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The Chevron-led project expects first cargo next week.

Chevron (ticker: CVX, announced that its Gorgon LNG project has begun liquefaction of natural gas on Barrow Island off the northwest coast of Western Australia, with the expectation that the first LNG cargo will ship next week, the company said in a press release.

The Gorgon Project is supplied from the Gorgon and Jansz-Io gas fields, located within the Greater Gorgon area, between 80 miles and 136 miles off the northwest coast of Western Australia. It includes a 15.6 MTPA LNG plant on Barrow Island, a carbon dioxide injection project and a domestic gas plant with the capacity to supply 300 terajoules (284,345 MMBtu) of gas per day to Western Australia.

The Chevron-operated Gorgon Project is a joint venture between the Australian subsidiaries of Chevron (47.3%), ExxonMobil (Ticker: XOM, 25%), Shell (ticker: RDSA, 25%), Osaka Gas (1.25%), Tokyo Gas (1%) and Chubu Electric Power (0.417%). The group has secured commitments for more than 80% of the volumes from its LNG projects in Australia.

The Gorgon project, which is estimated to have cost $54 billion, is one of the world’s biggest LNG operations and represents the single largest investment in Australia by a private company or government.

Concerns over Gorgon LNG

While a majority of the projects production is booked, concerns remain over the startup of more natural gas production amid a global glut, and weakening demand in Asia. With the multi-billion dollar price tag, and low natural gas prices, analysts are worried the project may not offer strong returns.

The project “is the poster child of rampant cost inflation gone wrong in the Australian LNG industry,” Neil Beveridge, a senior analyst at Sanford C. Bernstein, told The Wall Street Journal. He estimated that the project’s overall cost could come in at close to $60 billion, or roughly $4,000 per ton of capacity—about twice the current break-even estimate based on current prices.

Last year, China’s LNG imports fell 1% as natural gas production from U.S. shale operations expanded rapidly. “We’re looking at a world of significantly lower returns compared to the old days of the LNG industry,” said Michelle Neo, an analyst at Facts Global Energy.

Chevron expects the project to last for 40 years though, allowing it to benefit from a price recovery as well. “We expect legacy assets such as Gorgon will drive long-term growth and create shareholder value for decades to come,” said John Watson, CEO of Chevron.

“If you look from the point when the investment decisions were taken, back between 2009 and 2011, then the project economics are pretty marginal and have suffered,” Giles Farrer, a research director at consultancy Wood Mackenzie, said. “[But] if you look at the point where we are now, the projects are going to deliver fantastic revenue.”

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