Korea Gas cuts Gorgon gas project off its list of preferred suppliers

The $ 11 bn Gorgon gas project off the Pilbara coast has been hurt by the world's biggest importer of LNG, Korea Gas Corp, which cut the ChevronTexaco-led development from its list of preferred bidders for a $ 25 bn LNG supply contract.
However, the rival North West Shelf project operated by Woodside Petroleum is believed to still be in the race for a slice of the contract to supply up to 6 mm tpy of LNG for 20 years from 2008. Kogas named Gorgon and the North West Shelf on its list of twelve preferred bidders to fill the contract, which will replace an existing deal with Indonesian suppliers which expires in 2007. But Kogas slashed its list to just five prospective suppliers, and expects to whittle that down to two or three over the next few weeks.

Kogas did not reveal which projects had been cut, but said preliminary supply agreements were expected to be signed with the successful tenderers by the end of November. The lead supplier is expected to deliver up to 4 mm tpy of LNG, with the remainder to be split between one or two other producers.
The Shelf is considered a strong contender, after winning its first long-term supply deal with Kogas, worth $ 1.2 bn over seven years, last year. In contrast, Gorgon venture marketing president Neil Theobald confirmed that Gorgon had been cut from the list by Kogas, but said the venturers remained confident of snaring future opportunities to supply LNG to South Korea.

"It's not really that much of a surprise -- Kogas wanted the gas in early 2008 which was always going to be a bit early for us," Mr Theobald told. "The next tranche of demand into Korea fits us better than this particular one. Korea is likely to be a very important customer for Gorgon as we look forward."
South Korea last year imported 19.4 mm tons of LNG, ranking it just behind Japan as the world's biggest buyer. But Korean demand is set to explode to more than 33 mm tpy by 2015.

Mr Theobald said an investment decision on the $ 6 bn first stage of development at Gorgon was still expected in 2005, though first production from the fields could slip marginally back until early 2009.
"We're actually still targeting the end of '08, but increasingly it's looking like it will be '09," he said. "What we're saying is that once we get into front-end engineering, we'll be able to refine that (schedule) more."

A single production train at Gorgon is expected to produce up to 5 mm tpy of LNG, mostly to meet commitments under an initial $ 30 bn supply deal with China's National Offshore Oil Corp. A second train to supply additional buyers from Asia and North America is also envisaged. Mr Theobald said efforts to market Gorgon gas to other buyers were well advanced, underpinning plans for a second train.
"When you look forward we will just continue to build on the progress we've made in China and sales to the west coast of North America," Mr Theobald said. "I think when you add up the Chinese and North American volumes, we're already well into the second train."

Mr Theobald said the fact that Gorgon had even been considered by Kogas, despite the tight supply schedule, reflected how well the project was regarded overseas.