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FAR EAST REPORT: Big China deal secures Australian LNG supply Asian powerhouse continues drive to purchase energy from sources around the world Allen Baker Petroleum News Contributing Writer
A $19 billion LNG supply deal between a Chinese entity and Australia’s Woodside Petroleum Ltd. and partners confirms China’s intention to move ahead aggressively to cut pollution and increase energy options by adding liquefied natural gas to the mix.
The deal with Melbourne-based Woodside and its five partners in the North West Shelf project will provide 3.3 million tonnes of LNG annually to China’s southern Guangdong province for 25 years. The Chinese entity, Guangdong Dapeng LNG Co. Ltd., is led by a subsidiary of state-owned China National Offshore Oil Corp., CNOOC, with a 33 percent stake.
As part of the arrangement, a new joint venture will be formed to provide the gas being shipped to China. That venture will have CNOOC as a 25 percent partner, with the six current North West Shelf partners taking 12.5 percent each. The deal effectively calls for CNOOC to secure a 5.3 percent equity share in the field.
Yet another joint venture between Chinese and Australian interests will be in charge of the shipping from the Burrup Peninsula LNG plant in Australia to the new terminal being built in Guangdong.
The North West Shelf LNG facility currently has four trains with total capacity of 11.7 million tonnes annually. A fifth train with a capacity of a further 4.2 million tonnes a year is being considered. Shipments to China are expected to start in the second half of 2006.
Partners in the venture are operator Woodside, BHP Billiton, Shell, ChevronTexaco, BP and Japan Australia LNG, all with equal shares. ConocoPhillips go-head on Bohai ConocoPhillips has committed $1.8 billion in capital spending for the second phase of its Bohai Bay field off China, the company said Dec. 13.
It’s not clear how much of the multi-year budget will be spent next year, but it won’t be more than a few hundred million dollars. The Houston-based company announced earlier that it will spend $7 billion on capital expenditures in 2005, with just under a billion allocated to E&P spending the Asia-Pacific region.
Phase One of the PL19-3 development in Bohai Bay is currently producing 20,000 barrels of oil daily with a 24-slot wellhead platform and a floating production, storage and offload facility. It began producing in December 2002.
The field is in Block 11/05 of Bohai Bay, an area of 1.6 million acres where ConocoPhillips has exploration rights under a 1994 contract and is the operator with a 49 percent working interest; China National Offshore Oil Corp. has the rest. Woodside deal for China National Offshore? China National Offshore Oil Corp. has been working in many areas outside China to secure more energy for the world’s most populous country. That has led to speculation about a Chinese bid for Australia’s Woodside. Or perhaps more likely, for the 34 percent stake in Woodside owned by Shell.
Shell tried to buy all of Woodside in 2000, but the Australian government blocked the deal. A Chinese bid for the full company could run into the same objection.
The speculation comes as Shell is reshaping its holdings, and as Woodside gets ready to accelerate work on yet another offshore gas field, called Browse.
Woodside is operator and 50 percent owner of the field, which is off western Australia and is said to contain more than 20 trillion cubic feet of gas. Partners in Browse are ChevronTexaco, BP, Shell, and BHP Billiton. Active in Southeast Asia With big deposits relatively close to home, China National Offshore Oil Corp. has been involved in a multitude of drilling projects, recently announcing a wildcat discovery in the West Madura area offshore Indonesia that flowed at a rate of more than 1,000 barrels of oil and condensate, plus 10 million cubic feet of gas daily. CNOOC has a 25 percent interest in the KE7-3 well.
In another recent development, CNOOC announced a 12-year deal worth nearly a billion dollars to provide 80 million cubic feet of gas daily for a power plant run by Indonesia’s state electricity company, starting in 2006. The gas will come from CNOOC’s offshore field in southeast Sumatra.
CNOOC has investments in more than a dozen countries, while China National Petroleum Corp., parent of PetroChina, has more than 40 projects outside China. The two companies, along with fellow state-controlled Sinopec, have invested billions in Latin America and Africa, as well as Asia.
The biggest of those was a recent $70 billion Sinopec deal with Iran in which Sinopec will buy 250 million tonnes of Iranian LNG over 30 years, plus 150,000 barrels of oil daily over 25 years. As part of the deal, Sinopec is expected to help develop the Yadavaran fields in Iran. Total spending by China for Iranian oil could reach $200 billion if other associated deals go through. Stagnant domestic production China has been trying to increase domestic production, but despite some successes offshore, there has been little progress. Total production is expected to average 3.52 million barrels daily in 2005, up only 1.7 percent from this year’s 3.46 million barrels.
China’s thirst for oil, meanwhile, reached 6.3 million barrels daily last year, as the country imported 2.6 million barrels each day, second behind only the United States in that department. China has been a net importer since 1993.
Meanwhile, China is preparing for the boom in the LNG trade, planning at least 10 LNG terminals along its coastline. Sakhalin, Qatar and others could be added to the LNG supplier list if China’s demand skyrockets or price competition intensifies.
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