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Chevron Sells LNG, Stake to Tokyo Electric in $82 Billion Deal
Share Business ExchangeTwitterFacebook| Email | Print | A A A By Jason Scott

Dec. 5 (Bloomberg) -- Chevron Corp. signed an $82 billion contract, Australia’s biggest energy deal, to supply liquefied natural gas to Tokyo Electric Power Co. and sell the Japanese utility a stake in its Wheatstone project.

The contract is for up to 20 years and covers almost half Wheatstone’s initial capacity of 8.6 million tons of LNG a year, Chevron, the second-largest U.S. energy producer, said today in a statement. Tokyo Electric will purchase 15 percent of Chevron’s holdings in the field off the Western Australian coast, equal to about 11.25 percent of the project, the utility said in a separate statement, without giving financial details.

Tokyo Electric, Asia’s biggest utility, joins Japanese power producers and Chinese and Indian companies in buying stakes and LNG from Australian projects, diversifying supply sources as utilities increase use of the cleaner-burning fuel to reduce carbon emissions. A final investment decision on Wheatstone is due to be made in 2011.

“This is very positive for Wheatstone’s path to a final investment decision,” said John Hirjee, an analyst at Deutsche Bank AG in Melbourne. “Tokyo Electric Power is an A-grade customer, so from that perspective it’s a very good result for Chevron. With 4 million tons, the chances of Wheatstone moving forward are very promising.”

Australian Record

Western Australian Premier Colin Barnett called the agreement “an enormous step forward for this project.” With a contract value of about A$90 billion ($82 billion), this “would be the largest sales contract for any Australian export industry.”

Gareth Johnstone, a Singapore-based spokesman for Chevron, declined to comment on financial details. Chevron is based in San Ramon, California.

Japan imports 99 percent of the oil it needs. Tokyo Electric, the nation’s biggest LNG buyer, purchased 20 million tons in the year ended March 2009, accounting for about one- third of the country’s imports. It has been burning more gas to make up for the 2007 closure of the Kashiwazaki Kariwa station, the world’s biggest nuclear power plant. The company’s nuclear operating rate was 44 percent in the last fiscal year.

Tokyo Electric’s 11.25 percent ownership of the field would entitle it to 1 million tons of LNG a year, and the company will buy the remaining 3.1 million tons, the utility said in its statement. The Japanese company also will get an 11.25 percent interest in onshore processing facilities, to be built at Ashburton North near the town of Onslow, about 1,400 kilometers (870 miles) north of Perth.

LNG Imports

The company will import about 17 million to 18 million tons of LNG a year over the next decade, Tokyo Electric said in July.

Tokyo Electric has dropped 23 percent this year, closing yesterday at 2,310 yen. Chevron has advanced 5.5 percent in 2009, underperforming the Dow Jones Industrial Average’s 18 percent rise. The U.S. company’s stock closed at $78.07 yesterday.

Chevron is aiming to develop Wheatstone at the same time as work commences on its $40 billion Gorgon project, also off Western Australia.

Gorgon, which will have capacity to produce 15 million metric tons of LNG a year when it starts operating off the northwest shelf in 2014, is the largest of 10 proposed LNG projects that Resources and Energy Minister Martin Ferguson says will make Australia “an energy superpower.”

“We have started front-end engineering and design work on the Wheatstone project,” Roy Krzywosinski, managing director of Chevron’s Australian unit, said in today’s statement.

Cost Estimate

Chevron has said Wheatstone may cost $5 billion and start production in about 2013 or 2014. The field was discovered off the state’s Pilbara coast in 2004.

Chevron said in October that Apache Corp. and Kuwait’s state-owned oil company had opted to supply gas to the first two processing units at Wheatstone. Apache had agreed to take a 16.3 percent stake in the venture, with Kuwait Foreign Petroleum taking 8.8 percent, Chevron said.

Liquefied natural gas is fuel cooled to a liquid to reduce its volume for long-distance transport by ship. Tokyo Electric imports the material, which feeds power plants, from Abu Dhabi, Qatar, Australia, Indonesia, Malaysia, Brunei and Russia.

Western Australia, which will receive 15 percent of the Wheatstone output as part of its policy to secure domestic supply, is seeing “massive change” with the development of LNG projects such as Wheatstone, Barnett, the premier, said today.

Exxon, PetroChina

“Western Australia will benefit both from significant new export earnings and from an additional 200 terrajoules of domestic natural gas, equal to about 20 percent of the state’s current supply,” Barnett said in a separate statement.

Exxon Mobil Corp. has signed a contract to supply gas from Gorgon to PetroChina Co. valued by the Australian government at A$50 billion and also will sell fuel to India’s Petronet LNG Ltd. Chevron has agreed to supply the fuel to Tokyo Gas Co., Osaka Gas Co., and South Korea’s GS Caltex, in deals that may be valued at A$70 billion over 25 years, Rudd said Sept. 10.

About A$127 billion of Australian LNG projects are expected to start exports between 2012 and 2018, Deutsche Bank AG said in August. Among those are Tokyo-based Inpex Corp.’s A$32 billion Ichthys project. Woodside Petroleum Ltd. is scheduled to produce LNG starting in 2011 at its Pluto venture and at its Browse project in 2018.

To contact the reporter on this story: Jason Scott in Perth at [email protected]

Last Updated: December 5, 2009 05:40 EST