Sydney (Platts)--20Nov2012/406 am EST/906 GMT

Shell is expecting first LNG from the Gorgon project in Western Australia later than the 2014 startup date being targeted by operator Chevron, a senior executive said last week.

"For non-operated ventures, it is normal for Shell to take a different view from the operator on the likely cost and schedule for a project," Shell Upstream International Director Andy Brown told a November 15 investor briefing, according to a transcript.

"When Shell took FID [final investment decision] on Gorgon in 2009, we had assumed a higher budget than the $37 billion described by Chevron, the operator, and a later startup schedule than the first gas in 2014 that was expected by the operator," Brown said. "Today, our cost estimates are higher again than our assumptions at FID, and we remain conservative on the startup date," he added.

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Chevron is currently conducting a detailed cost and schedule review for the Gorgon LNG project, the results of which are expected in early December, a company spokeswoman told Platts last week.

"Information from the review is being incorporated into plans for completing the project, the spokeswoman said. "As previously indicated, Chevron is experiencing cost pressures primarily related to foreign exchange effects, weather, logistics, and labor costs."

The Australian media reported speculation last week that the cost of Gorgon could blow out by as much as A$20 billion ($21 billion). Credit Suisse said in September it was assuming the cost of Gorgon would be revised to $47 billion, or $10 billion more than expected at FID, and that the project would start up in 2015.

Shell owns 25% of Gorgon, as does ExxonMobil. Chevron holds 47.3%, with Japanese customers Osaka Gas, Tokyo Gas and Chubu Electric Power holding 1.25%, 1% and 0.417%, respectively.

Chevron has revised upward the capacity of the three Gorgon production trains from 15 million mt/year at FID to 15.6 million mt/year. The liquefaction facilities, which will process gas from the 40 Tcf Gorgon field, are being built on Barrow Island.

Shell's Brown said there had been good exploration success around Gorgon, which could underpin a fourth LNG train at the project. "We've not approved the FEED [front-end engineering and design] on train four at this stage; that's a decision which could come in 2013 and we are taking on the learning from the base project first," he added.

On Australia's east coast, Shell appears to have pushed back an investment decision on its coalseam gas-based Arrow LNG joint venture with PetroChina from the expected date of late 2013. The Arrow project would be the fourth to be constructed on Curtis Island in Gladstone, which is host to three LNG developments already under construction.

The three other projects are being developed by consortiums led by BG Group, Santos and a joint venture between ConocoPhillips and Origin Energy. All three have suffered cost pressures since being approved due to exchange rate movements, labor costs and other issues.

"Other consortiums are more advanced with their developments and paid more to get into their acreage," Brown said. "There are considerable permitting, infrastructure and development bottlenecks in this area, leading to cost pressures. There is no rush for us into an FID, and we'll time this with the local market, and potentially combine with third parties," he added.

Arrow is currently 50% owned each by Shell and state-owned PetroChina. "With three projects under construction at Curtis Island, it makes sense to think about the best value solution for Shell, and get the timing of an LNG project right," Brown said.

The three projects already being built on Curtis Island represent total investment of just under $62 billion and will produce 25.3 million mt/year.

--Christine Forster, christine_forster@platts.com --Edited by Haripriya Banerjee, haripriya_banerjee@platts.com

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