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Another cost blowout for Chevron's Gorgon LNG in Australia

PERTH, Australia, Dec. 12 (UPI) -- Oil and gas giant Chevron Corporation has revealed the cost of its massive Gorgon liquefied natural gas project on Western Australia's Barrow Island has increased to $54 billion.

The cost blowout comes a year after the cost estimate for Gorgon, the world's largest LNG development, was raised from $37 billion to $52 billion.

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Chevron said the project, under construction for four years, is nearly 75 percent complete.

The company said Gorgon's plant start-up and first gas is planned for mid-2015, a year later than initially planned.

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In a release Wednesday announcing the company's 2014 overall capital and exploration budget, Chevron Vice Chairman George Kirkland said lessons learned from Gorgon's complex construction were being applied to the $29 billion Wheatstone LNG project, also in Western Australia, which he said remains on schedule and on budget and is nearly 25 percent complete.

The economics of Gorgon were still ''attractive," Kirkland said, noting that steady progress continues to be made against key milestones.

Chevron had already signed long-term contracts for approximately 75 percent of its combined LNG offtake from the two projects, he said.

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"These LNG developments are two of our most important future legacy assets, representing approximately 400,000 barrels a day of net production at full capacity. They will be substantial contributors to our cash flow for decades to come," Kirkland said.

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Chevron owns 47.3 percent of the Gorgon project, and ExxonMobil and Shell both have 25 percent stakes. Japanese LNG customers Osaka Gas, Tokyo Gas and Chubu Electric Power hold 1.25 percent, 1 percent and 0.417 percent, respectively.

While Australia has been slated to overtake Qatar as the worlds' biggest LNG exporter by 2030, Australia's LNG sector has been plagued by rising labor costs, infrastructure bottlenecks and the strong Australian dollar.

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Furthermore, Chevron has grappled with weather delays and the logistical challenges of building a gas plant on Barrow Island, a Class A nature reserve, the Australian Broadcasting Corp. reported.

The Australian Mines and Metals Association, a resources industry employers group, says Gorgon's rising costs show that Australia is a costly place to do business.

"The cost of LNG projects around the world may be rising but it's also true that the cost of comparable LNG projects in Canada -- Australia's closest competitor and a fellow developed country, member of the OECD -- are 30 percent less expensive than building a comparable project in Australia," Scott Barklamb said.

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