Chevron has blamed problems at one of its overseas suppliers and inadequate planning for a $US5 billion ($A6.6 billion) blowout in the cost of its Wheatstone liquefied natural gas (LNG) project.
Chevron has blamed problems at one of its overseas suppliers and inadequate planning for a $US5 billion ($A6.6 billion) blowout in the cost of its Wheatstone liquefied natural gas (LNG) project.
The increase lift's the project's cost to $US34 billion.
The latest update adds to a series of timing and cost revisions Chevron has made at its two big LNG projects in Western Australia, though the US energy giant had some positive news on its production outlook.
At its Gorgon project on Barrow Island, train 1 production is stable, after running into early commissioning problems, and train 2 is now online.
Train 1 LNG production has been averaging 110,000 barrels per day, equivalent to about 5 million tons per year, with 17 cargoes shipped to date.
Train 2 produced first LNG last week, on October 25, and the company said construction on train 3 was progressing very well, with first LNG expected in the second quarter of 2017.
At Wheatstone, under construction near Onslow, the outlook for first LNG remains mid-2017, with the second liquefaction train to start producing six to eight months later
“We are leveraging our experience from Gorgon and are pleased with our progress,” Chevron vice-president and CFO Pat Yarrington told a third quarter conference call on Friday US time.
“All modules for train 1 and train 2 are now on site and the installation of piping, electrical and instrumentation continue as planned.”
Ms Yarrington said one of the primary drivers behind the cost increase at Wheatstone was the late delivery of one of the modules for the LNG plant, believed to be from a supplier in Malaysia.
“The modules were delayed due to poor performance at one of the fabrication yards,” she said.
“The contractor was unable to effectively manage the size and the scale of the work scope that we had given.”
Ms Yarrington said some of the work was redirected to other yards, but this was not enough to address the problem.
“A second factor that I would comment on is really an underestimation of the quantity of materials that were required,” she said.
“At the time we took FID on Wheatstone (in 2011) we had project engineering that was about 15 per cent complete and so the rest was based on rules of thumb and factors.
“As we matured the engineering definition, the amount of quantities needed increased substantially, and so that was a secondary reason behind the cost increase.
“I would say the second element was something that we had seen on Gorgon as well and it is one of the primary areas where we are trying to improve our project execution going forward.”
To address this, Chevron is undertaking more engineering work before taking a final investment decision on major projects.
For instance, project engineering on the expansion of its Tengiz project in Kazakhstan was about 50 per cent complete before it took FID.
Ms Yarrington said a third factor at Wheatstone was the heated construction market when it commenced.
“That original appropriation request was taken in 2011 and, as you can all appreciate, during the first few years of construction there was a much more heated market.”
Friday’s update comes after Chevron pushed back the start date for Wheatstone by about six months early this year.
The extra cost of building Wheatstone will be shared among the project owners, including Chevron (64.1 per cent), Kuwait Foreign Petroleum Exploration Company (13.4 per cent) and Woodside Petroleum (13 per cent).
It follows even bigger cost blowouts on Gorgon, which is budgeted to cost $US54 billion, about $US17 billion more than expected when it was approved in 2009.
Other big LNG projects under construction, including Inpex’s Ichthys project near Darwin and Shell’s Prelude floating LNG plant off the Kimberley coast, are also experiencing cost and time delays.
