THE NEW AGE OF LNG PROJECTS—GORGON LNG

LA NEUVELLE ERE DES PROJETS GNL—GORGON LNG

Daryl J Houghton Gorgon Asset Team Leader Mobil Exploration & Producing Australia Level 26, QV1 Building, 250 St George’s Terrace Perth, Western Australia Larry S Rosenblatt Vice President, LNG Venture Development Mobil LNG Inc. 12450 Greenspoint Drive Houston, Texas 77060-1991

ABSTRACT The development of the Gorgon area gas fields, off the west coast of western Australia will combine the latest advances in technology, commercialisation, safety and reliability, and government and partner relations.

This paper will present an overview of the Gorgon LNG project which is evolving from the discovery of gas resources in difficult-to-produce waters off Western Australia to a likely two-train LNG project. The paper will discuss: · The vision of a long-term gas aggregation center for the Greater Gorgon area gas resources. · Remote subsea production tied back to central processing facilities. · The latest in LNG plant sizing and optimisation. · Cooperation with varied partner, government, and neighbouring project objectives. · The current status of the Gorgon LNG project.

RESUME La mise en exploitation des gisements de gaz de la région de Gorgon aularge de la côte ouest de l'Australie-Occidentale aura l'avantage decombiner les derniers progrès en technologie, en commercialisation, ensécurité et en fiabilité d'une part, et les rapports entre le gouvernementet les partenaires d'autre part.

L'article suivant présente une vue d'ensemble du projet Gorgon LNG.Celui-ci, ayant commencé avec la découverte de ressources en gaz au largede l'Australie-Occidentale, dans des eaux qui posent des difficultés deproduction, est en voie de développement en projet de gaz naturel liquéfiécomprenant probablement deux chaînes de production parallèles. L'articleque voici examine les points suivants:

4.6–1 · La vision d'un réservoir collecteur central pour l'emmagasinage à long terme des ressources en gaz provenant de la région du grand Gorgon, · La production sous la mer en lieu éloigné, rattachée à des installations de traitement centrales, · Tout ce qu'il y a de plus récent en fait de dimensions et d'optimisation des usines de gaz naturel liquéfié, · La coopération avec les objectifs variés des partenaires, du gouvernement et des projets avoisinants, · L'état actuel du projet Gorgon LNG.

4.6–2 THE NEW AGE OF LNG PROJECTS—GORGON LNG

INTRODUCTION The Gorgon project is well on the way towards becoming Australia’s second LNG project. Start-up for Gorgon is targeted in late 2002 with the first of two LNG trains commencing production. Gorgon’s design is for a nominal 6.6 MMTA of LNG delivered to customers.

The Gorgon project is based on large gas reserves discovered offshore from the north west coast of Australia. Project definition activities have passed through the feasibility stage and have moved into detailed front end engineering. LNG marketing in Asia is a focus of activity this year with sales agreements targeted by the end of 1998. Formal commitment to the Gorgon LNG project is also targeted for the end of 1998.

The Gorgon LNG project is being developed by the CTMS Joint Venture, a consortium of Chevron, Texaco, Mobil and Shell. The CTMS JV participants have been in business together, exploring for and producing oil and gas in Western Australia for over 40 years. In recent years the focus of activity has switched to large gas fields such as Gorgon and the LNG business. Mobil entered the CTMS JV in 1996 when MEPA (Mobil’s Australasian E&P affiliate) purchased Ampolex Limited, one of the original joint venture participants.

MEPA has significant Australasian operations with oil production in the north west of Australia at the Griffin and Wandoo oil projects and in Papua New Guinea (PNG) at the Kutubu oil project. MEPA has significant exploration potential with extensive acreage off the north west of Australia and in the PNG fold belt. MEPA also has large gas reserves in the development phase e.g., the Gorgon gas field. MEPA is based in Perth and employs approximately 170 people.

