US oil major Chevron has signed a $A90 billion contract, Australia’s biggest ever deal of any kind, to sell liquefied natural gas to Tokyo Electric Power from its proposed Wheatstone LNG project offshore northwestern Western Australia.
The deal brings closer the green light for the huge project which will see the processing plant built at Ashburton North near the town of Onslow, about 1,400 kilometers north of Perth.
Chevron has already started working on the design and construction of the project ahead of the investment decision in 2011.
It said on Saturday it had signed a heads of agreement with Tepco (as the Japanese group is known) to deliver 4.1 million tonnes of LNG annually for a period up to 20 years.
That’s equivalent to more than 20% of Tepco’s annual consumption of LNG.
Chevron announced the agreement on the weekend.
Tepco also plans to acquire 15% of Chevron’s share in the Wheatstone gas field licenses and an 11.25% interest in the onshore LNG terminal
It is a similar shaped deal to the recently signed $43 billion Gorgon gas project, in the same area where Chevron, the major partner (with Shell and Exxon), has sold small stakes to end users in Asia in exchange for long term contracts.
Chevron’s agreement with Tepco comes just days after Exxon concluded a binding sales-and-purchase agreement with China Petroleum & Chemical Corp. for two million tons of LNG a year from the rival PNG LNG project in Papua New Guinea.
The latest contract is for up to 20 years and covers almost half Wheatstone’s initial capacity of 8.6 million tonnes of LNG a year, against the projected 15 million tonnes a year output planned for Gorgon.
In October, Apache Corp. and Kuwait Foreign Petroleum Exploration Co. agreed to join Chevron in the development of Wheatstone, rejecting a deal with Woodside Petroleum to supply gas from their offshore discoveries to the competing Pluto LNG project.
Apache and KUFPEC jointly own 25% of the Wheatstone LNG facilities, but took no interest in the Wheatstone gas field.
Tokyo Electric, Asia’s biggest utility, joins other Japanese power producers and Chinese and Indian companies in buying stakes in LNG from Australian projects.
Tokyo Electric’s 11.25% ownership of the field will entitle it to 1 million tons of LNG a year, and the company will buy the remaining 3.1 million tons, the utility said in its statement.
Chevron is aiming to develop Wheatstone at the same time as work commences on its $43 billion Gorgon project, also off Western Australia. Gorgon is due to start operating off the northwest shelf in 2014.
Chevron has said Wheatstone may cost $5 billion and start production in about 2013 or 2014. The field was discovered off the Pilbara coast in 2004.
Western Australia will receive 15% of the Wheatstone output as part of its policy to secure domestic supply.
Exxon Mobil has signed a contract to supply gas from Gorgon to PetroChina at $50 billion and also will sell fuel to India’s Petronet LNG Ltd.
Chevron has agreed to supply the fuel to Tokyo Gas, Osaka Gas and South Korea’s GS Caltex, in deals that may be valued at $70 billion over 25 years.
Chevron said in July that it had awarded the onshore front-end engineering and design (FEED) contract for Wheatstone LNG and domestic gas plant and export facilities to Bechtel Oil, Gas & Chemicals of the US.
"The FEED contract is for the design of the first phase of the project, which includes two LNG processing trains each with a capacity of 4.3 million tonnes per annum, and a domestic gas plant.
"Initial supply is expected to come from Chevron’s 100 percent interest in the Wheatstone field and the Chevron operated Iago field," the company said in its statement.
