Prolonged Gorgon LNG output issues expected

Offtakers at Australia's 15.6mn t/yr Gorgon LNG have received requests from plant operator Chevron for it to instead supply cargoes from either the 16.3mn t/yr North West Shelf (NWS) LNG or the 8.9mn t/yr Wheatstone LNG to meet its contractual commitments for scheduled deliveries in October and November. This raises the prospect that Gorgon output may be disrupted for longer than expected.

The requests come amid an extended shutdown of Gorgon's No.2 production train to repair weld defects in its propane heat exchangers, as well as continuinguncertainty regarding Chevron's plans to inspect the No.1 and No.3 trains for cracks in their heat exchangers.

"Chevron has informed us that because of maintenance, they would like to supply us with a Wheatstone or NWS cargo in November," an official with a term offtaker said. "It might be a signal for maintenance at train 1 or train 3 but it is not clear."

An official at another term offtaker said his firm is in discussions with Chevron regarding the delivery of a term cargo loading in September from NWS or Wheatstone for delivery to northeast Asia in October. Chevron does not comment on commercial operations.

Term offtakers at Gorgon include Japan's Jera, Eneos — which was formerly known as JX Nippon Oil & Energy — Tokyo Gas, Kyushu Electric and Osaka Gas, China's PetroChina, India's Petronet, South Korea's SK and GS Caltex, as well as BP.

Spot prices for deliveries to northeast Asia have climbed in recent weeks, fuelled in part by short-covering on concerns that Chevron will need to shut the No.1 and No.3 trains at Gorgon for inspection and any repairs in the run-up to winter, while the No.2 train remains off line.

Industry participants suggest Chevron and its Gorgon partners ExxonMobil and Shell may have collectively bought 20 spot cargoes as replacement for lost output at Gorgon. But this, as well as the delivery windows of the cargoes, could not be confirmed. Production at the No.1 and No.3 trains continues but has stopped at the No.2 train since 23 May. Chevron bought a cargo loading from Wheatstone over 6-10 October from Kuwait's state-owned Kufpec at $4/mn Btu on a fob basis through a tender that closed yesterday, industry participants said.

The loss of output at the No.2 train until the first week of September since 11 July, when it was scheduled to return to production, is estimated at around 12-13 cargoes, based on it producing at nameplate capacity and a cargo size of 60,000t.

The front half-month ANEA price, the Argus assessment for spot deliveries to northeast Asia, for deliveries in second-half September has risen by around 56pc to $4.11/mn Btu from $2.635/mn Btu on 3 August.

The dangerous goods directorate under Australian regulator the Department of Mines, Industry Regulation and Safety (DMIRS) issued Chevron with a remediation notice on 7 August to inspect the heat exchangers at Gorgon's first and third trains by 21 August, because of cracks discovered in the heat exchangers of the second train. The DMIRS' WorkSafe directorate also issued notices for Chevron in relation to plant registration, weld repairs and the requirement to inspect, and if necessary repair, vessels on the No.3 train with the notices to be complied with by 24 September.

The DMIRS has also ordered Chevron to ensure modifications to heat exchangers in the No.2 train comply to the relevant standards by 28 August. The firm intended to have the No.2 train "up and running in early September", said Chevron's executive vice-president of upstream Jay Johnson at the end of July.

Industry participants expect some clarity on the situation at the plant from either Chevron or the DMIRS from tomorrow, at the earliest.

"We are still waiting for an official announcement, but we assume train 1 or train 3 will shut potentially," the second official at the offtaker said.

Chevron carried out maintenance on the No.1 train last year, during which it said it did not see weld defect issues in the heat exchangers. But it has yet to carry out maintenance on the No.3 train, with this planned for 2021. Industry participants suggest this makes it likely that Chevron will need to shut the No.3 train for inspection and maintenance soon to comply with the regulator's timeline.

By Camille Klass