Australia wins huge China LNG deal


The gas for China will come from Australia's Northwest Shelf

Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Australia has won its biggest energy export contract to date -- a Aust. $25 billion ($13.5 billion) deal to supply liquefied natural gas (LNG) to China.

The gas will come from the North West Shelf fields off the coast of Western Australia.

The bid by the North West Shelf Venture consortium's Australian LNG Ltd beat potential suppliers from Indonesia and Qatar.

Australian Prime Minister John Howard said Thursday afternoon he had been told by Chinese Premier Zhu Rongji that the North West Shelf Venture had been chosen as sole supplier to China's first LNG project in Guangdong province.

Biggest export deal


Howard said he received news of the win from China's Premier Zhu Rongji, above

Howard said the 25-year contract would be worth up to A$25 billion in export income for Australia.

"This is Australia's largest single export deal," he said. Analysts see it as providing a strong boost to the trade balance.

China is Australia's second largest trade partner in Asia, behind Japan.

From 2005-06 the North West Shelf venture will supply over 3 million tonnes of LNG a year for 25 years.

Howard said this would mean eventually additional investment in a fifth LNG processing train for the North West Shelf facilities on the Burrup peninsula of Western Australia.

He said this in itself would be worth about $1.5 billion ($810 million).

'Exciting development'

Howard said the deal was "a major and exciting development" in the growing trade and economic ties between Australia and China.

"It represents a new energy partnership between our two nations," he said.

There has been intense negotiations with China and lobbying by the rival suppliers in Indonesia, Qatar and Australia.

The North West Shelf venture's bid for the LNG contract was a major focus of Howard's visit to Beijing in May.

Participants in the venture are Woodside Energy (as operator), BHP Billiton Petroleum, BP Developments Australia, Chevron Texaco Australia, Japan Australia LNG (MIMI) and Shell Development (Australia), plus the venture's marketing arm, Australia LNG.

Role for CNOOC

BHP Billiton, which holds 16.7 percent of the North West Shelf project, said late Thursday that the China National Offshore Oil Company (CNOOC) would have a chance to take a stake in the North West Shelf Venture gas reserves and production for the Guangdong project.

"A proposal has been made that will allow CNOOC to become a full member of the joint venture that will be created for LNG supply to China," it said.

The Chinese shipping companies COSCO and China Merchants will work with the venture on LNG transport. BHP said two to three LNG ships would be needed to service the China route.

According to BHP, phase one of the Guangdong LNG project involves building an LNG import terminal, a 300-kilometer (186-mile) pipeline along the eastern side of the Pearl River delta, and a branch pipeline to Hong Kong.

In phase two, the pipeline will be extended around the western side of the Pearl River delta. BHP says the estimated cost of phases one and two is $850 million.