GORGON PROJECT: HISTORY AND BACKGROUND The CTMS JV had its origins in the 1950s when the initial participants discovered oil at Rough Range in the north west of Western Australia in 1953. The discovery was made by the operator for the Joint Venture, West Australian Petroleum Pty Ltd (better known as WAPET). Rough Range was not a commercial success but in 1964 exploration persistence paid off with the CTMS JV discovering a large oil field on Barrow Island. Since that time WAPET has produced over 270 MM barrels from the Barrow Island oil field. The JV’s oil business grew further with the discovery of the Saladin oil field near Thevenard Island in 1985. Other oil fields nearby, Roller and Skate, were subsequently discovered and brought into production with Saladin. Total oil production from these CTMS JV oil fields peaked at around 65,000 barrels/day in 1994.

The CTMS JV’s gas business activities started in 1966 with discovery of the onshore Dongara gas field. The Dongara gas field was developed to supply the Perth market, some 400 km south.

4.6–3 In the early 1970s the CTMS JV turned its attention to offshore exploration west of Barrow Island. The exploration program focussed on what is now known as the Gorgon area which is located in the southern part of the Rankin Trend, a major geological feature forming the western margin of the Barrow sub-basin (which is part of the larger Carnarvon basin). The exploration program to date has resulted in the discovery of five significant gas fields (Gorgon, Chrysaor, Dionysus, West Tryal Rocks and Spar). The largest of the fields are found in tilted fault block structures with Triassic reservoirs and have much in common with the North Rankin and Goodwyn gas fields which underpin the North West Shelf LNG project.

The Gorgon area gas fields are located approximately 60 km from Barrow Island and approximately 200 km west of Dampier on the Australian mainland (Dampier is the site for the North West Shelf LNG project). Water depths in the Gorgon area vary from 100 m at Spar, to around 200 m at Gorgon and over 1000 m at Dionysus. In 1980, when Gorgon was discovered, such water depths posed a significant challenge to development. Today tapping a gas field in 1000 m of water is becoming almost routine.

The Gorgon area fields were discovered in exploration permit WA-25-P which was granted to the CTMS JV in 1968. The first well was drilled in the area in 1972 and the first gas discovery was at West Tryal Rocks in 1973. Gorgon was discovered seven years later in 1980 when the Gorgon 1 well was drilled. Gorgon 1 was a major success encountering approximately 130 m of net gas pay over a 500 m Mungaroo reservoir interval at about 4000 m subsea. During testing the well flowed at an aggregate rate of 1940 kcm/day (68 mmscf/day) from three distinct zones. This gave encouragement for follow-up wells on the Gorgon structure which is over 40 km long and 5 km wide.

North Gorgon 1 and Central Gorgon 1 were drilled in 1982 and 1983 respectively, both discovering gas. North Gorgon 1 demonstrated the likelihood of a gas field of at least 25 km in length. These further drilling results on Gorgon confirmed the presence of inert gases in the reservoir fluids, which averages 16 % of carbon dioxide and nitrogen together, and a relatively low level of liquids.

For the remainder of the 1980s Gorgon was studied to determine economically feasible ways of developing the Gorgon gas fields which were in relatively deep water, contained dry gas and a level of inerts that would require treating. These early studies suggested a 4 MMTA LNG project based on Gorgon would be marginal. Despite this situation the CTMS JV believed that technology improvement, cost reduction and opportunities in the LNG market in Asia justified further development work.

The current development phase on Gorgon started in the early 1990s with a target of creating an LNG project. The first stage was to undertake a large 3D seismic program over the entire Gorgon field in 1992. In total 1170 sq km of seismic was acquired. Interpretation of this 3D seismic led to 4 more wells being drilled in the Gorgon area between mid 1994 and early 1996.

North Gorgon 2, 3 and 4 were drilled to delineate the northern section of the field. North Gorgon 2 was drilled in the centre of the northern part of the Gorgon field and encountered excellent quality reservoirs. When tested the well produced at an aggregate rate of 4880 kcm/day (170 mmscf/day) from four distinct zones. North Gorgon 3 and 4

4.6–4 were drilled to confirm northern and western extensions to the Gorgon field, both discovered gas.

