PetroChina Inks Initial Agreement With Woodside in LNG Supply Deal

SHANGHAI (Interfax-China) -- PetroChina [NYSE:PTR], the listed arm of China's largest oil and gas producer, inked an initial agreement this morning with Australia's largest publicly traded oil and gas producer Woodside Petroleum Ltd [ASX:WPL] regarding a possible liquefied natural gas (LNG) deal, which will potentially see the import of 2 million to 3 million tonnes of the fuel annually for a period of 15 to 20 years.

This is the second long-term LNG import deal that the Chinese oil giant has signed during the week in Australia, where Chinese president Hu Jintao is also attending the Asia-Pacific Economic Cooperation summit in Sydney. The two deals would see a total of at least 3 million tonnes of LNG imported into China each year, likely through PetroChina's Rudong terminal in Jiangsu Province, according to state-run China Securities Journal.

Key commercial parameters, including LNG prices, have been agreed upon, according to the statement. Gas supply, which is to be sourced from Western Australia's Browse Basin off the Kimberley coast, is scheduled to hit China's shores by 2013 to 2015.

The Browse Basin, partly owned and operated by Woodside, is expected to cost up to AUD $10 billion ($8.2 billion) to develop, and is due to deliver its first shipment of gas to Japanese customers by the end of 2010.

The deal was signed by Don Voelte, chief executive officer of Woodside Energy Ltd., and Zhou Jiping, vice president of the China National Petroleum Corporation, PetroChina's parent company, in the presence of Australian Prime Minister John Howard and Chinese President Hu.

Though still pending a final investment decision on the Browse project and approval from relevant government bodies, the full contract has the potential to bring revenues of AUD $35 billion ($28.8 billion) to AUD $45 billion ($37 billion) into Australia, and would represent the largest single export deal signed by an Australian company, said Mark Chatterji, Woodside's chief financial officer, in the statement.

"We see this agreement as a vote of confidence in the Browse development and in Australian LNG as a clean fuel of choice," Chatterji said.

China, the world's second largest energy consumer, is working to boost the proportion of natural gas used in its overall energy consumption in order to cut greenhouse gas emissions and reduce the country's dependency on oil. Despite double digit increases in domestic gas output, artificially low domestic gas prices, which have led to inefficient utilization in power and chemical plants as well as soaring demand driven by a robust economy, have made the country eager for gas imports.

China's three largest state-owned energy companies plan to build as many as 11 LNG terminals on the country's eastern coast.

PetroChina, for example, has attained government approval to build three such terminals, in Jiangsu Province's Rudong, in Tangshan near Caofeidian Port in Hebei Province and in Liaoning Province's port city of Dalian.

It sealed an initial agreement earlier in the week with Shell, in its Gorgon project off Western Australia, to see 1 million tonnes of LNG imports a year over a 20-year period. The import price is likely to be RMB 2.7 ($0.36) per cubic meter, according to the China Securities Journal.

The company also has a 25-year agreement to buy 3 million tonnes a year of LNG from Iran, starting in 2011.

Woodside Petroleum is the LNG provider to China's first and only operational terminal in the city of Shenzhen in southern China's Guangdong Province.

The Guandong Dapeng LNG Corp., jointly owned by the China National Offshore Oil Company, the country's dominant LNG project developer, and British Petroleum, started receiving LNG since June of last year from Woodside's North West Shelf that will amount to 3.85 million tonnes annually for 25 years.

Based on current market conditions, the LNG prices China secured in the Dapeng project, around $165 per tonne, from Woodside were very low. But China will not be able to achieve that level in future LNG deals as international gas prices have been significantly pushed up by global demand and crude oil price spikes, according to industrial analysts.

China has been buying spot LNG cargos at an average of $431.5 per tonne, almost triple the Dapeng fixed long-term contract price.

See RI's of Woodside Petroleum.

(c) Interfax-China 2007. For more intelligence on Chinese metals and mining, click here or contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262.

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