Royal Dutch Shell Plc  .com Rotating Header Image

The Wall Street Journal: China Resumes Its LNG Hunt

November 1, 2006; Page A8

BEIJING — China has re-emerged as a buyer of natural gas, signing a string of deals and setting purchasing frameworks that signal a willingness to accept higher prices.

While some question how much of a turning point these deals represent, the emergence of China as a rising importer of liquefied natural gas will likely encourage more investment in the sector. Uncertainty about the size of the Asian LNG market has contributed to a slow pace of development for gas-export projects across Asia and in the Middle East. As China — and to a lesser extent India — demonstrates a willingness to pay rising prices to ensure gas supplies, producers are likely to push ahead. Still, most industry observers expect the Asian LNG market to remain tight in coming years, keeping prices high.

Malaysian national oil company Petroliam Nasional Bhd said Monday it had signed a deal to supply liquefied natural gas to Shanghai for 25 years, starting in 2009. Petronas said it would initially deliver one million metric tons a year, rising to three million tons annually after 2012. Further details of the contract were unavailable, but people in the industry said the deal would probably produce a cash flow of about $15 billion to $20 billion a year for Petronas.

The deal follows an announcement last week by China National Offshore Oil Corp. that it signed frameworks with Suez SA, Total SA and Shell Eastern Trading Ltd. to buy spot shipments of LNG to make up for any supply shortfalls. The agreements didn’t specify amounts or prices.

In September, Cnooc announced an agreement on the purchase of LNG from Indonesia after haggling over a price increase.

Exxon Mobil Corp. said last week that it had reached a preliminary agreement to sell natural gas from a project off Russia’s Sakhalin Island to China — instead of to Japan as originally planned. That deal faces hurdles, including the economics of building a very long pipeline and getting the cooperation of OAO Gazprom, Russia’s natural-gas distribution monopoly.

China wants to reduce its reliance on highly polluting coal by switching to natural gas, but to do so it must increase gas imports. A few years ago, China was able to snare sweetheart deals for natural gas because there were more projects than buyers in the region.

When global prices for natural gas shot up because of the surge in oil prices and growing demand from the U.S., China balked at paying more and found itself outbid by Japan and others for contracts to obtain liquefied natural gas.

Long-term natural-gas contracts are priced in a sliding scale indexed to the price of oil. At $60 a barrel for oil, the Shanghai contract with Petronas would mean paying about $6 for one million British thermal units, the measure for natural gas. That is about double what China had paid three years earlier.

— Sue Feng and Renya Peng in Beijing and Russell Gold in Austin, Texas, contributed to this article.

Write to Shai Oster at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

0 Comments on “The Wall Street Journal: China Resumes Its LNG Hunt”

Leave a Comment

%d bloggers like this: