China LNG tender result soon, as study almost ready: report

China LNG tender result soon, as study almost ready: report

Dow Jones
Singapore

China will announce the winner of the US$13 billion liquefied
natural gas supply contract any day now, as the feasibility study
on the construction of an LNG terminal in Guangdong will be
completed in August, Hong Kong-based HSBC Securities (Asia) said
in a report issued Tuesday.

The study is being conducted by China National Offshore Oil
Corp. and its partners.

Of the three bidders, BP PLC's Tangguh project in Indonesia is
the frontrunner, followed by Australia's Northwest Shelf gas
project and Qatar's Ras Laffan Liquefied Natural Gas Co., or
RasGas, the report said.

The North West Shelf is an equal joint venture comprising
Woodside, the Royal Dutch/Shell Group, ChevronTexaco Corp., BHP
Billiton, BP, and Japan Australia LNG, an equal joint venture
between Japan's Mitsubishi Corp. and Mitsui & Co..

RasGas is a unit of Exxon Mobil Corp..

"It is a close call between Indonesia and Australia,"
according to the report.

HSBC believes BP will emerge as the winner, "considering the
issues of supply pricing, energy security and political factors."

However, the report said China will ask BP for a sizable
equity stake in its Tangguh project, probably 20 percent, in
exchange for the supply contract, and as a "punishment" for BP's
pullout from China's west-to-east gas pipeline project.

China may also insist on using Chinese ships to transport LNG.

BP's Tangguh gas project in Indonesia would be a sure win if
the price is the sole consideration," the report said. BP and
Indonesia's state-owned Pertamina each has a 50 percent stake in
the Tangguh project, which has proven gas reserves of 14 trillion
cubic feet.

The report didn't say the price level BP has offered to China,
but industry sources said "it is very low."

Another reason cited by the report on why China will choose BP
is that Shell and ExxonMobil already owned stakes in gas
development projects in China's Tarim basin through production
sharing contracts.

"(China) will ultimately select BP for the Guangdong LNG
supplier role to diversify the risks among the supper oil
majors," it said, adding BP's Tangguh project will allow CNOOC
access to a wider range of upstream reserves.

The odds for ExxonMobil's RasGas are slim, because LNG from
the Middle East offers no price advantage and RasGas has no
supply experience, the report said.

The only leverage for Qatar is that Middle East accounted for
56 percent of China's crude oil imports in 2001, which may give
Qatar some bargaining power, the report said.

The winner will supply 3 million tons a year of LNG to China's
Guangdong province starting 2006, rising to 5 million tons/year
by 2008 for 25 years.

Last year, BP won a 30 percent stake in the $600 million
Guangdong LNG terminal project. The feasibility study by the
CNOOC-led consortium will be completed soon and construction is
expected to start later this year or early next year.