Chevron's Gorgon LNG gets final govt nod, costs eyed

SYDNEY, Oct 10 (Reuters) Chevron Corp's -billion-plus Gorgon liquefied natural gas (LNG) project cleared its final regulatory hurdle on Wednesday with an environmental green light from the Australian government.

The national government's approval after four years of stringent scrutiny and consultations will shift the focus to Chevron and its partners Exxon Mobil and Royal Dutch Shell , who will grapple with the expected doubling in costs for tapping the country's biggest gas field.

Three years ago Chevron said Gorgon would cost about A billion (.9 billion) to develop, but analysts say soaring labour and equipment costs may double that number.

''It is a very expensive project and the returns could be too low for it to be viable,'' said Deutsche Bank's John Hirjee.

''Strategy-wise, it is in their interest to go ahead and monetise the resources but investment-wise, that might not work out.'' Chevron has yet to announce a final decision to proceed with the project, one of the company's top five globally, a move that analysts expect to happen in the next one to two years.

The partners have already agreed to sell Gorgon's 10 million tonnes per year LNG output to customers in Japan, China and India, with half of those deals agreed last month in a move that appeared likely to ensure the project's progress.

Long-term contract prices for LNG -- natural gas frozen to a liquid state for tanker transport -- have trebled in the last five years to around per million British thermal units (mmBtu) as consumers seek cleaner fuel to power their economies.

Company spokesman Scott Walker said optimisation studies would take several more months to complete, and declined to give a timeframe for a final investment decision.

Chevron were forced to scrap a 2006 approval deadline after environmental groups protested against plans for an LNG plant to handle the project's gas on Barrow Island, a nature reserve off Western Australia which is home to a rare species of turtle.

The project was first expected to deliver gas in 2010, but analysts now say a 2015-2016 timeframe was more likely.

Chevron said in a statement on Wednesday it would incorporate the environmental conditions tied to the approval into its plans for the Gorgon project, located off Australia's west coast.

''We are doing as much work as possible to ensure Australia's largest known gas resource is developed in an effective, efficient, responsible and internationally competitive manner,'' Colin Beckett, Chevron Australia General Manager for the Gorgon project, said in a statement.

Chevron Chief Executive David O'Reilly said last month that could eventually double in capacity to about 20 mtpa.

The Gorgon gas fields, first discovered in 1981, have certified gas reserves of over 40 trillion cubic feet -- enough to power a city of one million people for 800 years.

Chevron is the operator of the project and holds a 50 percent stake. Exxon Mobil and Shell each have 25 percent.

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