Australia LNG sees CNOOC gas deal as positive step

Australia LNG said the 25-year contract won by its North West Shelf (NWS) Venture from China National Offshore Oil Corp to supply 3 million tonnes a year of LNG to a terminal being built in Guangdong could be the first step in a wider energy alliance between the two countries.

Australia LNG president Arthur Dixon described the 25-year contract announced Thursday as a "cornerstone of collaboration" between the two countries.

"The Chinese are going to need a great deal more energy, and a lot of that energy will be in the form of gas," Dixon said.

Australia LNG is a consortium made up of Woodside Petroleum, Royal Dutch Shell /Shell Group, BP, BHP Billiton, ChevronTexaco Corp and Japan Australia LNG (jointly owned by Mitsubishi Corp and Mitsui & Co), and is the marketing arm of the NWS Joint Venture.

"We have a great deal of gas up and down the coast of Western Australia and the Northern Territory and I see no reason why we can't really be entering into a long-term alliance with China to supply them with energy."

Under the contract, Australia LNG will supply an initial 3 million tonnes of LNG per year from its North West Shelf venture, rising to possibly 5 million after 2008, according to Australian Prime Minister John Howard.

Howard said the LNG contract with China will be worth 20-25bn Australian dollars in export income for Australia.

Dixon would not speculate on why China selected Australia over alternative bidders, such as Indonesia and Qatar, but pointed to the successful collaboration of the Western Australian and national governments and the six joint venture partners in the NWS project.

"I don't know what anyone else's price was and I am bemused to think that some investment analysts think they know what the prices were," he said.

Dixon said now that NWS has been selected as the supplier, discussions over potential equity are expected to resume soon.

The NWS Venture partners are offering a 25% stake in the Chinese project to the China National Offshore Oil Company.

"The intention is China will be offered a farm-in opportunity for the joint venture which will supply China," he said.

"Their overall stake in the NWS won't be substantial, but their overall stake in the bit that supplies China could be."

China's preference for equity follows its involvement in Hamersley Iron's Channar project, also in Western Australia.

"I know iron ore is a long way from gas, but it has established a framework which they are very comfortable with," he said.