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.