Guangdong LNG, NWS partners sign sales, purchase agreements

By OGJ editors

HOUSTON, Nov. 22 -- China's first LNG project, which involves the construction of an LNG import terminal and high-pressure gas pipelines, got a boost Monday when the North West Shelf (NWS) venture participants signed agreements with the Guangdong LNG project companies for the purchase and supply of LNG from the NWS in Western Australia.

The agreements signed by the six NWS LNG sellers cover the supply of 3.3 million tonnes/year of LNG in Phase I of the Guangdong LNG project for 25 years starting in late 2005. The contract is valued at $20-25 billion (Aus.).

"The occasion marks the beginning of the North West Shelf's commercial relationship with the Chinese LNG project proponents and a new phase of supply of NWS LNG to China," said BHP Billiton Pres. and CEO Philip Aiken, the NWS owners' representative for the deal.

New construction
In China, under Phase I of the Guangdong construction project in China, the grassroots LNG receiving terminal and regasification plant will be built along with 300 km of pipeline on the eastern side of the Pearl River delta in Guangdong Province. In addition, a lateral will be built to deliver natural gas to Hong Kong.

In addition to the facilities in China, fulfillment of the Phase I contract will require construction of additional LNG processing and a second trunkline from the North Rankin A platform to shore in Western Australia.

Each of three existing processing trains at the Karratha LNG liquefaction plant on the Burrup Peninsula produces 2.5 million tonnes/year of LNG, and construction is under way on a fourth, which alone will have a capacity of 4.2 million tonnes/year of LNG. First LNG from the fourth train is scheduled for mid-2004.

A fifth LNG liquefaction train at Karratha, which will require expenditures of more than $1 billion (Aus.) over 3 years, also is being designed, said John Akehurst, managing director for NWS operator Woodside Energy Ltd. (OGJ Online, Aug. 14, 2002). The facility's fourth LNG train and a second natural gas trunk line from the fields, also under construction, will cost $2.4 billion (Aus.). Completion of the fourth and fifth trains will more than double Karratha's current LNG processing capacity.

Further infrastructure investments are being assessed to supply future opportunities and contractual obligations in Phase II.

Phase II of the China construction, planned to start in 2008, is an extension of the pipeline around the western side of the Pearl River delta. Regasified LNG will be supplied to electric power generation plants and city gate distributors in Guangdong Province and in Hong Kong. Total cost for both phases is $850 million.

In addition, 2-3 new LNG transport vessels will be required to service the China trade route. A fleet of eight LNG ships currently serve the NWS project, with a ninth vessel under construction by Daewoo Corp. in South Korea.

"It is proposed that (NWS) and the Chinese shipping companies, Cosco and China Merchants, will establish a joint venture company to support LNG transport to Guangdong," said Woodside Energy.

"The (sales and purchase) agreements are very important for the overall bilateral relationship between China and Australia, reinforcing Australia's position as a competitive, reliable, and secure supplier of LNG to the Asia Pacific region," Aiken said.

He also said the deal is significant for the future of the NWS companies to supply the Chinese market. "Whether it's iron ore or coal or LNG, the Chinese market is huge and growing and having a strong position early is very important," he said.

BHP Billiton Chairman Don Argus praised both Aiken, who acted as the pivotal link between the commercial negotiating teams, and the political entities—the Commonwealth and Western Australian governments, the Department of Foreign Affairs and Trade, and the project's marketing agent Australia LNG—for their significant roles in bringing the deal to fruition.

"The fact that we had the unshakable support of the government was very important," Argus said.

Shareholders comprising the Guangdong LNG project are: China National Offshore Oil Co. 33%, BP Global Investments Ltd. 30%, and Guangdong entities 31% and Hong Kong parties 6% make up the balance. They are Shenzhen Investment Holding Corp., Guangdong Yuedian Power Assets Managing Co. Ltd., Guangzhou Gas Co., Hong Kong & China Gas Co. Ltd., Hong Kong Electric Holdings Ltd., Foshan Municipal Gas General Co., and Dongguang Fuel Industrial General Co.

NWS partners consist of Perth-based operator Woodside Energy Ltd., BHP Billiton (North West Shelf) Pty. Ltd., BP Developments Australia Pty. Ltd., ChevronTexaco Australia Pty. Ltd., Japan Australia LNG (MIMI) Pty. Ltd., and Shell Development (Australia) Proprietary Ltd.; each currently has a one-sixth share.

As a result of the sales and purchase agreements, CNOOC Ltd., CNOOC's offshore oil and gas producing unit, also will have the opportunity to acquire a participating interest in the (NWS) reserves and production that will supply gas to Guangdong.

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