Is Chevron Hiding Something from Australia?

When you think of major natural gas exporting countries, what first comes to mind? Iraq, Qatar and Saudi Arabia just to name a few, but rarely does Australia come into the conversation. Chevron is in the early stages of changing that thought entirely as Australia is set to be the largest exporter of liquefied natural gas (LNG) in the world by the year 2019 as the Gorgon Project is now underway. Located just off the Northwestern coast of Australia, Gorgon is sparking controversy in every aspect of the word. From broken financial promises, to setting up production on coveted A-Class reserved land; the Gorgon Project has been turning heads across the globe.

Project Background

Gorgon broke ground in December of 2009 but did not ship the first freighter of LNG to Japan until 2016 while production is expected to end at some point between 2054 and 2074. The project is located on a small island about 37 miles off the coast of Western Australia and produces 15.6 million tons of LNG every year mostly going out into the Japanese energy market. This location has two main oil fields that are both around 10,000 feet below the seabed making Barrow Island a prime location to erect a production facility to convert the natural gas into usable LNG. Over 500 miles of pipeline has been laid below the sea in order to pump gas from the two fields and onto Barrow Island where the operation takes place after 300 hectares of land has been purchased in order for the natural gas to be processed.

Financial Background & Controversy

The start-up cost of the project in 2009 was estimated to be around USD$37 billion and according to Bloomberg.com, that total has come to USD$54 billion as of March 2016. With construction to be completed by the second half of 2017, this total is expected to continue to rise until the project is completely done (Bloomberg.com, 2016). Chevron is the main investor of the Gorgon Project with a 47.3% stake; with the other two main owners of the project are ExxonMobil and Royal Dutch Shell, both coming in at a 25% stake in the project (chevronaustrlia.com.au, 2017).

Chevron promised the Australian government that Gorgon would produce so much in revenues for the country that it would actually lower income taxes for the population, but after nearly a decade since the project started these accusations seem to be far from the truth. In March of 2016 the Energy Minister of Western Australia, Josh Frydenberg, claimed that Australia is in the midst of the “golden age of gas” and forecasted that Gorgon on its own would generate a total of AUD$440 billion (USD$337 billion) into the economy. Australian Treasury Department has facts that state otherwise, claiming that the total revenue from the petroleum resources rent tax (PRRT – the tax that oil companies must pay the state to use their land for mining purposes) is going to fall from AUD$1.2 billion in mid-2015 to AUD$800 million by 2020 although production levels continue to rise (economist.com, 2016).

With financial numbers starting to come out as the first shipments of LNG are being sold it, raises a very important question: Is the Australian government allowing Chevron to excavate their natural gas resources at the too little of a price? The issue is with how the tax was designed for LNG exporting companies within Australia, here is a snippet from the Economist’s website to explain how the tax actually works:

“…Unlike most royalty regimes, it is not levied at a flat rate on the volume of gas extracted. Instead, it is linked to the project’s profits. Companies are allowed to recoup their exploration and construction costs, which tend to be huge for LNG projects, before any tax is payable. These deductions can be carried forward indefinitely, potentially delaying the Treasury’s payday for decades. According to the Australian Tax Office, the value of unused deductions rose from A$1.7bn in 2004-05 fiscal year to A$188bn in 2014-15—meaning that firms can rake in a further A$187bn before paying any tax.”

The main reason behind this type of tax on the royalties was in order to entice investors to buy into Australian LNG, and it might have backfired in the worst type of way. Governments of countries such as Qatar, Malaysia and Nigeria claimed to have received two to three times as much revenue that Australia did in 2014 from natural gas exports in proportion to amount of gas produced. On top of all the controversy surrounding the project, there is also an uproar in the political arena of Australia as the liberal state government of Western Australia has called for a review of Australian government spending in support of LNG projects, but despite efforts this will most likely never happen. The Environmental Minister who gave Gorgon the go ahead in 2007 also happens to be Australia’s current Prime Minister, Malcolm Turnbull (economist.com, 2016).

