* $54 bln Australian LNG project is world's most expensive
* Gorgon has suffered cost overruns, competition from U.S.shale
* Test exports of LNG due to start late this year
* Some Japanese clients say no plan to take these shipments
By Oleg Vukmanovic and Osamu Tsukimori
MILAN/TOKYO, July 8 (Reuters) - Chevron's $54 billion GorgonLNG project - the world's most expensive - may be forced to dumpchunks of its early production onto an already saturated globalspot market, as some Japanese clients warn they are unlikely totake up test shipments.
This would be another blow for a project hit by billions ofdollars in cost overruns and underscores the difficulties for araft of Australian liquefied natural gas developments facingsubdued demand and competition from U.S. shale gas.
After nearly five years of construction, test exports of LNGfrom Gorgon's 15.6 million-tonnes-a-year (mtpa) plant offwestern Australia are due to begin late this year and last untilApril 2016, when commercial deliveries will likely start.
Japanese buyers holding long-term supply contracts have inthe past eagerly sought early cargoes, but some could pass onthe test shipments with long-term prices well above spot priceslanguishing at four-year lows.
"At this point there is no plan," a spokesman at Tokyo Gas said, when asked whether it planned to take the firstof the test, or commissioning, cargoes.
The firm has a contract to take 1.1 mtpa from the project.
A senior official from another Japanese client also said itwas unlikely to buy these cargoes.
"If there's spot supply that's cheaper than Chevron's offerprice, then we'll not take from Chevron," said the official, who declined to be identified.
Asked about sales of the test cargoes, a spokeswoman forChevron said the company did not discuss activities related toLNG trading.
Chevron will already have to sell some LNG on the spotmarket after securing 25-year sales deals for under 70 percentof its share of Gorgon LNG, according to company data, less thanthe 85 percent a project backer would normally seek to guaranteereturns.
The U.S. firm, which has a 47.3 percent stake in Gorgon, has also signed a five-year deal with South Korea's SK LNGTrading to supply 0.83 mtpa starting from 2017.
Australia is still on track to overtake Qatar as the world'stop LNG supplier by the end of the decade, but expansions andsome new plants at earlier stages are in doubt.
Royal Dutch Shell Group's Arrow Energy shelvedplans this year for a LNG plant at Queensland's Curtis Island.
Ernst and Young has said around $200 billion of deepwateroil and gas facilities globally have been cancelled or put onhold in recent months due to the glut in energy supply.
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Japanese buyers will take nearly a third of Gorgon's outputonce commercial sales start, but if test shipments are not takenup then up to 2.4 million tonnes of LNG could hit spot marketsleading up to April, Reuters calculations based on company datashowed.
This is equivalent to about 36 standard-size cargoes andcould add to pressure on spot prices that have lost 60 percentin 18 months, although early LNG volumes can be highly variabledue to startup issues.
While firms with long-term contracts would normally beobliged to take gas during the test phase, an industry sourcebriefed by a buyer said Japanese clients had built in the rightto pass when negotiating their contracts.
Aside from Tokyo Gas, other Japanese buyers of Gorgoninclude Chubu Electric Power and Osaka Gas,which also have small equity stakes in the project, and KyushuElectric Power and JX Nippon Oil.
Whether or not they take commissioning cargoes will largelydepend on how competitively priced they are versus spot.
Chevron tied long-term contract sales of Gorgon supply tooil prices at an estimated 14.85 percent, or "slope", of abarrel of Brent crude, with a small $0.50-$1.00 premium.
That translates into an LNG price of $10.10 per millionBritish thermal units (mmBtu) at current Brent prices, comparedwith spot LNG currently at $7.20 per mmBtu.
Should oil rise towards year-end, as some analysts expect,the gap between Gorgon LNG supplies and spot prices could bestretched further.
An Osaka Gas spokesman said no arrangements had been madefor taking the first of the commissioning cargoes, though it waspossible it could take some before the end of March.
Chubu Electric and Kyushu Electric said the timing of thefirst delivery of gas was undecided, while JX Nippon declined tocomment.
Chevron could offer purchasers compensation to encouragethem to take test shipments, a source familiar with the industrysaid.
Japanese utilities could also wait to pick off oddcommissioning cargoes if Chevron sells them on spot markets, asthey did when ExxonMobil Corp brought its Papua NewGuinea export plant on stream last year.
Chevron, meanwhile, is said to have started sounding outpotential buyers of test shipments.
"They are dipping their toes in the market," said anAsian-based industry source, who said his company had beenapproached.
The other major partners in Gorgon are ExxonMobil and Shell, which each have 25 percent of the project. (Additional reporting by Aaron Sheldrick; Editing by RichardPullin and Ed Davies)