The fourth well in this period was Chrysaor 1, a wildcat about 10 km north of Gorgon. Chrysaor was also a major success discovering a new field that tested at an aggregate rate of 2860 kcm/day (101 mmscf/day) from two intervals.

Following these wells the CTMS JV’s attention switched to studies establishing the level of reserves in the Gorgon area and undertaking feasibility and conceptual engineering studies in 1996 and 1997. The reservoir studies are now complete and gas reserves clearly support a 2 train LNG project for well over 20 years. The engineering studies have demonstrated that, with changing technology, a Gorgon LNG project is technically robust and economically attractive. The key changes to Gorgon development concepts have been the adoption of now proven subsea technology for gas production, a shallow water concrete gravity base platform to collect and process raw gas and significant increases in LNG train throughputs. Compared to the 2 MMTA trains being considered in the late 1980s, Gorgon LNG trains will now nominally produce 3.3 MMTA each and may yet go larger.

GORGON LNG PROJECT VISION The vision for the CTMS JV, as well as for Western Australia and Australia, is to bring on line the second significant Australian LNG project to supply the Asia Pacific market. Further, Gorgon is visualised as the gateway to production of deepwater gas from the Carnarvon basin. First LNG is planned for late 2002 to feed the growing natural gas hungry markets of the Asia Pacific region, which includes Korea, China, India, Japan and Taiwan.

WA-253-P

WA

Perth DIONYSUS

CHRYSAOR LOCALITY MAP WEST TRYAL WA-5-R ROCKS WA-267-P WA-3-R WA-25-P Pt 2

GORGON WA-205-P SPAR WA-4-R

WA-2-R Barrow Island 0 20km

GORGON AREA GAS FIELDS

4.6–5 The longer term vision for the Gorgon area is to extend the offshore infrastructure to the deepwater gas fields west of Gorgon to continue to meet the growing demand in the Asia Pacific region. Utilising the infrastructure planned for Gorgon, and building on the state of the art deepwater technologies, incremental deepwater production will be able to be added to the Gorgon project over time. Drilling in exploration permit WA-267, immediately to the west of Gorgon, will begin in 1999. With six exploration wells committed on existing prospects the Gorgon area reserves base is expected to go far beyond 2 trains of LNG production and sales.

TECHNICAL DESCRIPTION Gorgon Area Gas Fields

There are currently five significant gas accumulations in the Gorgon area: Gorgon, Chrysaor, Dionysus, West Tryal Rocks and Spar. The total hydrocarbon gas reserves in these fields, as determined by the operator WAPET in 1997, was well in excess of the 7 TCF consumed for a twenty year LNG project producing at 6.6 MMTA.

During 1997 and early 1998 the CTMS JV conducted state of the art 3D stochastic geological modelling and reservoir modelling studies on the Gorgon field. The results of this work point to a substantial increase in reserves in the Gorgon field. This result should be confirmed with the appraisal drilling being carried out over the next few months.

As a consequence of these studies it is anticipated that the Gorgon field alone will be able to fulfil the gas required for a twenty year, 6.6 MMTA LNG project. This outcome will significantly improve Gorgon economics. The offshore facilities required will be substantially reduced because there is no need to tap a second deeper water gas field to supply projected initial contracts. The Chrysaor and Dionysus reserves can now be considered as extensions to the initial Gorgon project or as reserves to support expansion to a third LNG train.

Gas quality in the Gorgon area varies from field to field but typically comprises 78% methane, 6% other hydrocarbons and 16% inerts (on average 4% nitrogen and 12% carbon dioxide). This gas composition requires treating to remove the carbon dioxide before liquefaction to LNG.

