China may pay more for gas of Indonesia (Shenzhen Daily/Agencies) Updated: 2006-02-14 14:28
China may allow Indonesia to raise the price of liquefied natural gas (LNG)
from the US$5 billion, BP-led Tangguh project, but the world's second-largest
energy consumer ruled out any major increases.
"We understand the global LNG market has recently shifted to a seller's
market from a buyer's market," said an official at China National Offshore Oil
Corp. (CNOOC Group), which inked a deal in 2002 to import 2.6 million tons a
year from Tangguh over 25 years.
The Tangguh agreement leaves room for further price negotiations, he said.
"We are negotiating. But producers should not over-estimate the affordability
of a developing country like China," the official, who asked not to be
identified, said.
The remarks are yet another signal from China, where cheap but dirty coal
dominates energy consumption, that it is not ready to pursue environmental
ideals by promoting the use of cleaner-burning LNG at any cost.
It also means oil companies counting on Asian demand for their gas reserves
may have to look elsewhere. Some industry experts have estimated China could
import more than 20 million tons a year, a quarter of Japan and South Korea's
current demand, by 2015 into around 10 terminals along its coast.
China has so far sealed just two long-term deals to import roughly 6 million
tons of the super-cooled, compressed natural gas a year from Tangguh and
Australia's North West Shelf.
CNOOC has already put on ice talks with U.S. major Chevron Corp. for
long-term supplies from the Australian Gorgon project due to a disagreement over
price. Instead, Gorgon has signed up Japanese and Indian companies recently.
"China may become a big LNG market, but it all depends on price," said the
official at CNOOC, China's third-largest oil and gas producer.
CNOOC Group is the parent of Hong Kong and New York-listed CNOOC Ltd., which
holds a stake in Tangguh project.
Indonesia has asked CNOOC to raise the Tangguh LNG price to reflect recent
climbs in LNG prices as a result of sharply higher global crude oil prices.
Kardaya Warnika, chairman of Indonesia's oil watchdog BPMIGAS told reporters
last month that it wanted CNOOC to raise the price by hiking the oil ceiling
prices from US$25 a barrel.
LNG prices in Asia are partly pegged to crude oil prices, which have more
than doubled to more than US$61 a barrel over the past four years.
The CNOOC official said the Tangguh LNG price negotiation started last year,
but he declined to reveal details of the talks or predict the outcome.
CNOOC has denied reports in December that its LNG terminal being built in
China's southeastern Fujian Province wanted to receive only 1 million tons a
year of Tangguh LNG in the short term instead of 2.6 million tons.
The official said construction of the Fujian terminal is proceeding normally.
He said it had yet to be proven if the tight global LNG supplies would last
given that proposals to build dozens of receiving terminals in China and the
United States had yet to materialize.
But it is almost unlikely for China to obtain future LNG supplies under the
favorable terms secured for its first receiving terminal in Guangdong Province
from North West Shelf in 2002 under a A$25 billion, 25-year deal, he said.
The Guangdong price is reportedly fixed around US$3.5 per million British
thermal units regardless of oil price fluctuations.
"That was a great window of opportunity," the official said.
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