Environmental Approval Given for Gorgon Project

By RAY BRINDAL
CANBERRA, Australia -- The Australian government Wednesday granted conditional environmental approval for the proposed Gorgon liquefied natural gas project off the country's northwest coast, clearing the last major regulatory hurdle for what could be one of the biggest gas operations globally.
The Gorgon field has potential reserves of more than 40 trillion cubic feet of gas and an estimated economic life of at least 40 years from startup.

The Australian federal government had already cleared an earlier version of Gorgon in 2007, but its developers -- including Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell PLC. -- later expanded the proposed A$50 billion (US$42 billion) project, requiring a new set of approvals. The Western Australian state government endorsed the bigger scheme in August.
In granting his approval, Australian Environment Minister Peter Garrett imposed an additional 28 conditions, which the companies are expected to meet. Among other things, Chevron is expected to prepare plans for the protection, management and monitoring of protected animals at the project site, including the spectacled hare-wallaby, burrowing bettong and golden bandicoot. Also, Chevron must contribute A$62.5 million to a flatback turtle conservation program.
"It is acceptable for the expansion to go ahead subject to the conditions," Mr. Garrett told reporters.
Environmental approval is the last major regulatory barrier the project has to overcome, with a few other less contentious items, including a federal production license, expected to be readily granted in coming months. Now, the companies must make their own final investment decision before proceeding, a decision that Chevron said should come before the end of this year.
Chevron is Gorgon's operator and a 50% stakeholder. Exxon Mobil and Royal Dutch Shell each have a 25% stake.
First discovered in the early 1980s, Gorgon has faced a number of challenges over the years, including spiraling construction costs and opposition from environmental activists that slowed its development in recent years. It is also an exceptionally complex project, with a large plant designed to capture carbon dioxide released in the production process and then bury it underground to reduce the project's environmental impact. Major portions of the project will be built on a remote site called Barrow Island, about 200 kilometers off Australia's northwest coast, that activists regard as particularly environmentally sensitive.
But in recent months the project has appeared to regain momentum. The joint venture partners have signed a number of offtake agreements with buyers in key markets, including Japan, China and India. In the latest deal earlier this month, Exxon agreed to supply 2.25 million metric tons of LNG annually over 20 years to PetroChina Co., the listed unit of China National Petroleum Corp.
Meanwhile, the federal government and West Australia state government earlier this month agreed to assume joint responsibility for any future claims arising from any problems with the project's plan to capture and store greenhouse-gas emissions underground.
Environmentalists continue to oppose the project, which they say will cause irreparable damage to Barrow Island.
Mr. Garrett's decision "was a very big disappointment," says Paul Gamblin, a program leader for WWF in Australia. Australian Sen. Rachel Siewert, a member of the country's Greens party, said "there is no way that the environment of Barrow Island can be protected from this development...[and] it is inevitable that the island will be degraded."
The managing director of Chevron's Australian unit, Roy Krzywosinski, said that the project has been sited to avoid areas of particular conservation significance and that the development will have minimal environmental impact when compared with the previously approved smaller version. If completed, it will be Australia's largest single resources project and is expected to deliver significant economic benefits, including as many as 10,000 jobs, he said.
Among other major gas operations in the area, the North West Shelf venture -- whose participants include Chevron and BHP Billiton -- recently completed a A$2.6 billion expansion that boosted its annual production capacity to 16.3 million tons a year.
Woodside Petroleum Ltd. is due to ship the first LNG in early 2011 from its 90%-owned Pluto venture, which is in the same area. Woodside Chief Executive Don Voelte said Tuesday Woodside wants to expand Pluto by "four or five times the size of the initial project."—Patrick Barta contributed to this article.
Write to Ray Brindal at ray.brindal@dowjones.com