$9bn blowout for Gorgon project

Chevron have announced a cost blowout of $9 billion, blaming labour costs and bad weather for the rising development costs.

Chevron have announced a cost blowout of $9 billion, blaming labour costs and bad weather for the rising development costs.

The Gorgon Project is one of Australia’s single biggest developments with an estimated resource base of more than 40 trillion cubic feet of gas and a nominal development life of around 60 years.

But the first LNG from the project has now been pushed back from the original date of 2014 to 2015 as development costs rise to $52bn, The Australian reported.

“The factors contributing to the increased costs and schedule impacts include labour costs and productivity associated with Barrow Island site infrastructure, logistics challenges, and weather delays,” Chevron vice chairman George Kirkland said.

However Kirkland was adamant that the project’s economics were sound.

“Gorgon project economics are attractive," Kirkland said.

"While investment requirements have grown, oil prices, which directly impact the overall revenue stream, have increased by approximately 80 per cent over the same time period."

A high Australian dollar has meant local equipment, services and labour has been harder for the company to source.

The company came under fire from unions last year for the use of foreign workers on the project.

A protest last year drew a crowd of 4,000 to 5,000 people.

Unions say Chevron's use of foreign workers comes at the expense of jobs and training for locals.

They've also raised concerns about international workers being paid less than Australians for the same work.

Chevron has denied the accusations and says it's stuck many deals with local businesses for work on the development.

Gorgon is expected to have an annual production capacity of 15.6 million tonnes of LNG, exporting to countries like Japan and China.

Escalating costs in the resource sector has been a hot topic of late as many are concerned Australia is becoming increasingly uncompetitive amid rising costs.

Earlier this year, Minerals Council of Australia chief, Mitchell Hooke warned that Australia’s cash costs were 30 per cent more than the global average, warning this could impact on future projects.

At a recent industry conference professor Henry Ergas from the University of Wollongong also highlighted the effect escalating costs were having on the industry.

“If we continue to face rapid cost escalation then we could rapidly lose market share and even lose volume,” he said.

“We’ve had the period where the world was happy to pay us much more for what we did but as prices start to come off and as the rest of the world find alternative sources, it is clear we have to do more.”

Pointing to policy reform around planning and the environment, industrial relations and tax reform, Ergas argued that if restrictive policies were not amended it would mean to ‘forego significant net benefits moving forward.’

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