* $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 Gorgon LNG project - the world's most expensive - may be forced to dump chunks of its early production onto an already saturated global spot market, as some Japanese clients warn they are unlikely to take up test shipments.
This would be another blow for a project hit by billions of dollars in cost overruns and underscores the difficulties for a raft of Australian liquefied natural gas developments facing subdued demand and competition from U.S. shale gas.
After nearly five years of construction, test exports of LNG from Gorgon's 15.6 million-tonnes-a-year (mtpa) plant off western Australia are due to begin late this year and last until April 2016, when commercial deliveries will likely start.
Japanese buyers holding long-term supply contracts have in the past eagerly sought early cargoes, but some could pass on the test shipments with long-term prices well above spot prices languishing 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 first of 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 it was unlikely to buy these cargoes.
"If there's spot supply that's cheaper than Chevron's offer price, then we'll not take from Chevron," said the official, who declined to be identified.
Asked about sales of the test cargoes, a spokeswoman for Chevron said the company did not discuss activities related to LNG trading.
Chevron will already have to sell some LNG on the spot market after securing 25-year sales deals for under 70 percent of its share of Gorgon LNG, according to company data, less than the 85 percent a project backer would normally seek to guarantee returns.
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 LNG Trading to supply 0.83 mtpa starting from 2017.
Australia is still on track to overtake Qatar as the world's top LNG supplier by the end of the decade, but expansions and some new plants at earlier stages are in doubt.
Royal Dutch Shell Group's Arrow Energy shelved plans this year for a LNG plant at Queensland's Curtis Island.
Ernst and Young has said around $200 billion of deepwater oil and gas facilities globally have been cancelled or put on hold in recent months due to the glut in energy supply.
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Japanese buyers will take nearly a third of Gorgon's output once commercial sales start, but if test shipments are not taken up then up to 2.4 million tonnes of LNG could hit spot markets leading up to April, Reuters calculations based on company data showed.
This is equivalent to about 36 standard-size cargoes and could add to pressure on spot prices that have lost 60 percent in 18 months, although early LNG volumes can be highly variable due to startup issues.
While firms with long-term contracts would normally be obliged to take gas during the test phase, an industry source briefed by a buyer said Japanese clients had built in the right to pass when negotiating their contracts.
Aside from Tokyo Gas, other Japanese buyers of Gorgon include Chubu Electric Power and Osaka Gas, which also have small equity stakes in the project, and Kyushu Electric Power and JX Nippon Oil.
Whether or not they take commissioning cargoes will largely depend on how competitively priced they are versus spot.
Chevron tied long-term contract sales of Gorgon supply to oil prices at an estimated 14.85 percent, or "slope", of a barrel of Brent crude, with a small $0.50-$1.00 premium.
That translates into an LNG price of $10.10 per million British thermal units (mmBtu) at current Brent prices, compared with 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 be stretched further.
An Osaka Gas spokesman said no arrangements had been made for taking the first of the commissioning cargoes, though it was possible it could take some before the end of March.
Chubu Electric and Kyushu Electric said the timing of the first delivery of gas was undecided, while JX Nippon declined to comment.
Chevron could offer purchasers compensation to encourage them to take test shipments, a source familiar with the industry said.
Japanese utilities could also wait to pick off odd commissioning cargoes if Chevron sells them on spot markets, as they did when ExxonMobil Corp brought its Papua New Guinea export plant on stream last year.
Chevron, meanwhile, is said to have started sounding out potential buyers of test shipments.
"They are dipping their toes in the market," said an Asian-based industry source, who said his company had been approached.
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 Richard Pullin and Ed Davies)