Mega Gas Project

I took some pride in Chevron's announcement earlier this week that it and its partners would proceed with construction of the Gorgon LNG plant in Australia. That's partly due to my vicarious interest in this project as a Chevron shareholder, but mainly from my peripheral involvement in the early stages of planning and thinking about it when I worked at Texaco. Prior to merging with Chevron, Texaco held a 25% interest in the Gorgon natural gas field, as did Chevron, ExxonMobil, and Shell. Because of the scale of the resource involved, even that one-quarter share was enough to make Gorgon potentially one of Texaco's most valuable long-term assets. However, the technical complexity of the project, combined with the uncertainties about the future global gas market, made it difficult to create the necessary consensus among the partners about how best to proceed. In retrospect, it probably took the merger to give one party a big enough stake in the project to drive it forward.

At a planned production rate of 15 million tons per year of liquefied natural gas (LNG) and 300 terajoules per day of pipeline gas for use on the mainland, it's a little hard to put the scale of the project in perspective. It works out to around 2.2 billion cubic feet per day of total natural gas delivery, which is equivalent to the entire production of the largest independent US gas driller, Chesapeake Energy Corp., one of the most aggressive developers of the shale gas deposits that are transforming the US natural gas market. If Gorgon's entire output were sent to gas turbine power plants, it would generate around 85 billion kilowatt-hours per year, as much as 32,000 MW of wind turbines or 9 nuclear power plants of 1200 MW each--and over a similar 40 year operating life. However you look at it, it's big.

Among the challenges the field's owners needed to overcome in order to get to this point was a plan for handling the relatively high CO2 content of the gas in the Gorgon field, at around 12%. Even a decade ago, it was becoming clear that such large quantities of CO2 could not simply be vented to the atmosphere. According to Chevron's fact sheet for the project, the CO2 content of the gas will be separated and sequestered in geological reservoirs under Barrow Island, where the LNG plant will be located, and it will apparently rank among the world's largest carbon capture and sequestration (CCS) projects to date, with total storage of up to 120 million tons of CO2 over the life of the project.

Of course, that doesn't negate the entire greenhouse gas impact of such a project, which must be compared to the emissions that would occur if it didn't proceed. Chilling natural gas to -260 °F, at which it becomes a liquid, requires a significant expenditure of energy, typically generated by burning more gas. As a result, the lifecycle emissions of LNG are somewhat higher than those for pipeline gas, though they are still substantially less than from the coal or oil it would displace in power generation in the Asian market for which most of Gorgon's output is slated. According to a recent study by Pace Consultants, the emissions from gas liquefaction, LNG transportation, and re-gasification at destination would effectively increase the lifecycle emissions from a combined-cycle power plant by roughly 22%, compared to one running on domestic (pipeline) gas. However, that result would still come in around 40% lower than the emissions from the best coal-fired power technology without CCS, and 60% less than typical coal-fired power plants.

Technology has also advanced in other areas, since the Gorgon field was first discovered in the early 1980s. The idea of developing Gorgon and the nearby fields such as Jansz and Chrysaor using sub-sea completions, with no surface platform standing above them, is a reflection of how far the state of the art has come since then. The comparison of Gorgon's offshore and onshore footprint to Australia's other giant offshore gas field, the Northwest Shelf, which was developed in that timeframe using then-current technology, is remarkable. As one of the videos on Chevron's Gorgon sitelet points out, the development also had to be done in a manner that was harmonious with the nature preserve on Barrow Island. That complicated the permitting process and added additional years to the development timeline.

And that's really my key take-away for this project. While a variety of factors contributed to Gorgon's requiring something like 33 years from discovery to first production, big energy projects aren't like building a supermarket or office park. Aside from the great patience these efforts require, large sums of money must be spent over a long span of time before the first dollar of revenue can be collected to recoup them. That requires the deepest of pockets and the most meticulous strategic and financial planning. Only governments and the very largest companies--with massive free cash-flow or debt capacity--can pull this off. Moreover, because of the numerous risks associated with geology, permitting and development, a project like this works best when that risk is shared by more than one party, each of which has a portfolio of sufficient size and diversity to absorb the delays that are inherent in such ventures. So while it's true that the oil Super Majors need big LNG projects to bolster reserve replacement and cash flows that are being pinched by the challenges of gaining access to large-scale oil projects in the current environment, the global supply of clean gas from such projects would be much lower, without companies on this scale to develop them. This is a match that is both good for business and good for the long-term decarbonization of global energy supplies.