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Expired LNG deal has limited impacts on China
(Xinhua)
Updated: 2010-01-06 15:02
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China will not face a natural gas shortage despite an expired $40 billion LNG deal between its largest oil and gas producer and Woodside Petroleum, Australia's second biggest, Chinese experts said.
China National Petroleum Corporation (CNPC), announced late Tuesday that the initial accord between its listed arm PetroChina and Woodside, which was signed in 2007, is no longer valid due to project delay.
Woodside made the same announcement on its official website on Monday, indicating that the deal was supposed to create a potential sale of 2 to 3 million tons a year of liquefied natural gas (LNG) from its Browse LNG Development to PetroChina.
The deal was estimated to worth up to over 40 billion, as the LNG supply was supposed to start between 2013 and 2015 for 15 to 20 years, according to the expired accord.
The deal expiration had given rise to market worries over the increasing possibility of natural gas shortage in future, as China had been grappling with shortages of natural gas since late 2009 triggered by the extraordinarily freezing winter weather.
However, Liu Xiaoli, deputy director of the Center for Energy Research Institute of the National Development and Reform Commission (NDRC), said there is no need to over-worry, as China will not face such shortage in the near future with increasing sources of natural gas supply.
"The deal expiration is largely a commercial practice, as failing to reach an agreement after the initial accord is so common in business," she said.
Concerns over over-supply
The two parties did not reach an agreement to extend the deal since "the Browse LNG Development is postponed, and Woodside would not be able to provide the supply by the time agreed in the previous accord," said CNPC in a statement on its website.
The statement did not elaborate on the reason of the project delay, but Australian local media said it was because Woodside and its partners would not give a final investment decision on Browse Development until 2012, pushing the beginning of the proposed gas export two years after that.
Liu Yijun, a professor with the China University of Petroleum, said an estimation of the future global market will face an oversupply of natural gas was one of the reasons that had made Australian investors "cautious and prudent".
A recent report from the International Energy Agency on the world energy outlook said the over-capacity of gas pipelines and LNG termimals will increase to at least 250 billion cubic meters by 2015, more than four times of the 2007 level.
However, such prediction should be dealt with caution, said Liu Yijun, as China, India and their neighboring countries are all facing huge natural gas demand, which had not been fully revealed due to the lingering economic crisis.
Diversified gas supply
Analysts had also pointed out that the expired deal would have limited impact on China's domestic gas supply as the supply from Woodside is not crucial and the country has been exploring more ways to meet its demand.
According to Liu Yijun, a supply of 2 to 3 million tons LNG would bring China 4 billion cubic meters of of natural gas each year, accounting for only 4.5 percent of China's estimated annual consumption of 90 billion cubic meters in 2009.
"Considering that China's natural gas market would further expand in 2013, the loss of supply from Woodside would not have a significant impact on China's domestic supply," he told Xinhua.
Besides, China's structure of natural gas supply is witnessing improvements with rising domestic production, import from Central Asia, Myanmar and Russia, and imported LNG as its major sources, said Liu Xiaoli.
A 1,833-kilometer natural gas pipeline linking China, Turkmenistan, Kazakhstan and Uzbekistan started operation last month, which will be providing over 30 billion cubic meters of natural gas annually from Turkmenistan to China when reception terminals in China get fully prepared.
Progresses in the construction of the China-Myanmar oil and gas pipelines and the planned project between China and Russia would also help ease the shortage, said Liu Yijun without giving further details.
According to BP Statistical Review 2009, China's natural gas output in 2008 was 76.1 billion cubic meters, as compared with its consumption of 80.7 billion cubic meters in the same period.
"Based on current progress, China would enjoy an abundant supply of natural gas in three years," said Liu Yijun.
Cooperation to continue
In August 2009, PetroChina signed an agreement with ExxonMobile to purchase 2.25 million tons of LNG annually from the Gorgon field in Australia for 20 years, while in May, China National Offshore Oil Corp. also inked an agreement with United Kingdom-based BG Group on a LNG development project in Queensland, Australia.
In the Woodside announcement, the company also stated that the two parties had agreed to "keep each other informed of progress in their respective LNG export and LNG import projects", and would continue to "negotiate in good faith to progress a detailed LNG supply agreement".
