The current status, if reports from the United States are correct, is Gorgon is on ice.
For that belief (as opposed to a fact) The Slug is relying on wire service reports of a stockbroker research note based on an alleged remark from ExxonMobil’s big boss, Rex Tillerson.
Dow Jones and Reuters report that Tillerson believes Gorgon can’t proceed at its current cost estimate, and might need a major design overhaul including relocating the processing site from Barrow Island to mainland Australia.
A spokesman for the Gorgon Joint Venture, in which ExxonMobil has a 25% stake, disputes these blunt assessments, saying the JV is committed to the project.
At this point, some readers will yawn and ask, “What’s new?” Gorgon has been a troubled project for at least 20 years.
Its original problem was its location in water depth which stretched engineering capacity.
Then came the problem of the high carbon-dioxide content in the gas stream, followed by the choice of Barrow Island and a turtle breeding ground.
And now we have the construction cost blow-out with reports of the budget doubling from $10 billion to $20 billion.
As each issue has cropped up, the engineers behind the project have found a solution – much to their credit.
Subsea completion solved the depth problem. Geosequestration should solve the CO2 problem, and relocating the trunkline landfall should please Mr and Mrs Turtle.
But, the problem causing a real headache at Gorgon is not the engineering challenge, dirty gas, coupling turtles, or cost blow-outs – it’s troubles within the JV.
Tillerson, if he has been correctly reported, might only speak for 25% of Gorgon but he punches well above that weight because of a quirk of Australian law – a quirk which must be really annoying for the other partners: Chevron (50%) and Shell (25%).
Because Gorgon is classed as an “unincorporated joint venture” under Australian law, each partner takes responsibility for providing his share of the capital, and marketing his share of product.
But it also means each partner must be satisfied with the development plan before it can proceed, and even if ExxonMobil is a minority partner it has the power to slow things down until it is happy that Gorgon’s design and costs meet its requirements.
It’s from here that everything becomes rather sticky.
Chevron and Shell, officially anyway, say they want to proceed with Gorgon, and that the cost problem can be resolved.
In that regard, they appear to differ from ExxonMobil, as reported by Credit Suisse in the research note which says, in part, that “all aspects of Gorgon are being looked at, up to and including moving from Barrow Island.”
For those beavering away tirelessly inside the Gorgon JV, what’s happening now must be appallingly frustrating. They have resolved most of the engineering and environmental issues, and now they have partner problems.
What this leads to is anybody’s guess but there will be a few fingers pointed at ExxonMobil, and claims that it is giving preference to spending the capital it wants to allocate to LNG investments on the rival, 50% owned Scarborough project, in preference to the 25% it has in Gorgon.
And therein lies another problem for LNG projects off the Australian coast. There are so many potential combinations, and conflicts of ownership, that there is a danger of JV paralysis – a point at which no one does anything because the partners can’t agree.
Little wonder that Woodside and Santos are so happy to proceed solo on their Pluto and Gladstone projects.