4.6–6 Chrysaor Subsea Development Shallow Water Platform

LNG Plant Gorgon Subsea Development Ships

Subsea Drill Centre Trunkline BARROW Subsea Manifold ISLAND Dampier

N

0 50 km

GORGON DEVELOPMENT PLAN

Offshore Facilities

Offshore development concepts for Gorgon have evolved substantially during the engineering studies of 1996 and 1997.

At the start of the studies the preferred development concept was a major platform located over the northern part of the Gorgon field. The platform would have been constructed in water 200 m deep and would have had full processing facilities, drilling facilities for wells within reach of the platform and subsea wells tied back to the platform from South Gorgon and Chrysaor. This concept was feasible but required a very major investment in the platform right at the start of the project and carried a risk associated with platform foundations. Other large platforms constructed in the area had encountered foundation problems during substructure installation, requiring significant and costly repairs to obtain certification.

On reviewing this design and seeing the increasing reliability associated with subsea developments, later engineering studies headed in a different direction. The offshore development concept for Gorgon, now being engineered, involves subsea wells at the Gorgon field, flowlines back to a shallow water platform located about 40 km from Gorgon, a platform for minimum processing and a trunkline to take dry gas ashore. There are three big pluses in this approach compared to previous development concepts. The use of subsea wells allows a staged development of the Gorgon field (thus deferring cost). The cost of the shallow water platform (in approximately 100 m water depth) is substantially reduced compared to a mega platform over the Gorgon field. Using a gravity base substructure and designing for reduced topsides weight means the risk associated with foundations is effectively eliminated. Overall this development concept substantially reduces and defers the offshore costs for Gorgon.

4.6–7 Processing Facility: •Separation/Dehydration •Compression •Accommodation •Chemical Injection

Subsea Drilling Centre

Flowline

Subsea Manifold Substructure: • Concrete gravity structure Trunkline • 100m water depth

GORGON OFFSHORE FACILITIES

The proposed offshore facilities configuration relies on subsea wells and production equipment. The subsea wells and trees, manifolds and flowlines proposed for Gorgon are now considered industry standard, reliable and proven. Subsea developments are now commonplace with over 1000 subsea wells completed worldwide. The participants in the CTMS JV have tremendous experience in subsea applications in areas as geographically diverse as the North Sea, the Gulf of Mexico and offshore West Africa. Many of these wells are in much deeper water than Gorgon, i.e., 1500 m and more.

The preferred concept for the shallow water platform substructure is a concrete gravity base. Concrete gravity structures are also commonplace around the world. Mobil has strongly promoted the concrete gravity base substructure after successfully designing, constructing and installing the Wandoo platform based on a similar concept. The Wandoo platform is located in the Carnarvon basin about 150 km to the east of Gorgon in slightly shallower water. No foundation problems were encountered in installing the Wandoo concrete gravity base. The Wandoo base was constructed in Western Australia at a cost just over A$100 MM, this can be compared to an estimated cost of A$500 to 600 MM for a steel substructure for a major platform located at the Gorgon field. Engineering studies indicate the concrete gravity base concept is applicable to a Gorgon shallow water platform and will substantially reduce costs.

In overview, the current offshore facilities concept for Gorgon is subsea wells developed in a staged fashion, tiebacks to a shallow water platform, dehydration and compression on board the platform and a trunkline to the Burrup Peninsula.

Onshore Facilities

The onshore facilities for the Gorgon LNG project will be located on the Burrup Peninsula on the Australian mainland. This site was chosen after extensive site selection studies as the best location for the Gorgon LNG plant. The site has existing infrastructure in the vicinity i.e., roads, township, maintenance support and services such as water 4.6–8 supply. The site also has access to deep water for LNG shipping and is in a relatively sheltered location. From an environmental perspective the site is satisfactory and the CTMS JV will adopt a best practices environmental management program.

