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Chevron targets Australia LNG expansion despite cost pressure

A Chevron gas station sign is seen in Del Mar, California, April 25, 2013. REUTERS/Mike Blake
A Chevron gas station sign is seen in Del Mar, California, April 25, 2013. REUTERS/Mike Blake

BRISBANE (Reuters) - Chevron Corp's $52 billion Gorgon liquefied natural gas (LNG) development in Australia is now 60 percent complete and plans are afoot to start engineering and design work for an expansion by the end of the year, a company executive said.

Chevron also continues to talk with third-party gas suppliers for a potential expansion of its $29 billion Wheatstone LNG plant, Roy Krzywosinski, managing director of Chevron Australia, told reporters at an industry conference in Brisbane on Tuesday.

The Wheatstone plant in Australia is about 10 percent complete, he said.

The U.S. company's plans to continue pursuing LNG capacity expansion come amid concerns that Australia's high cost structure will discourage further investment in the $190 billion LNG industry.

Woodside Petroleum last month shelved plans for its $45 billion Browse LNG project in Western Australia, saying it will consider a floating LNG plant after deciding the onshore development did not make economic sense.

Gorgon, which will have a capacity of 15.6 million tons of LNG per year, is currently on schedule to ship its first LNG cargo in early 2015. The expansion is expected to add another 5.2 million tons a year.

Chevron is building a plant with a capacity of 8.9 million tons at Wheatstone, but the site has government approval to grow to a 25 million-ton hub. Wheatstone is scheduled to ship its first cargo out in 2016.

Krzywosinski, however, warned that Australia's high costs could impact the company's investment decisions going forward.

"Nothing is a slam dunk... the issue of cost structure is a significant issue, especially if you have an international portfolio of competing priorities," he said.

"You're not going to dump more money into an existing investment if you have a better alternative."

Gorgon LNG, which has seen a 40 percent cost hike, has about 65 percent of its LNG sold under long-term contracts, short of the 80 to 90 percent that LNG producers typically aim to have sold under long-term contracts.

"The closer we get to first LNG, the more valuable the volumes are going to be, so we're confident that we'll be able to market those incremental volumes," Krzywosinski said.

(Reporting by Rebekah Kebede; Editing by Muralikumar Anantharaman)

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