Chevron's Gorgon LNG faces up to $1.4B hit to fix cracks

Chevron will shut down LNG Train 1 at its $US54 billion Gorgon project in early October to fix faulty welds on pressurised vessels full of propane and Train 3 will undergo repairs in January, according to a WA safety regulator.

Each of the giant LNG trains on Barrow Island has eight propane kettles, also called shell and tube heat exchangers, that have vast quantities of flammable fluids flow through them.

During a routine shutdown of Train 2 that commenced in late May thousands of cracks were found in the welds of the kettles.

The propane kettles on Trains 1 and 3 are of a near-identical design and manufacture to those on Train 2 and are operating while workers nearby fix Train 2.

A requirement to inspect the so-called propane kettles on Trains 1 and 3 by today has been amended, Department of Mines, Industry Regulation and Safety director dangerous goods and petroleum safety Steve Emery said in a statement this afternoon.

"Chevron has presented the department with comprehensive safety and technical information that supports an accelerated but staged inspection schedule combined with a range of other controls," Emery said.

"This information included details on the origins and nature of the defects as well as the risks associated with various approaches to addressing the uncertainties around Trains 1 and 3."

After Boiling Cold broke the news of the cracks a month ago Australian Manufacturing Workers' Union state secretary Steve McCartney called for Chevron to explain what they were doing to ensure the workers were safe.

"If this was a crack in an aeroplane wing, they'd be shutting down all the planes to make sure there are no other cracks," McCartney said at the time.

Emery said the dangerous goods directorate had conducted an in-depth review of Chevron's submission and was satisfied it provided an acceptable level of risk.

The amended Remediation Notice required Chevron to comply with its submission.

"Dangerous Goods Directorate officers will continue to analyse the inspection results, review the on-going suitability of the program and assess if further regulatory action is required," Emery said.

"The officers will also be conducting audits for compliance with the Remediation Notice."

An expensive repair

The kettles are critical components of the plant.

Liquid propane, a component of LPG, is pumped into each shell at a rate of 2300 tonnes an hour and evaporates quickly – or flashes - to cool a mixed refrigerant that flows in tubes that run through the shell.

The mixed refrigerant of propane, ethane, methane and nitrogen is later used to cool the natural gas to become liquid at -160℃.

Train 1 will be shutdown for between 45 and 90 days and the extent on the Train 3 shutdown will depend on what Chevron learns from the other repairs, a company spokesperson said.

Chevron initially planned to restart Train 2 by July 11, but now plans production to recommence in early September once the welds are fixed.

Every day one of Gorgon's 5.2 million tonnes a year LNG trains is out of action about $4.9 million of revenue is lost, assuming Gorgon's partners are achieving similar prices to Woodside.

If Train 2 restarts in early September as planned and the subsequent shutdowns take 90 days - the upper end of Chevron's estimate - Gorgon's partners will lose production worth about $1.4 billion.

Gorgon is operated and 47% owned by Chevron. Shell and ExxonMobil each have a 25% stake and Japanese companies Osaka Gas, Tokyo Gas and JERA own the remainder.

The plan agreed with the regulator is far from the worst case for Chevron.

If Trains 1 and 3 had been shut down at once a shortage of qualified workers would likely have prolonged the work.

Given the size of Gorgon - 15.6 million tonnes of LNG a year - securing replacement volumes for customers could have been difficult and likely have pushed up spot prices significantly.

Chevron has been preparing for shutdowns. Yesterday Argus Media reported Chevron was asking its Gorgon customers to accept LNG cargoes from the Wheatstone or North West Shelf LNG plants during October and November. Chevron operates and owns 64% of Wheatstone and has a 17% stake in the Woodside-operated North West Shelf project.

Regulatory action still open

Today's news comes two weeks after safety regulators slapped an extraordinary 33 orders on Chevron to make Gorgon safe.

The problems at Gorgon appear to straddle the jurisdiction of two regulatory agencies within WA's Department of Mines, Industry Regulation and Safety.

The remediation notice issued by the DMIRS Dangerous Goods Directorate issued to inspect the propane heat exchangers on Trains 1 and 3 by today has now been extended.

However, 32 improvement notices issued by WorkSafe a fortnight ago are still open. Chevron received a notice for each of the eight propane kettles on Train 2 as they were not manufactured to the registered design. Worksafe also issued another 24 notices for the Train 3 kettles over the design issue, a need to inspect the vessels, and weld repairs.

Today, Worksafe issued more improvement notices for Chevron to inspect the Train 1 kettles by September 4.

DMIRS Worksafe director Sally North said Chevron could seek a review or extension of the notices.

The Chevron spokesperson said it had requested a review of the Improvement Notices for Train 3 and responded to some of the Train 2 notices.

"Chevron and the regulator share the same goal of maintaining the safety of our workforce and operating facilities," the spokesperson said.

"The appropriate safety measures are in place, and we continue to deliver LNG to customers and natural gas to the Western Australian domestic market under our contractual commitments."

Chevron's private problem went public

News of the damaged pressure vessels was first broken by Boiling Cold and The West Australian a month ago.

At the time DMIRS director of dangerous goods and petroleum safety Steve Emery said Chevron was responsible for ensuring the suitability and integrity of any repairs and the department did not intend to take any action at that stage.

Later that day it emerged that the regulator had known nothing of the problems on Barrow Island until a media query to Energy Minister Bill Johnston.

A few days later DMIRS announced it would send inspectors to Barrow Island.

Less than a week after the news broke Chevron senior management were quizzed about the propane vessels by Wall Street analysts.

Chevron upstream executive vice president Jay Johnson, who headed up the Australian business when Gorgon was being designed, said the weld defects arose from problems during the manufacture of the vessels and were not related to the design.

"It's really just grinding out and replacing a weld that had some abnormalities and ensuring that we have the structural and pressure-containing capacity that we are looking for," Johnson said.

"We do not need to replace the vessels; we believe the repairs are going to be fully effective."

Chevron Australia manages safety "based on two unwavering principles: do it safely or not at all; and there is always time to do it right," according to its website.

The welding of the propane vessel not being done right some years ago in a South Korean workshop is now costing Chevron and its partners dearly.

Chevron's problems at Gorgon come as the US major is in the final stages of culling 20 to 30 per cent of its Australian workforce, a cut twice as deep as it is planning for the company overall.

UPDATES:

21 August 4:o0 PM: originally published as "Chevron to shutdown all Gorgon LNG trains in stages to fix cracks."

21 August 6:40 PM: updated and rewritten to include Chevron comments and discussion of revenue loss as "Chevron's Gorgon LNG faces up to $1.4B hit to fix cracks."

Main image: Gorgon LNG plant on Barrow Island. Source: Chevron Australia Pty Ltd.