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LNG deal to boost trade links
By Fu Jing (China Daily)
Updated: 2004-04-28 10:17

China and Australia stepped forward to forge a lucrative liquefied natural gas (LNG) deal involving millions of tons of the substance with the opening of representative office in Beijing on Monday.

The establishment of the China Representative LNG Office under Australia's massive Gorgon gas project is an important step toward one of the biggest LNG agreements in the industry's history, as foreshadowed in the October 2003 agreement between Gorgon Venture and CNOOC (China National Offshore Oil Corporation).

ChevronTexaco Australia Managing Director Jay Johnson told China Daily that commercial discussions are ongoing with CNOOC to finalize both equity and LNG sale agreements.

"I hope they will be finished by the end of this year," said Johnson, whose company is jointly operating the Gorgon project, the largest gasfield ever discovered in Australia, with partner firms Royal Dutch/Shell Group and Exxon Mobil Corp.

Johnson didn't reveal details about the progress of the negotiations.

But earlier reports indicated that CNOOC, China's largest offshore oil firm, expects to pay about US$275 million for the 12.5 per cent stake in Gorgon, which contains proven reserves of 12.9 trillion cubic feet.

CNOOC will also pay a 12.5 per cent share of the project's estimated A$11 billion (US$7.69 billion) development costs.

The CNOOC will take up to 100 million tons of LNG from the Gorgon project to China over 25 years. The sales would be worth an estimated A$30 billion (US$21 billion) in what would be the largest export deal in Australian history.

"We are still seeking buyers in China's market," said Johnson.

The Gorgon area, situated 130 kilometres offshore of Western Australia at an underwater depth of roughly 200 metres, includes proven reserves of 365 billion cubic metres.

Prices of LNG to be supplied to China are still uncertain, said Johnson.

"But we believe our prices will be competitive due to high quality, safety of the products provided and excellent service we offered," he said.

Chen Min, China chief representative of Gorgon Australian LNG, said he is also confident about the future of the Sino-Australian partnership despite firms from more and more countries looking to explore China's huge energy market.

"Pricing is important for commercial partnership, but that's not enough," said Chen, adding that bilateral relationships and international situations should be considered.

Chen believed that Sino-Australian ties will likely become stronger and more diverse.

"The two economies, in many ways, are already complementary," Chen said.

China is already one of Australia's largest trading partners, behind the United States, Japan and the European Union.

Johnson also said China's growing economy needs to import increasing volumes of energy.

"The demand is certainly there, and we are ready and able to help China's needs," he said.

Besides China, Johnson said that Gorgon needs more gas sales contracts to target markets in South Korea, Japan and the west coast of North America.

Experts said that the Sino-Australian deal illustrates that China is increasingly tying itself to foreign partners to diversify its energy imports while freeing itself from heavy reliance on oil imports from the turbulent Middle East.

Energy security issues are becoming more crucial as China's oil imports continue rising.

Estimates place China's oil imports at 100 million tons in 2010, and 200 million tons in 2020, when 40 per cent of the nation's oil supply will depend on imports. Currently, it is at about 20 per cent.

The LNG projects will be in line with China's efforts to encourage more use of clean energy, such as natural gas, experts suggest.

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