Environmental Controversy

Barrow Island is located 37 miles off of Western Australia’s Pilbara Coast and has been listed as an A-Class Reserve since 1910, which means it is the most protected type of land in the world. It seems kind of ironic that it is also home to one of the largest LNG refineries within the developed world, doesn’t it? Chevron acquired approval of the land after a long series of legal battles, back and forth with the Australian Government until finally granted access to the island in 2007. Chevron announced that that they are envisioning a new version of “The Garden of Eden” as they claim to have been one of the first energy companies to allow nature to coexist alongside massive industrial endeavours (news.com.au, 2015).

Naturalist Harry Butler, a consultant for Chevron, calls Barrow a “most remarkable place” that has not been subject to “the influences of the pioneers, the colonists, the farmers, the pastoralists, the city dwellers”. With being home to 24 native species that are found nowhere else on Earth, Barrow Island holds up to its reputation and is referred to as Australia’s own version of The Galapagos Islands (news.come.au, 2015). Also, due to the lack of predators on the island, animals that are found elsewhere on the mainland of Australia are known to be about 10% smaller than those found on Barrow Island due to having to run for their life from time to time.

Butler also states that Chevron sets world standards when it comes to big mining and production in fragile environments. It all starts with the islands state of the art quarantine procedures, including shrink-wrapping and fumigating nearly everything that comes onto the island from the mainland to combat the introduction of mice or rats into the ecosystem. They even go as far as to shrink-wrapping and fumigating the bulldozers that came over for excavation.

After claiming to be conducting business with the environment in mind, Chevron has been known to practice some very questionable behaviors when it comes to people visiting the island to witness their procedures first-hand. Twice during an 11-month period in 2014-15 Chevron denied requests from News Corp Australia to visit Barrow in order to report on their ground breaking practices. On top of that, all inquiries regarding the island go through Chevron and Chevron alone, the Western Australia Department of Parks and Wildlife, whom control 95% of Western Australia’s A-Class reserves, have no say in matters revolving around Barrow Island. Chevron goes as far as to outlawing passing sailors to drop anchor near the island and local police forces near Barrow say that the area is off-limits to all Australians except for the 3000 employees who live on the island (news.com.au, 2015).

Conclusion

With all of the controversy surrounding this massive undergoing on Barrow Islands it leaves many Australians to wonder; is Chevron really conducting business on our land with our best interests in mind? It seems as if the answer to that questions would be no considering that Australia is not only getting hurt financially due to this endeavor, but also it seems as if Chevron is hiding something on the island when it comes to the upkeep of the very rare and fragile ecosystem. What once used to be a land, untouched by time it seemed, has now turned into a mecca for big business and exploitation of the precious resources found here on our planet. Honestly, only time will tell as the world continues to get more technologically advanced as to what is really happening on Barrow Island under the care of Chevron. We can only hope that the energy company is being true to their word when it comes to the preservation of such a unique piece of our planet, but it would not be a surprise in the slightest to come to find out in a few years as to what Chevron is potentially hiding or trying to cover up on the island.

Reference:

“Gorgon Project.” Chevron.com. N.p., n.d. Web. 20 Feb. 2017.

“Is Australia Letting Firms Pump Natural Gas Too Cheaply?” The Economist. The Economist Newspaper, 24 Nov. 2016. Web. 20 Feb. 2017.

Paton, James. “Chevron’s $54 Billion Gorgon LNG Project Starts Production.”Bloomberg.com. Bloomberg, 07 Mar. 2016. Web. 20 Feb. 2017.

“The Island off Limits to Aussies.” NewsComAu. N.p., 15 May 2015. Web. 20 Feb. 2017.

Towwie, Narelle. “Threatened Animals Suffer for Gas Project.” Threatened Animals Suffer for Gas Project. N.p., n.d. Web. 20 Feb. 2017.

Woodley, Naomi. “Gorgon Gas Project ‘environmental Vandalism’.” ABC News. N.p., 26 Aug. 2009. Web. 20 Feb. 2017.

Photo: http://www.lngworldnews.com/wp-content/uploads/2015/08/Monadelphous-gets-Gorgon-LNG-work-extension.jpg

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