Senate debates

Tuesday, 2 September 2014


Gorgon Gas Project

8:10 pm

Photo of Sue LinesSue Lines (WA, Australian Labor Party) Share this | | Hansard source

I rise tonight to speak about Chevron's Gorgon Project, on Barrow Island in Western Australia. At the time of approval in 2009, the Gorgon joint-venture estimated that the net benefit to Western Australia from the Gorgon Project would be the creation of approximately 3,500 direct construction jobs on Barrow Island and approximately 10,000 direct and indirect jobs at peak construction; the creation of approximately 300 direct jobs on the island during the operational phase; an increase to the state gross product of four per cent; a boost to Australia's gross domestic product of more than $60 billion; and creation of new industries centred on CO2 injection and subsea development.

These are the sorts of commitments that governments go starry eyed at. And why wouldn't they? There was a fine bunch of promises there made by Chevron. But, of course, these are claims—and just claims—and these claims cannot easily be measured or validated. But, nevertheless, it is claims such as these that make governments go misty eyed.

Well, I am not hoodwinked, because I have another side to this starry-eyed picture. Let's look at the Gorgon Project. It is currently more than $15 billion over budget. It is 18 months delayed. Some Australian companies that were working on the project have gone bankrupt. Communities surrounding the project that had been promised and had expected infrastructure have been let down. The promised jobs, both the quality of these jobs—the value adding to the Australian and Western Australian workforce—and the number of jobs, have not met Gorgon's promise. Chevron has overpromised and under delivered on Gorgon.

And what does Chevron do? Well, Chevron likes to blame Australian workers, Australian regulations and our political environment for its own mismanagement, its own errors, its own missteps and its own slip-ups. But the truth lies elsewhere. The International Transport Workers' Federation, of which the MUA is a member, has done its own investigations into Chevron. The federation believes that Chevron has not provided adequate disclosure about the risks, the timing and, indeed, the real cost of the Gorgon Project.

The Gorgon Project on Barrow Island is the most significant extractive project in Australia. Of course, as the most significant project in Australia it requires substantial and ongoing investment of capital and human resources. When work began with great fanfare in 2009, the project was to be completed in 2014 at a cost of US$37 billion. Cost overruns are now at 40 per cent—more than $15 billion—and the project is now 18 months delayed, with the first gas not now expected until late 2015.

For Chevron, Gorgon is the single largest part of its capital expenditure and exploratory budget. Yet, in 2009 it decided, for its own political gains to fudge those figures to suggest a cost it could not possibly meet, and a time frame which was absolutely unachievable.

How is Chevron addressing its own failures? It is not. Rather than looking at its own managerial errors and slip-ups, and make the appropriate corrections, Chevron is advocating that Australia is somehow at fault here and that Australia should re-examine its regulation of the resource sector.

The Gorgon project, unfortunately, is quickly becoming synonymous with white elephant mega-projects. Some analysts show that it is the most delayed and over-budget LNG project in Australia. Yet Chevron gave its shareholders extremely rosy projections and has only very slowly revised cost and delay estimates. Other Gorgon project owners, who are not as closely associated with the project's management or, should I say, mismanagement—Shell, and the Japanese utilities—have different projections and timetables for completion.

Despite extensive negotiations and commitments from Chevron, the company is now reporting that it is having trouble getting commitments from customers for as much as one third of the LNG that will be produced. So it has not even managed to on-sell what it will produce in late 2015. Apache, one of Chevron's co-owners on Wheatstone, is pulling out of the project, seemingly less optimistic about the project's operations and prospects.

Rather than critically examine how Chevron can operate successfully in Australia—which is what a wise, progressive company would do—they have chosen to label us as an over-regulated, high-cost jurisdiction and sought to extract more benefits from Australian institutions, reneged on commitments and failed to operate according to our norms. Rather than focusing on fixing their own issues, Chevron continues to project that the inaccurate estimates they made at the beginning are somehow someone else's fault.

This example of Chevron's operations shows that Australia must be prudent in negotiating resource agreements with overseas operators. Yes, we must look at the rose coloured projections about jobs and the bottom line in terms of what Treasury might expect to get out of these projects, but we must also force companies to be realistic. As regulators, that is what we need to do. Chevron and other companies must respect our laws, practices and operating environment. After all, they are extracting resources for profit that belong, in the first instance, to Australians. And that wealth needs to be shared, through proper management of projects, with all Australians.

So concerned am I about this project in Western Australian—and because I want to get the best for the workforce and the Australian community out of Barrow Island—that I have written to Chevron in the US, expressing my concerns about what I believe are Chevron's over promised and under delivered commitments on the Gorgon project. If the government is asked by Chevron to look at regulations I hope that it does some very sharp analysis of exactly what is going on with Chevron and why it over promised in the first place.

It is certainly time for Chevron to ensure that in future disclosures the company provides more accurate analysis of the prospects of some of its major projects, particularly those in Western Australia that have an impact on the state's finances, and which have an impact on the workforce. They certainly have an impact on the money returned, quite rightly, to Australians.