Sept. 14 (Bloomberg) -- Chevron Corp. and its partners in Australia’s Gorgon natural-gas project agreed to go forward with a development forecast to make A$300 billion ($258 billion) in sales to China, India and Japan in its first 20 years.

The project’s first phase will cost A$43 billion, with work to start immediately on a liquefied-natural-gas plant on the Barrow Island nature reserve off Australia’s northwest coast, according to a statement by San Ramon, California-based Chevron. Gas exports are scheduled to start in 2014.

Gorgon secures Australia’s status as “an energy superpower,” Energy Minister Martin Ferguson said after a signing ceremony in Perth. Chevron’s venture with partners Exxon Mobil Corp. and Royal Dutch Shell Plc is the largest of at least 10 planned projects set to transform the country into the biggest supplier of liquefied natural gas, known as LNG, to the world’s fastest-growing economies by 2015.

“If the demand wasn’t a reality, we wouldn’t see the sort of huge gas contracts we’re seeing right now,” Gavin Wendt, a senior resources analyst at Fat Prophets Funds Management, said by telephone from Sydney. “The Chinese are committing themselves in a massive way. That’s a clear indication.”

Chevron, 50 percent owner and operator of Gorgon, rose 29 cents to $71.04 on the New York Stock Exchange. Irving, Texas- based Exxon Mobil and Shell, based in The Hague, each own 25 percent. Exxon Mobil rose 2 cents to $70 in New York, and Shell climbed 5.5 pence to 1,739.5 pence in London.

Production Plans

Gorgon holds more than 40 trillion cubic feet of gas, Chevron Chief Executive Officer David O’Reilly said in the statement. It will have capacity to produce 15 million metric tons of LNG a year.

Gorgon will supply 8 percent of current global LNG capacity and is Chevron’s largest project, George Kirkland, the company’s executive vice president for exploration and production, told reporters in Perth. The partners will consider within a year whether to add two production units on Barrow Island, which will initially have three units, he said.

The three companies will “self-fund” their share of costs, they said after a signing ceremony in the Western Australian capital.

Gorgon is set to award A$10 billion in contracts for construction, said Roy Krzywosinski, Chevron’s managing director for Australia. The partners are “moving on all fronts” to build the plant, and work is expected to start today, said Kirkland.

KBR Contract

KBR Inc., formerly the engineering and construction unit of Halliburton Co., said today that a venture it leads was awarded an A$2.7 billion contract on the Gorgon LNG project.

Gas will be piped to Barrow Island for processing into liquid form from wells in 11 fields 130 to 200 kilometers (81 to 124 miles) off the coast. Carbon dioxide emitted as the gas is liquefied will be captured and injected into porous rock 2.5 kilometers beneath the LNG plant in the world’s biggest carbon- storage project, at a cost of A$2 billion, Chevron said.

The storage of carbon dioxide on Barrow Island will reduce Gorgon’s emissions of so-called greenhouse gases by 40 percent, according to Chevron. The federal and Western Australian governments agreed to assume any long-term liability arising from the storage, Prime Minister Kevin Rudd said Aug. 17.

Western Australian Premier Colin Barnett said today he was “confident” the carbon capture and storage system on Gorgon would work.

Flatback Turtles

Environment Minister Peter Garrett approved construction of Gorgon on Aug. 26, adding conditions designed to protect Barrow Island animals including flatback turtles and the spectacled hare-wallaby.

Asian demand for LNG is rising as governments seek to increase the use of cleaner fuels. Carbon-dioxide emissions from burning gas are about half the level from coal, Chevron said today. Gorgon will reduce global greenhouse gases by about 45 million tons a year, equal to removing two-thirds of all vehicles from Australian roads, the company said.

Gorgon should produce for about 60 years, Exxon Australia Chairman John Dashwood said Aug. 28. Three LNG shipments are expected to leave the island each week, according to the project’s Web site.

“It’s the biggest energy project since the North West Shelf, and that wasn’t built all at once,” said John Hirjee, an analyst at Deutsche Bank AG in Melbourne. The A$2 billion investment in carbon capture and storage is “quite a significant add-on cost for little revenue benefit,” he said.

Rising Demand

Asian demand for gas chilled to liquid form for shipment is expected to reach 164 million tons a year by 2015, and Australia may increase its share of the market to 55 percent from 13 percent in 2008, said Tony Regan, a consultant at Singapore- based Tri-Zen International.

“It’s fairly clear that Australia will be the largest supplier into the Asian market,” said Regan, who previously worked for Shell’s LNG business.

LNG is natural gas chilled to minus 260 degrees Fahrenheit (162 Celsius), putting it in a liquid state so it can be shipped by tanker to consuming markets. The liquefied gas is than processed back into a gaseous state at import terminals so it can be sent by pipeline to users.

Australia currently exports about 20 million tons of the fuel each year from the Woodside-operated North West Shelf Venture in Western Australia, which produced its first LNG in 1989, and the ConocoPhillips-led Bayu-Undan project in Darwin, which has shipped the fuel since 2006.

PetroChina, India

Exxon Mobil signed a contract to supply gas from Gorgon to PetroChina Co. valued by the Australian government at A$50 billion and will also sell output to India’s Petronet LNG Ltd. Chevron has agreed to supply the fuel to Tokyo Gas Co., Osaka Gas Co., and South Korea’s GS Caltex, in deals that may be worth A$70 billion over 25 years, Rudd said Sept. 10.

Chevron said last week it will sell a 1 percent stake in Gorgon to Tokyo Gas, Japan’s largest gas distributor, and 1.25 percent to Osaka Gas. The company also is in talks to sell the fuel to China, people familiar with the discussions said this month.

Gorgon will generate about A$40 billion in revenue that will fund schools, hospitals, roads and infrastructure, Rudd said Sept 1. LNG exports from the venture may be valued at A$300 billion over 20 years, he said.

Chevron’s 7.5 million-ton share of annual production from Gorgon will “roughly triple” the company’s LNG output, Hodgson said Aug. 28.

The LNG Gorgon will produce will help elevate Australia to second among global suppliers of the fuel from sixth now, according to worldwide energy statistics compiled by BP Plc.

Some A$127 billion of Australian LNG projects are expected to start exports between 2012 and 2018, Deutsche Bank AG said last month. Among those are Tokyo-based Inpex Corp.’s A$32 billion Ichthys project. Woodside Petroleum Ltd. is scheduled to produce LNG starting in 2011 at its Pluto venture and at its Browse project in 2018.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net.

Last Updated: September 14, 2009 16:25 EDT