Chevron’s (NYSE:CVX) ballooning costs throw the pressures the energy company is facing into sharp relief.
Compared to its rivals, Chevron’s expected 2013 budget is massive; Marathon Oil (NYSE:MRO) has set a $5.2 billion capital budget for 2013 and ConocoPhillips (NYSE:COP) plans to invest $15.8 billion in the next year. But Chevron will make investments totaling $36.7 billion in 2013, a figure that represents 12 percent of its total budget for the year. Of that amount, more than 90 percent of the funds will go towards upstream crude oil and natural gas exploration and production, while 7 percent will be allocated for downstream operations.
The company is facing such a bloated budget because of recent changes in the global economy. In the spotlight is Chevron’s Gorgon liquid natural gas project in Western Australia, the biggest natural resource project in that country. There, costs are spiraling out of control due to the rising cost of labor.
Two factors are contributing to the problems. Energy companies have spent more than $160 billion to develop their operations in Australia, which has made labor a premium. The country’s large natural-gas reserves, its stable government, and nearness to the rapidly-growing economies of Asia has set Australia on a course to surpass Qatar as the world’s largest exporter of liquefied natural gas…