China signs $20b LNG deal

West Australian
Wednesday 26/11/2008 Page: 7

Royal Dutch Shell and PetroChina have agreed to a deal likely to be worth at least $20 billion to supply liquefied natural gas to China from gasfields including theGorgon project, off WA's North-West. The agreement will see Shell sell up to two million tonnes of LNG annually for 20 years to PetroChina, China's biggest oil and gas producer. It supersedes a provisional deal signed a year ago under which Shell was to have supplied one million tonnes of LNG a year from the Gorgon project to PetroChina. That was tipped to be worth $10 billion.

Terms and timing of the upgraded agreement, which was announced yesterday but signed in Beijing on Monday, were not released and Shell did not specify where it would source the LNG. It remains unclear whether the extra million tonnes are due to come from Gorgon or from other Shell projects in the Asia-Pacific region. The Anglo-Dutch oil and gas giant has a 25 per cent stake in the Chevron operated Gorgon project, which after years of delays should get the partners' financial go-ahead by early 2010.

The partners, which include Exxon-MobilExxon-Mobil, are eying a 15-million tonne- a-year LNG operation on Barrow Island but are facing a massive development cost, likely to be more than $20 billion, big environmental concerns as well as technical challenges associated with Gorgon project gasfield's high carbon dioxide content. Chevron has already warned that extra costs faced by projects such as Gorgon project because of the Federal Government's proposed emissions trading scheme could potentially scupper the big-ticket development.

Prime Minister Kevin Rudd has said LNG projects are unlikely to get preferential treatment under the ETS. Shell also has a one-sixth stake in the North West Shelf LNG venture and is pursuing a floating LNG plant for its Prelude gasfield in the Browse Basin. China has continued to lock in energy supplies to help meet longterm needs even as the global financial crisis crimps demand for resources.

"This is a significant step forward in the co-operation between Shell and PetroChina and highlights Shell's continued contribution to assist PetroChina in providing clean energy supplies to China," Shell's executive chairman in China, Lim Haw Kuang, said. China is building new LNG terminals in anticipation of increased imports in coming years, as it shifts away from reliance on heavily polluting coal to cleaner energy. PetroChina this year signed a 25- year deal with Shell and Qatargas to buy three million tonnes of LNG a year from Qatar, the world's biggest LNG exporter.