Australia has given US oil major Chevron Corp a green light for its A$50 billion ($42 billion) Gorgon liquefied natural gas (LNG) project, the country's largest-ever resources development.

The approval from the federal environment ministry on Wednesday brings the Gorgon partners a step closer to approving the long-delayed gas export project.

Chevron said the venture partners are expected to make a final investment decision in coming months, once it secures approval from the federal energy minister's office for production licenses and a development approval from the western Australia state government.

In a widely expected announcement, the federal government said it will approve the project, to be built on the Barrow Island nature reserve off west Australia, subject to conditions on managing and protecting local fauna, especially the endangered flatback turtle.

'Clearly I'm aware of the economic size of this proposal, but the specific matter I had to decide was whether or not this proposal would have an adverse affect, particularly on threatened or listed species,' Environment Minister Peter Garrett told reporters in Canberra. 'I have determined that it won't.'

The federal government has imposed a further 28 environmental conditions, focused on monitoring programmes on a number of species on the island.

The proposed 15 million tonnes per annum (mtpa) project, which comprises three production trains and a domestic gas plant, is expected to create 6,000 jobs at its peak and will underpin a massive expansion of Australia's total LNG production.

Chevron holds a 50 per cent stake and is the project operator, while Royal Dutch Shell and US major Exxon Mobil Corp each hold 25 per cent.
'The fact that Gorgon is going ahead reflects the strength of long-term gas demand. If you subscribe to the view of a carbon-constrained world, demand for gas will rise strongly because nuclear plants are too expensive and coal is dirty,' said Gordon Ramsay, a Melbourne-based energy analyst at UBS.

Strong long-term demand outlook

With the Asia-Pacific region seeing around a dozen proposed LNG projects, of which many are racing to come onstream in the 2014-2015 timeframe, analysts say some may be forced onto the backburner if they can't sign up customers fast enough.

Still, longer-term LNG demand is expected to remain strong.

'The United States and Europe will be the strongest markets for LNG demand in the next few years. Come post-2015, LNG demand from China and India will pick up as they will build more terminals,' said Tony Regan of Tri-Zen consultancy in Singapore.

Much of the production has already been sold to Asian customers. Earlier this month, ExxonMobil agreed to sell Chinese state-owned company PetroChina 2.25 million tonnes of LNG from Gorgon, worth $50 billion over 20 years, the biggest resources deal in Australia's history.

Gorgon originally received government clearance for a two-train 10 mtpa project in late 2007 after a four-year approval process.

Faced with soaring construction costs at the time, the partners decided to scale the project up to 15 mtpa plus a domestic gas plant, triggering a fresh round of environmental reviews and approvals.

The World Wildlife Fund slammed the government approval and said Gorgon risks destroying the coral reefs around the island.

Chevron has not yet announced an estimated cost for the expanded project, but Australian government officials have said the project would cost about A$50 billion. – Reuters