NWS to supply Guangdong LNG, partner with CNOOC

Aug. 14, 2002
China National Offshore Oil Corp. (CNOOC) and Guangdong LNG partners have selected Australia's North West Shelf Venture (NWS) as sole Phase I supplier for China's first LNG import terminal.

By OGJ editors

HOUSTON, Aug. 14 -- China National Offshore Oil Corp. (CNOOC) and Guangdong LNG partners have selected Australia's North West Shelf Venture (NWS) as sole Phase I supplier for China's first LNG import terminal planned at Guangdong in southern China. The bid was placed through Australia LNG Pty. Ltd. (ALNG), Beijing, NWS's marketing arm in China.

The contract calls for initial deliveries of 3 million tonnes/year of LNG for 25 years, with deliveries planned to begin from Western Australia in 2005-06.

"Selection carries the responsibility to play our part in the development of China's enormously important first LNG project," said Arthur Dixon, president of ALNG. "We look forward to building a long-term, mutually beneficial relationship with our China customers."

New construction
Fulfillment of the contract will require construction of additional LNG processing and transport facilities in Western Australia in addition to the LNG receiving terminal at Guangdong. Currently there are three parallel processing trains at the Karratha LNG liquefacation plant on the Burrup Peninsula, each train producing 2.5 million tonnes/year of LNG, and construction is already under way on a fourth, which will have a capacity of 4.2 million tonnes/year of LNG.

"We are now embarking on the final optimization of the design of the fifth LNG (liquefaction) train at Karratha, which will be required to meet our total future supply commitments," said John Akehurst, managing director for NWS operator Woodside Energy Ltd.

Addition of the fifth train will require expenditures of more than $1 billion (Aus.) over 3 years. 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 of 7.5 million tonnes/year.

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.

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 Hong Kong. Total cost for both phases combined is $850 million.

Shareholders in the Guangdong LNG project are CNOOC 33%, Guangdong entities 31%, the China unit of BP PLC (the "selected foreign partner") 30%, and Hong Kong parties 6%.

In addition, 2-3 new LNG transport vessels will be required to service the China trade route. A fleet of eight LNG ships currently service 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.

CCNOC to join NWS
CNOOC also will become a partner in NWS. "As a result of China's decision, and after the execution of the LNG sale and purchase agreements, CNOOC Ltd. (CNOOC's offshore oil and gas producing unit) will have the opportunity to acquire a participating interest in (NWS) reserves and production that will supply gas to Guangdone," said Woodside. "A proposal has been made that will allow CNOOC Ltd. to become a full member of the joint venture that will be created to facilitate the LNG supply to China.

NWS consists 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.

Second China LNG scheme
Meanwhile, CNOOC is planning a second new LNG terminal—this one at Fujian, China—and is currently engaged in discussions with BP regarding supply of LNG from BP's Tangguh gas field in Indonesia.

CNOOC, which has a 60% equity interest in the proposed terminal, plans to begin regasification operations in 2006-07 with an initial capacity of 2.5 million tonnes/year of LNG.

"The start up of two LNG terminals, not just one as expected, is. . .great news to China's gas market development," said CNOOC Ltd. Chairman and CEO Wei Liucheng. "Reliable supply of clean fuels will help boost coastal economies. It is also a milestone event for CNOOC Ltd., its gas strategy, and its expected upstream expansion." he said.

"As the result of the LNG supply decisions by (our parent CNOOC) and its partners, CNOOC Ltd. is preparing to firm up the expected acquisition of gas reserves associated with the selected LNG supplying fields," Wei said. He added that terms of such reserves acquisition agreements are expected to be announced at a later date.