LNG Production Starts At Wheatstone

Chevron has announced the start of production at its Wheatstone LNG offshore project in Australia, with exports from the facility due to begin in several weeks. Initial plans had scheduled the first cargo for mid-2017, Reuters recalls.

Wheatstone consists of two liquefaction trains that are together capable of producing 8.9 million tons of liquefied natural gas annually, which will be exported to Asian markets. The project, which cost US$35 billion (A$45 billion), is the latest addition to a string of large-scale LNG projects to come on stream in Australia, as the country seeks to exploit its offshore gas resources to dethrone Qatar as the world’s top LNG supplier.

This is Chevron’s second project in the Australian LNG rush. The first one, Gorgon, ran into a series of delays and production outages, which led to substantial cost overruns of almost US$20 billion. Gorgon started shipping LNG to Asia last April. Its annual capacity is almost twice that of Wheatstone, at 15.6 million tons of LNG.

Wheatstone also experienced cost overruns, albeit smaller: the initial cost of the project was estimated at US$29 billion. At the time, Chevron attributed the overrun to difficulties with building gas cooling equipment offshore as well as higher construction costs. Chevron is the operator of Wheatstone with a 64-percent stake, in partnership with Australia’s Woodside Petroleum, Japanese Kyushu Electric Power Co., and Kuwait Foreign Exploration Co.

Related: U.S. Oil Rig Count Falls As Prices Falter

Now that the facility is ready to start shipping LNG, the price rally that we saw earlier this year thanks to stronger Asian demand and the production delays that have plagued the Australian megaprojects may slow down. Since March, Reuters notes, LNG prices on the spot market have surged by 55 percent to US$8.50 per mmBtu.

Two more megaprojects have yet to start production off the Australian coast: Shell’s Prelude, which is one of the very few floating LNG projects, and Inpex-operated Inchtys. Two other LNG projects were shelved amid the oil and gas price drop, one by Shell, and another by Woodside Petroleum in partnership with BP and Shell.

By Irina Slav for Oilprice.com

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