Summary
ExxonMobil has agreed to sell 2.25 million tonnes a year of LNG from Australia's Chevron-operated Gorgon project to PetroChina in a 20 year deal. This is a further sign that Gorgon is likely to reach final investment approval this year.
Analysis
The latest deal with PetroChina follows another deal recently signed by ExxonMobil with Petronet of India for 1.5 million tonnes a year. Project operator Chevron has 4.5 million tonnes a year contracted and Shell has 2 million tonnes also sold to PetroChina and 0.5 million tonnes a year to Gujarat Petroleum, making 10.75 million tonnes a year signed up. Shell is also expected to take cargoes on its own account (possibly up to 2.5 million tonnes a year). This means a large part of the proposed 15 million tonne a year project is now sold. In other developments, the State Government has given environmental approval to the project, as the Federal Government is expected to do shortly. The State and Federal governments have also agreed to accept long-term liability in relation to carbon dioxide buried as part of the development. BP has agreed to sell its gas into the project and Chevron has let around A$1 billion in contracts for the project. All this suggests that the project is close to final investment approval. Final costs have not yet been disclosed but the West Australian premier quoted a cost of US$32 billion or about US$2,000 per tonne of capacity for the combined upstream and dowenstream developments. This is reasonably by world standards. This was then translated into A$50 billion (at a time when the exchange rate was well below its current level). This 'cost' is still being quoted. To add further confusion, A$50 billion is now being quoted as the 'value' of the ExxoenMobil deal with PetroChina. This is clearly a mistake. Recent long-term LNG deals have been done at around US$10/mmbtu (based on a long-term assumed oil price of around US$75 per barrel). If that pricing is reflected in the latest contract, it would be valued at around US$22 billion.
Graeme Bethune consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
