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DOW JONES NEWSWIRES: INTERVIEW: Unocal Tensions Not Derailing Gorgon Gas Talks

DOW JONES NEWSWIRES: INTERVIEW: Unocal Tensions Not Derailing Gorgon Gas Talks

“Estimated to cost at least A$11 billion and produce its first gas in 2010, Gorgon is 50% owned and operated by Chevron. Royal Dutch/Shell Group (RD) and ExxonMobil Corp. (XOM) each own 25% of the venture.”

Thursday 14 July 2005

By Veronica Brooks

Of DOW JONES NEWSWIRES

CANBERRA (Dow Jones)–Negotiations between China National Offshore Oil Corp. and the Chevron Corp. (CVX)-led Gorgon liquefied natural gas project are still alive, Australia’s Industry and Resources Minister Ian Macfarlane said Thursday.

Macfarlane also told Dow Jones Newswires that while CNOOC, China’s dominant overseas oil producer, and Chevron are currently locked in a takeover battle for U.S. independent Unocal Corp. (UCL), the rivalry isn’t causing any local friction between the two companies.

Macfarlane met with Chevron officials in Perth earlier Thursday “and they were quite clear that there were no tensions being created by the Unocal deal”.

“That wasn’t influencing their (Gorgon gas) discussions but obviously there is an issue about CNOOC’s expectations about price and equity and that’s the commercial negotiation they have to have,” the minister said.

According to a A$30 billion (US$22.6 billion) agreement signed in October 2003, CNOOC Ltd. (CEO), the listed arm of CNOOC, will take a stake of up to 12.5% in the Gorgon project and will seek supply of as much as 100 million metric tons of LNG over 25 years.

Last week, CNOOC said it had suspended negotiations with the Gorgon project off Australia’s northwestern coast because the LNG price being sought was “too high”.

But Macfarlane said he came away from his chat with Chevron executives “with the clear impression they are still in discussions with CNOOC”.

“They also don’t see CNOOC as a deal-breaker in terms of developing Gorgon, though they obviously see China as an important potential market,” he said.

“So I understand those discussions are still going on.”

Gorgon is having “ongoing discussions” with China’s CNOOC, a spokesman for the joint venture told Dow Jones Newswires in Perth following the Macfarlane interview.

“The intensity varies, but we remain committed to signing a sales and equity agreement to supply Gorgon LNG to China,” he said.

Estimated to cost at least A$11 billion and produce its first gas in 2010, Gorgon is 50% owned and operated by Chevron. Royal Dutch/Shell Group (RD) and ExxonMobil Corp. (XOM) each own 25% of the venture.

Macfarlane believes customer nations for LNG are getting “anxious” about the price of gas continuing to rise.

“I think there is a reluctance on the part of the Chinese to accept that Guangdong prices (achieved under a long-term gas supply deal struck in 2002 between CNOOC and Australia’s North West Shelf LNG operation) are exactly that – Guangdong prices of a few years ago.

“The world’s moved on and those sorts of prices aren’t around anymore,” he said.

“That’s part of the negotiation (process confronting Gorgon), getting these people to accept that we are in an environment of increasing prices and higher consumer demand,” said Macfarlane.

South Korea Keen To Source LNG From Australia

Apart from China, the Gorgon partners are looking for potential buyers in South Korea, Japan and the west coast of North America, according to the minister.

South Korea recently announced it will this year seek to strike a long-term deal for the supply of about three million metric tons a year of LNG beginning in 2010.

The government is seeking the volume to cover its supply requirements with the ending of various LNG contracts in 2010, however the exact amount of the planned purchase hasn’t yet been decided.

Macfarlane is skeptical Gorgon might be in the running for that particular deal, given a final investment decision on Gorgon isn’t expected until 2006, “even as late as the third quarter of next year.”

“Those Korean contracts will be late this year, early next year in terms of initial expressions of interest,” the minister said.

“It will depend on whether CNOOC aside, Gorgon wants to get involved in a contract when they actually haven’t made a final decision to develop the resource,” said Macfarlane.

The Gorgon partners only recently committed to a Front End Engineering and Design, or FEED, phase.

Macfarlane noted he had been assured by senior Korean government officials during a meeting earlier this week that South Korea is eager to source LNG from Australia.

Next month Macfarlane will visit California, Mexico and Chile in a bid to promote Australian LNG as a reliable supplier for customers in those markets.

Earlier Thursday, Chilean President Ricardo Lagos told reporters in Canberra his country would be a keen buyer of Australian LNG.

Chile and a string of countries in South America are exploring ways to help solve the area’s chronic energy supply problems.

“From the point of view of our own energy needs, you here in Australia (have) plenty of natural gas and we would like to have part of that gas down in Chile,” Lagos said during a joint press conference with Prime Minister John Howard.

Howard was quick to respond, saying: “We’re on the look out for new markets and given the very strong association that’s already there, we’d be very happy for that to occur.”

Macfarlane, who will meet with his Chilean counterpart in Sydney on Friday, said the potential for exporting LNG into that market looks promising, though will require significant infrastructure investment by Australian players.

“It does sound like the Chilean option is opening up again,” he said.

-By Veronica Brooks, Dow Jones Newswires;

61-2-6208-0901; [email protected]

-Edited by Ian Pemberton

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