China may source LNG from Indonesia and Australia
China may source LNG from Indonesia and Australia
BEIJING (Dow Jones): China's decision to invite BP Amoco Plc (BP) to partner China National Offshore Oil Corp. in a US$600 million terminal project has improved the prospects that liquefied natural gas will be sourced from Australia and Indonesia, analysts said Tuesday.
An official from the Chinese consortium heading the LNG project in the southern Guangdong province said BP Amoco has been asked to enter final negotiations on taking a 30 percent equity stake in the terminal development.
BP fended off rival bids from China Australia Terminal Corp. and Korea Gas Corp.; a consortium made up of Exxon Mobil Corp., Hong Kong China Light Power, and Chubu Electric Power Co.; and a consortium made up of Royal Dutch/Shell Group, Marubeni Corp. and Osaka Gas Co. Ltd. to enter the next stage of negotiations.
Australia LNG Ltd, developers of the North West Shelf project off Western Australia, remain confident of winning the 20-year, $10 billion contract to supply China's first LNG project, despite the selection of BP as the foreign partner in the terminal construction.
However, analysts believe that BP is more likely to source part of the LNG for the terminal from Australia's North West Shelf and the remainder from its Tangguh gas field off West Papua in Indonesia. Tangguh is expected to come on line in 2005, in time to supply the Chinese project.
Australian LNG vice-president Alf D'Souza said bidders for the supply contract have been told that the selection process will be considered separately from the terminal project.
"BP is one of the parent companies of ALNG and also the supply asset in the North West Shelf," D'Souza said. "We would expect them to be supportive of Australian gas."
Australia's Woodside Petroleum Ltd. also remains hopeful of winning the Chinese supply contract, despite China Australia Terminal Corp. missing out on the construction deal.
"We remain competitive as far as supplies goes, and we look forward to competing with everyone else," a Woodside spokesman told Dow Jones Newswires.
Analysts said the foreign partner will have the inside running on winning LNG supply contracts once the terminal is completed in 2005. China expects to initially import about three million metric tons of LNG a year.
Salomon Smith Barney oil and gas analyst Thomas Hilboldt said that as a stake holder in the receival terminal, BP Amoco is expected to have a strong say in the selection of the supplier.
"The writing on the wall is pretty clear in regard to the gas supply," Hilboldt said, referring to BP's gas field projects in both Indonesia and Australia.
Less clear is the shape of the package offered to CNOOC by BP to clinch the deal and whether it will take an equity stake in a gas field outside of China.
"Obviously the driving thing behind this whole story is that CNOOC will get some kind of equity interest in an upstream natural gas supply," Hilboldt said. Which field and the size of the stake is still unclear. "At this point, I wouldn't rule anything out," he said.
Despite losing out on the bidding, Woodside believes that by participating in the selection process it has opened up future opportunities to supply China with LNG.
Chinese authorities have signaled other LNG projects will follow the Shenzhen pilot development, as the country attempts to reduce its over-reliance on coal in its total energy mix.
"There are some opportunities that have arisen that we are now looking at to do with LNG over there in the longer term," the Woodside spokesman said.
"We entered the bidding in the first place to maximize Australia's chances of winning the LNG supply contract," he said. While BP is now favorite to win some supply contracts, an Australian energy analyst who asked not to be named said he believes the Chinese are aiming to have two major suppliers.