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Chinese LNG Deal

Brian Hicks

Written By Brian Hicks

Posted November 1, 2012

In a sign of China’s commitment to securing fuel sources in order to meet an ever-rising domestic demand, the China National Offshore Oil Corp. is set to pay BG Group Plc. (LON: BG) $1.93 billion for a supply contract as well as another stake in BG’s Queensland Curtis LNG project in Australia.

This makes BG the largest supplier of LNG to China, providing China National, parent of CNOOC Ltd. (HKG: 0883), with 5 million metric tons of LNG for a 20-year period beginning 2015.

Meanwhile, China National stands to raise its stake in the Australian project. Back in May, BG stated that the cost for developing a gas export project there rose by 36 percent to hit $20.4 billion in response to a strong Australian dollar and rising labor costs.

From Bloomberg:

“The deal would further deepen China National’s LNG participation in the region, which is strategically important given the growth of LNG in China,” said Neil Beveridge, a Hong Kong-based energy analyst at Sanford C. Bernstein & Co. “Clearly the Queensland project is running over the budget, given a high cost inflation, and running behind the schedule. China National’s participation could help lessen some of BG’s spending burden.”

BG already has a deal with China National, started in 2010, under which it provides 3.6 million tons of LNG each year. China’s operating LNG-import capacity is 21.5 million tons. Another 26 billion cubic meters (918 billion cubic feet) is under development.

By 2015, China’s annual LNG imports could be as high as 47 billion cubic meters (1.7 trillion cubic feet). Back in 2011, China’s purchase of LNG hit 12.21 million tons, a record high.

As for the Australian project, PetroChina Co. (HKG: 0857) and Royal Dutch Shell Plc. (LON: RDSA) jointly own Australia’s Arrow Energy, which intends to develop another LNG project adjacent to the BG venture. These are part of nearly $180 billion in LNG developments currently underway in Australia to meet exploding demand from Asia.

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