Chevron Corporation (CVX), Royal Dutch Shell plc (ADR) (RDS.A): A Major Threat to Australian LNG Ventures

Page 1 of 2

Chevron Corporation (NYSE:CVX)Global energy companies have expressed great interest in operating in resource-rich Australia. Currently, seven liquefied natural gas export projects — worth nearly A$200 billion — are simultaneously being developed in the land down under.

But according to industry executives, spiraling costs and new sources of supply threaten to diminish the attractiveness of some of these ventures. Let’s take a closer look.

Australia’s sky-high labor costs
At an oil industry conference in Brisbane last month, the CEO of the Australian Petroleum Production and Exploration Association, David Byers, warned that new LNG projects to be built in Australia might be moved to other countries unless costs can be brought down substantially. Indeed, Australia is arguably the most expensive place for energy companies to operate.

According to a survey by recruitment firm Hays, Australian oil and gas workers are the highest paid in the world. Last year, they pulled in an average salary of $163,600, about 25% more than their U.S. counterparts, who made an average $121,400. Not surprisingly, several companies operating in Australia have reported major cost overruns.

Chevron Corporation (NYSE:CVX) announced in December that its budget for the Gorgon LNG project in Western Australia surged 21% from the company’s previous estimates to A$52 billion. As a result, some operators are reconsidering or even scaling back their ventures in the country. Royal Dutch Shell plc (ADR) (NYSE:RDS.A), for instance, said it is thinking about holding back on the $20 billion it was planning to spend on the Arrow LNG project in Queensland, citing the project’s challenging economics as the reason.

New sources of LNG supply
In addition to cost inflation, competition from new sources of supply poses another threat to the viability of Australian LNG projects. According to Andrew McManus of Wood Mackenzie Australasia, LNG buyers are now shifting their focus to the US, where projects are potentially less expensive and offer greater flexibility.

Though only two U.S. LNG projects have been approved to export natural gas to countries that don’t have a free-trade agreement with the U.S. — Cheniere Energy, Inc. (NYSEMKT:LNG)‘s Sabine Pass terminal in Louisiana, which was approved in 2011, and the Freeport LNG project in Texas, a $10 billion facility whose general partner, Freeport LNG-GP, is 50% owned by ConocoPhillips (NYSE:COP), which was greenlighted last month — the U.S. Department of Energy is expected to approve several more over the next few years.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!