Gorgon bids farewell to contracts

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The AFR reported over the weekend that:

Chevron has insisted it will take the risk of selling a chunk of LNG from its $US54 billion Gorgon project in Western Australia into the spot market rather than accept lower prices under contract sales as it struggles to sign up long-term customers who are holding out for the start of exports from the US.

The US energy major’s vice chairman and head of upstream George Kirkland told investors on Friday that while the company is “still looking at opportunities to sell more gas” from Gorgon it must get a price it believes is “appropriate”.

That’s rear guard action by Chevron. If it sees undermining the contact system by selling into the spot market as preferable to undermining the price on current contracts then it’s fighting a losing battle and knows it. As well:

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The revised schedule for starting production from the first LNG train, of mid-2015, is still heavily dependent on labour productivity at the plant site on Barrow Island, and is at risk from threatened strike action at Mermaid Marine’s Dampier supply base by the Maritime Union of Australia. The union last week called off a 10-day strike that was due to start on Friday after talks on a new enterprise bargaining agreement took on a more constructive tone.

GLNG is singing the same tune:

LNG player BG Group said that the Construction, Forestry, Mining and Energy Union (CFMEU) , one of the four unions representing workers at the QCLNG plant on Curtis island in Australia, has given notice to Bechtel of its intent to take protected industrial action on Thursday 7th August.

BG Group is not aware of the scope or duration of this proposed industrial action from this particular union body. As such, there remains no change to the current expected first LNG date from the QCLNG project in the final quarter of 2014“, BG said in a statement.

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Reading between the lines, LNG contracts are dead and both of these projects are going to miss their deadlines, again.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.