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Bloomberg: PetroChina Agrees to Buy Up to A$60 Billion of Australian LNG

By Angela Macdonald-Smith

Sept. 6 (Bloomberg) — PetroChina Co. agreed to buy as much as A$60 billion ($49 billion) of Australian liquefied natural gas in two accords signed this week, as China’s demand for the fuel forces it to accept prices that have tripled in five years.

Asia’s biggest oil company by market value would buy as much as 3 million metric tons a year of LNG from Woodside Petroleum Ltd.’s Browse project in Western Australia under an initial agreement, Woodside said today in a statement. The 15-to-20 year accord would start as soon as 2013. PetroChina this week agreed with Royal Dutch Shell Plc to buy LNG from the Gorgon venture.

Global LNG contract prices have been driven higher by increasing demand from power companies for cleaner-burning fuels and delays in supply projects caused by a jump in plant construction costs. China is returning as a customer for Australian LNG five years after a contract signed by China National Offshore Oil Corp. at near record-low prices.

“Woodside wouldn’t be selling the LNG now unless the Chinese had changed their minds on pricing,” said Stuart Baker, a Melbourne-based oil and gas analyst at Morgan Stanley in Melbourne. “If the Chinese stick to the pricing structure they agreed last time round in 2002 or 2003, then they are not going to get access to supply, full stop.”

Woodside jumped as much as A$1.26, or 2.8 percent, to A$46.46 on the exchange, outpacing a gain of as much as 0.7 percent in the benchmark energy index. The stock was at A$45.99 at 1:45 p.m. in Sydney.

Biggest Deal

The agreement by Australia’s second-largest oil and gas producer, to sell Browse LNG to PetroChina would, if confirmed, be the nation’s biggest export deal, Resources Minister Ian Macfarlane said today. The transaction is worth between A$35 billion and A$45 billion in revenues, Woodside Chief Financial Officer Mark Chatterji said in a briefing document lodged with the exchange.

Global LNG demand is set to more than double by the middle of next decade, buoyed by a surge in demand in the U.S., primarily for use in power plants, Purvin & Gertz Inc., a Houston-based energy consulting firm, said in June. In Asia, the biggest market, most demand growth will come from newer LNG imports such as China and India, with slow demand growth in Japan and South Korea, the firm said.

On Sept. 4 PetroChina agreed to buy 1 million tons a year of LNG over 20 years through Perth-based Woodside’s 34 percent shareholder Shell from the Gorgon project, also in Western Australia. Assuming similar pricing terms to the Woodside agreement, that deal may be worth as much as A$15 billion.

`Market Prices’

China has been paying prices for LNG on the spot market that are more than double the price of fuel supplied under contract by the Woodside-operated North West Shelf venture to China National Offshore.

China paid $427 a ton, or $8.14 a million British thermal units, for an individual LNG cargo from Algeria in July, compared with $164 a ton, or $3.15 a million Btu, for contracted supplies from Australia, according to customs data. The country paid $435 a ton, or $8.30 per million Btu, for the first LNG spot cargo in April from Oman.

Woodside won’t comment on the pricing of the PetroChina sale, Chatterji said. “Woodside always sells at market prices,” said Hannah Fitzhardinge, a company spokeswoman.

Households and some industries in high-growth areas like Guangdong may pay international prices for gas because of a shortage, said Cecile Jovene, a former LNG trader with Gaz de France and now principal consultant for gas at FACTS Global Energy Inc. Power plants may not pay as much, she said.

`Starting Point’

China is turning to natural gas as demand for cleaner- burning fuels increases in the world’s fastest-growing major economy. Woodside and its partners have yet to decide whether to proceed with Browse.

“The starting point for the project is a sales contract and then they’ve got to work through the rest of it,”, Baker said.

PetroChina plans to build three LNG import terminals: in Rudong in Jiangsu province, Dalian in Liaoning and Tangshan in Hebei, with the first due for completion by 2010. It also has a 25-year accord to buy 3 million tons a year of LNG from Iran, starting in 2011. It isn’t decided yet which terminal the Browse LNG will be sent to, said Fitzhardinge.

“We see this agreement as a vote of confidence in the Browse development and in Australian LNG as a clean fuel of choice,” Chatterji said in the briefing document.

Woodside owns almost 50 percent and is the operator of the Browse venture, in which BP Plc, BHP Billiton Ltd., Chevron Corp. and Shell have stakes. The PetroChina accord, which includes agreement on key commercial terms including LNG pricing, is with Woodside alone. It allows for co-mingled sales with the other Browse partners, Chatterji said.

Tapping Fields

The Browse project will tap the Brecknock, Calliance and Torosa fields off Australia’s northwest coast. It may cost A$31 billion to build, JPMorgan Chase & Co. said in an Aug. 23 report.

“An agreement with such a significant foundation customer provides increased certainty to enable Woodside to move the Browse development forward,” Woodside said in the statement.

The key terms of the PetroChina accord were signed today in Sydney by Woodside Chief Executive Officer Don Voelte and Zhou Jiping, vice-president, China National Petroleum Corp., on behalf of PetroChina.

The agreement is one of six signed between Australia and China during the Asia-Pacific Economic Cooperation Summit in Sydney, attended by Chinese President Hu Jintao and Australian Prime Minister John Howard. China overtook Japan as Australia’s biggest trading partner in July.

“The growth that we’ve seen in our trade has been nothing short of stunning in the last 10 years,” Howard said at a joint press conference with Hu after the signing of the accords.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at [email protected]

Last Updated: September 6, 2007 01:22 EDT

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