LNG plant designs for Gorgon have evolved since the earliest engineering studies identified 2 MMTA LNG trains as state of the art in the 1980s. In the mid 1990s, a number of LNG plant designs were completed that pushed capacity limits to over 3 MMTA. In 1995, Bechtel completed a design package for Gorgon that demonstrated a 3 MMTA LNG plant design based on the APCI liquefaction process and Frame 6/7 gas turbine compressor drivers. In 1996 and 1997 plant throughtput increased further with designs by both Shell International Oil Products and a Mobil/Texaco study providing throughputs in the 3.3 to 3.4 MMTA range. These studies also indicated the potential to increase capacity further. Pre Front End Engineering Design studies now underway will finalise the throughput for the Gorgon LNG plant trains. Even at 3.3 – 3.4 MMTA the unit cost of LNG production has declined from earlier studies on Gorgon, thus further enhancing Gorgon economics.

The LNG plant will be designed for two LNG trains with plot space available for expansion to four LNG trains. The plant will include the customary utilities and services, control systems and infrastructure. LNG storage and loading will be provided along with a loading berth and shipping channel.

The Gorgon LNG plant will be located next to the existing NWS LNG plant, thus providing opportunities for cooperation between the Gorgon and NWS plants. Both the CTMS JV and the NWS JV are pursuing standalone projects but discussions have been taking place to see if value can be created through cooperation.

WITHNELL BAY

Existing Burrup NWS Plant Peninsula

Train A Train B Gorgon Trunkline LNG Plant Slug Catcher

Future Future

GORGON LNG PLANT

4.6–9 LNG Shipping

LNG shipping studies for Gorgon have adopted integrated approaches to ensure all aspects of the LNG chain are considered. In particular, optimisations around storage and loading, shipping and unloading were undertaken. The studies have indicated that a fleet of six LNG ships would be required to transport 6.6 MMTA of LNG to north Asia. The LNG ships capacity would be in the 135,000 to 145,000 cubic metre range, dependent upon any restrictions applicable at receiving ports.

LNG MARKETS The demand for LNG has been very strong and growth rates in the industry have been high and relatively stable. While times are turbulent, with significant changes in some Asian economies over the last 6 months and ongoing debate over greenhouse gases, Mobil believes the fundamentals driving the LNG industry remain very strong. The underlying demand for energy in Asia, particularly in the electricity and gas reticulation areas, remains strong.

The global climate change debate is a plus for LNG, rather than being of concern, as natural gas production and consumption generates much lower levels of greenhouse gases than other readily available fuels (coal and oil). For the foreseeable future natural gas is expected to pick up an increasing share of energy production as nations seek to improve their management of greenhouse gas emissions.

Against this background the CTMS JV recognises a major opportunity in the Asian LNG market post 2000 and is striving to capture a substantial slice of the expected demand growth. Gorgon will be ready to supply LNG in late 2002 and is seeking customers throughout Asia, both in the traditional markets of Korea, Japan and Taiwan and in emerging markets such as China and India.

Discussions are progressing with target customers towards entering into Sale and Purchase Agreements by the end of this year. Marketing of Gorgon LNG is being conducted by the CTMS JV participants acting through a gas marketing committee. Each of the participants will enter into separate sales agreements to sell Gorgon LNG as commingled cargoes.

OTHER PROJECT ASPECTS Project Strengths

The Gorgon project is being developed by an exceptionally strong joint venture. The participants in Gorgon are involved in eight other LNG projects either in operation or under construction. Mobil and Shell (other than national oil companies) are the leading players in the global LNG business and have the proven technical and commercial skills to develop such projects. Chevron and Texaco also have an impressive major project track record in the oil and gas industry. Together the CTMS JV participants have all the technical, management and financial skills necessary to bring the Gorgon LNG project to fruition.

