Chevron Sells Wheatstone LNG, Stake to Tokyo Electric (Update2)...

Chevron Sells Wheatstone LNG, Stake to Tokyo Electric (Update2)
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Dec. 5 (Bloomberg) -- Chevron Corp., the second-largest U.S. energy producer, signed a contract to supply liquefied natural gas from its Wheatstone project in Western Australia to Tokyo Electric Power Co., which will also take a stake in the venture.

The 20-year deal for 4.1 million metric tons a year is almost half of Wheatstone’s initial capacity of 8.6 million tons, Chevron said today in a statement. Tokyo Electric has agreed to buy 15 percent of Chevron’s holdings in the offshore field, equal to about 11.25 percent of the field, Asia’s largest utility said in a statement, without giving financial details.

Tokyo Electric joins Japanese power producers including Chubu Electric Power Co. and Tokyo Gas Co. buying stakes and LNG from Australia, diversifying supply as utilities boost use of the cleaner-burning fuel to cut carbon emissions. A final decision on Wheatstone is due 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. “With 4 million tons, the chances of Wheatstone moving forward are very promising.”

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 ended at $78.07 yesterday.

Gareth Johnstone, a Singapore-based spokesman for Chevron, declined to comment on financial details of the deal.

In August, Exxon Mobil Corp. signed a deal to supply PetroChina Co. with 2.25 million tons of LNG a year from Gorgon, an LNG project also being developed by Chevron off the Western Australian coast. That deal was worth about A$50 billion ($45.7 billion), Australia’s Minister for Resources and Energy Martin Ferguson has said.

Biggest Buyer

Tokyo Electric, the nation’s biggest LNG buyer, bought 20 million tons in the year to March 2009, accounting for about a third of the country’s imports. Japan, the world’s second- largest economy, imports most of its energy needs.

“Tokyo Electric Power is an A-grade customer,” said Deutsche Bank’s Hirjee. “It’s a very good result for Chevron,”

The Japanese company 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 at 44 percent in the last fiscal year.

Supply Agreement

Tokyo Electric’s 11.25 percent ownership of Wheatstone will entitle it to 1 million tons of LNG a year, and the company will buy the remaining 3.1 million tons, the utility’s statement said.

The company will also get an 11.25 percent interest in Wheatstone’s onshore processing facilities, to be built at Ashburton North near the town of Onslow, about 1,400 kilometers (870 miles) north of Perth, the state capital.

“Securing a buyer like Tokyo Electric will increase the project’s feasibility and contribute to stability,” Hidetoshi Shioda, an analyst at Mizuho Securities Co., said by phone. “It’s certainly good for Japan’s stable supply.”

Chevron aims to develop Wheatstone at the same time as work commences on Gorgon, which will have capacity to produce 15 million tons of LNG a year when it starts in 2014. Gorgon, which will cost $40 billion to develop, is the largest of 10 proposed LNG projects that Resources Minister 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.

San Ramon, California-based Chevron has said Wheatstone may cost $5 billion and start output in about 2013 or 2014. The field was discovered off the state’s Pilbara coast in 2004.

Apache, Kuwait

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 Wheatstone’s output to secure its domestic supply, is seeing “massive change” due to the development of LNG projects such as Wheatstone, Premier Colin Barnett said today.

Western Australia will benefit “from significant new export earnings” as well as gas equal to about 20 percent of the state’s current supply, Barnett said in a separate statement.

“The State Government and proponents, including Chevron, are working to obtain planning, heritage and environmental approvals for the Ashburton North estate,” Barnett said.

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

Last Updated: December 5, 2009 03:22 EST