented capital investment in oil and gas extraction over the past decade, the benefits of which are anticipated in 2015–16”.

Mr Lin says that strong demand from Japan for natural gas will be met by increasing LNG production across Australia, with investment in export facilities such and Gorgon and Wheatstone further opening the market.

IBISWorld’s Oil and Gas Extraction in Australia: Market Research report forecasts a 12.8 per cent growth for the industry across the 2015–16 financial year, largely driven by natural gas projects off the coast of WA, including the Gorgon, Wheatstone and Prelude projects.

This unprecedented demand for LNG in the region has largely been driven by conversions to gas-fired power plants in Japan, following the Fukushima nuclear power plant disaster in March 2011.

According to the Reserve Bank of Australia (RBA), most of Australia’s current LNG production is exported to Asia; more than 80 per cent is exported to Japan, while China and Korea account for much of the remaining share.

“The LNG from Australian projects under construction is also committed to Asian purchasers under long-term contracts, albeit with more diversification in the destination of these exports,” the RBA’s Australia and the Global LNG Market report says.

Satisfying commercial and strategic Asia

In January 2015 Chevron signed a binding sales and purchase agreement with SK LNG, part of a leading industrial conglomerate in South Korea, to supply 4.15 MMt over a five-year period, starting in 2017.

During the time of this agreement, over 75 per cent of Chevron’s equity LNG from Gorgon will be committed to customers
in Asia.

These customers include the Gorgon Project joint venture participants, including Japanese energy companies Osaka Gas (1.25 per cent), Tokyo Gas (1 per cent) and Chubu Electric Power (0.417 per cent), along with Chevron (approximately 47 per cent), ExxonMobil (25 per cent), and Shell
(25 per cent).

Tokyo Gas, founded in 1885, services the principal Japanese cities of Tokyo, Kanagawa, Saitama, Chiba, Ibaraki, Tochigi and Gunman, which, when combined, have approximately 11.26 million gas customers.

Osaka Gas, founded in 1897, serves over 7 million customers in the Kansai region of central Japan, which includes the urban centres of Osaka, Kobe and Kyoto, while Chubu Electric Power is the youngster of the bunch, was founded in 1951 and services the Chubu region.

Joint venture interests in Wheatstone include Chevron (64.14 per cent), Woodside Petroleum (13 per cent), Kuwait Foreign Petroleum Exploration Company (KUFPEC) (13.4 per cent), PE Wheatstone (8 per cent) and Kyushu Electric Power Company
(1.46 per cent).

“Never before has there been growth of this magnitude in an energy industry… anywhere in the world,” says Chevron Australia Managing Director Roy Krzywosinski.

Speaking at the 2015 Australian Petroleum Production and Exploration Association (APPEA) Conference, Mr Krzywosinski said that together, Gorgon and Wheatstone will position Chevron as Australia’s largest LNG producer and Australia, as one of the world’s largest LNG exporters.

“In 2009, when we took a final investment decision on the Gorgon Project, the capital cost was described by some as equal to the then federal government’s post-GFC economic stimulus package.

“Some would credit Gorgon with playing a supporting role in turning around the economy at the time.”

Echoing Mr Krzywosinski’s comments, IBISWorld senior industry analyst Ryan Lin says “there has been unprecedented capital investment in oil and gas extraction over the past decade, the benefits of which are anticipated in 2015–16”.

Mr Lin says that strong demand from Japan for natural gas will be met by increasing LNG production across Australia, with investment in export facilities such and Gorgon and Wheatstone further opening the market.

IBISWorld’s Oil and Gas Extraction in Australia: Market Research report forecasts a 12.8 per cent growth for the industry across the 2015–16 financial year, largely driven by natural gas projects off the coast of WA, including the Gorgon, Wheatstone and Prelude projects.

This unprecedented demand for LNG in the region has largely been driven by conversions to gas-fired power plants in Japan, following the Fukushima nuclear power plant disaster in March 2011.

According to the Reserve Bank of Australia (RBA), most of Australia’s current LNG production is exported to Asia; more than 80 per cent is exported to Japan, while China and Korea account for much of the remaining share.

“The LNG from Australian projects under construction is also committed to Asian purchasers under long-term contracts, albeit with more diversification in the destination of these exports,” the RBA’s Australia and the Global LNG Market report says.

SATISFYING COMMERCIAL AND STRATEGIC ASIA
In January 2015 Chevron signed a binding sales and purchase agreement with SK LNG, part of a leading industrial conglomerate in South Korea, to supply 4.15 MMt over a five-year period, starting in 2017.

During the time of this agreement, over 75 per cent of Chevron’s equity LNG from Gorgon will be committed to customers in Asia.

hese customers include the Gorgon Project joint venture participants, including Japanese energy companies Osaka Gas (1.25 per cent), Tokyo Gas (1 per cent) and Chubu Electric Power (0.417 per cent), along with Chevron (approximately 47 per cent), ExxonMobil (25 per cent), and Shell
(25 per cent).

Tokyo Gas, founded in 1885, services the principal Japanese cities of Tokyo, Kanagawa, Saitama, Chiba, Ibaraki, Tochigi and Gunman, which, when combined, have approximately 11.26 million gas customers.

Osaka Gas, founded in 1897, serves over 7 million customers in the Kansai region of central Japan, which includes the urban centres of Osaka, Kobe and Kyoto, while Chubu Electric Power is the youngster of the bunch, was founded in 1951 and services the Chubu region.

Joint venture interests in Wheatstone include Chevron (64.14 per cent), Woodside Petroleum (13 per cent), Kuwait Foreign Petroleum Exploration Company (KUFPEC) (13.4 per cent), PE Wheatstone (8 per cent) and Kyushu Electric Power Company
(1.46 per cent).

Established in 1981, KUFPEC is engaged in exploration, development and production of crude oil and natural gas outside Kuwait, active in Africa, Middle East, Asia, Europe, Canada and Australia.

Kyushu Electric is also a relatively new company – compared to its counterparts – as it was formed in 1951 and services the Hiroshima region of Japan.

The PE Wheatstone joint venture is partly owned by Japan’s Tepco (99.9 per cent) and Pan Pacific Energy 0.01 per cent), a joint venture between Mitsubishi, NYK Line, Tepco and Jogmec.

This array of joint venture partners in both projects, in addition to proving strategic in supplying the Asian market, has allowed Chevron to hedge its bets as Gorgon and Wheatstone come online amid a surge in LNG supplies in the Asian market.

Given the sheer momentum of work at both Gorgon and Wheatstone, along with the threat of industrial action and cost blowouts, the stakes remain high.

However, the reward for these projects commencing gas exports will not only cement Chevron’s place as an innovative energy corporation, but will also position Australia as a world-leader in LNG.

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