4.6–10 To manage the project the CTMS JV has established a dedicated Gorgon Organisation. This Organisation has and will evolve over time as the project moves through the engineering phase and into the construction phase next year and ultimately into the operating phase. The Gorgon Organisation is being leveraged off the existing WAPET organisation and its experience in operating oil and gas projects in Australia. The Gorgon Organisation is a fully integrated project team covering both the offshore and onshore parts of the project and staffed by existing WAPET personnel and the best people from each of the CTMS JV participants. Technical support for the project will come from all four participants with the technology and expertise being provided by whichever participant is best able to provide the necessary support. The Gorgon Organisation will be extremely capable of creating an LNG project that is best in class.

The Gorgon project’s location in Australia is also a strength. Australia is a sound location to be establishing an LNG project where the investment is large and returns are spread across a long period. Against this typical LNG project background Australia is recognised as a country with low sovereign risk, a track record of political, fiscal and economic stability, and a well understood legal system. The NWS LNG project has demonstrated that technical excellence and supply reliability can be achieved in Australia.

Another major strength for the Gorgon project is government support. Both the Commonwealth and State Governments have demonstrated very strong support for Gorgon.

Government Interaction and Impact on Australia

Interaction with Governments in Australia is a critical activity for the CTMS JV this year and many matters need to be resolved by year end. These matters include: environmental approvals, fiscal negotiations, land tenure, and licences to construct and operate facilities.

The environmental approvals process in Australia is a rigorous and open one. The formal environmental assessment process is now well advanced with the Gorgon project’s Environmental Impact Statement/Environmental Review and Management Program (EIS/ERMP) submitted for consideration and project approval expected by year end.

Probably the most important environmental issue for Gorgon is greenhouse gas emissions. Greenhouse gases emitted from an LNG project are carbon dioxide (generated from the fuel consumed in liquefaction and other processing and handling, and extracted from LNG plant feedgas), fugitive methane and nitrogen oxides. An important segment of the EIS/ERMP identified a comprehensive greenhouse gas management program that focussed on best industry practice in terms of process and energy efficiency and methane containment as well as other measures to mitigate greenhouse gas impacts.

Fiscal regime negotiations, income tax and Petroleum Resources Rent Tax (PRRT) are also progressing to ensure that the Gorgon LNG project carries a fiscal burden appropriate to a major Australian resource project. PRRT is a profits based secondary tax that is of questionable applicability to an LNG project where returns are not spectacular.

4.6–11 A fiscal regime appropriate to Gorgon must be locked in place with Australian Governments by the end of 1998.

Land tenure is not a straightforward issue in Australia because of uncertainties with Native Title legislation. Land for the project has been agreed in principle but further discussion with native title claimants is required before long term lease arrangements can be concluded.

A production licence application should be relatively straightforward for Gorgon given that the final development plan will be based on best industry practice in terms of safety, reliability and efficiency. Safety is a key aspect in obtaining a production licence where the CTMS JV must generate a safety case that demonstrates for all facilities that safety issues and hazards have been considered and an appropriate safety management plan has been developed.

While a lot of work remains to be done by year end, the work is planned and necessary documentation is already submitted or in production. The Gorgon project has full Government support and, so long as the CTMS JV does the work and fulfils Government requirements, all approvals and agreements can be obtained by year end.

GORGON PROJECT SUMMARY A year ago, the Gorgon project was seeking an identity with uncertainty in its resource base, offshore design, pipeline routing, onshore plant location, marketing, and project organisation.

The second half of 1997 and first half of 1998 have seen enormous progress in all of these areas, and complete resolution in most. The reserves base has been firmed up, through state of the art 3D reservoir modeling and the present appraisal drilling program. Reserves certification is taking place as we speak. An innovative offshore design, drawing from the successful recent experiences of all four owners, has produced a more reliable and cost effective development plan. A firm pipeline route has been selected with detailed design proceeding. An onshore plant location has been agreed along with basic plant sizing and design parameters. Detailed design should be complete around year end. Market development activities are proceeding as planned. An integrated project team was formed in late 1997 drawing on the talents and resources of all four owners.

These achievements are leading to the dawn of a new LNG project, the Gorgon LNG project.

4.6–12