When announced on the sidelines of the APPEA conference, everyone cheered. “Terrific news”, shouted the headlines, or words to that effect. “Gorgon cleared for development decision,” was another.
It was at this point that Slugcatcher became rather curious. Here was Shell saying it would be a major customer for Gorgon gas, and here was Shell a major shareholder in Gorgon – which is yet to win a formal development commitment.
There is, as we all know, a certain amount of “horse and carting” required with a new LNG project. Without the contracts there can’t be a development commitment, and without a development commitment there can’t be a project.
But just how much value can there really be placed in a Gorgon partner committing to buy Gorgon product.
If Shell had not held up its hand and said "we’re a customer" it might have been a bigger story because Shell is such a major energy trader.
Slugcatcher, always on the look-out for the unusual, believes that Shell may be playing a bit of a game with Gorgon – in the real estate business it’s called dummy bidding.
The way it works is that when a property is put up for auction, the vendor is never sure how many in the crowd are genuine, and how many are just curious. The real danger in that situation is that everyone is curious, and no-one bids – enter the dummy bidder, a chap who works with the auctioneer to get the ball rolling.
Perhaps, just perhaps, Gorgon needed a bit of a kick along. As far as the Slug can remember a development commitment on the project was expected in the middle of this year, not next year, as we are now told.
There was also a question over the volume of reserves, and their quality – not to mention final design, and a small matter of rapidly rising steel prices which will kick up the cost of the overall development.
APPEA arrives, and the world is expecting some formal announcement from the Gorgon partners. First came news of an ownership shuffle, a move which seems to be a sensible exchange of interests and the creation of what looks to be a solid, long-term structure with ChevronTexaco owning 50% of the project, and with ExxonMobil and Shell holding 25% each. No problems with that.
Then came the announcement that Shell would buy roughly 25% of Gorgon’s annual production for delivery to its Energia Costa Azul terminal in Mexico – and for piping into the U.S. market.
This is when we need to ponder that question: “would you buy your own product”. And the answer is rather obvious; of course you would, if you are a global-scale energy trader.
But, the next question is why do you have to? Is it because you really want the gas? Possibly. Or is it because you want to create the impression that Gorgon gas is rapidly being spoken for and if you want some then you’d better hurry up – the dummy bidder theory.
Slugcatcher may be totally wrong, and yes, it wouldn’t be the first time. But, how about a third question for the day?
Do you reckon that Shell would sell its Gorgon commitment if a third party entered the game and said “I really, really want that gas”? No prize for the correct answer, but it starts with a Y and ends with an S.
