IHS Global Insight Perspective | |
Significance | The deal makes PetroChina the largest single buyer from the Gorgon LNG project, and the output is likely to be directed towards PetroChina's 2.25-million-t/y Shenzhen receiving terminal that received initial approval from the National Development and Reform Commission (NDRC) in March 2009. |
Implications | The current deal follows Petronet's conclusion of a similar deal with ExxonMobil to import 1.5 million t/y of LNG from the Gorgon project earlier this month, reflecting PetroChina's concern to secure long-term supplies in view of competition from rival power India. |
Outlook | The contract will support ExxonMobil's efforts to become a principal supplier of gas to Hong Kong, building on the supermajor's plans to purchase natural gas supplies from the Second West-East Gas Pipeline to supply the city following its expected launch in 2011. |
Gorgon Snares Landmark LNG Deal
In a deal signed today, PetroChina agreed to buy 2.25 million t/y of gas from ExxonMobil's 25% stake in the Gorgon LNG project for a period of 20 years, bringing PetroChina's total LNG imports from Gorgon to 3.25 million t/y of LNG. The deal makes PetroChina the largest single buyer from the project. PetroChina had already signed a 20-year LNG supply contract with Shell in November 2008 under which the Chinese major agreed to import 2 million t/y of LNG, a portion of which would come from Gorgon (see China: 25 November 2008: Shell and PetroChina Sign 20-Year LNG Supply Agreement). Australia's Resources and Energy Minister Martin Ferguson claims the agreement with the Chinese is the single most valuable long-term contract ever signed for Australian raw materials, according to Reuters.
Chevron and its partners ExxonMobil and Shell are developing the Greater Gorgon gas fields, located 130–200 km off the north-west coast of Western Australia. The Gorgon LNG venture will comprise three trains of 5 million t/y, and Chevron has said that a 300-terajoules/d gas plant is also to be built on the Barrow Island nature reserve, within the site of the LNG project, to supply the domestic market. British supermajor BP recently reached an agreement to supply its share of gas from its section of the offshore Io/Jansz field to the Gorgon LNG project and then buy the processed gas back as LNG. Io is 50% owned by Chevron, 25% by ExxonMobil, and 12.5% each by Shell and BP (BP owns a stake in two of the permits in Io, WA-25-R and WA-26-R), while Chevron (50%), Shell (25%), and ExxonMobil (25%) hold stakes in the Jansz licence WA-18-R. The two fields are being merged into a single unit in order to develop the resources for the Gorgon LNG export project. Under the recent LNG agreement, BP would also contribute to the capital costs of developing Io, but not to the LNG plant.
Last week the Gorgon LNG project received final environmental approval from the Western Australian government. Environment Minister Donna Faragher said that final approval was granted with "strong new environmental conditions to provide higher levels of protection for regionally significant coral reefs and flatback marine turtles". The only remaining formal approvals are for the project's associated production licences and retention leases, in addition to final environmental approval. Federal Environment Minister Peter Garrett is expected to make a decision on final environmental approvals before 8 September, according to the Australian Associated Press. This final approval from the federal government would then give the green light for Chevron, Shell, and ExxonMobil to call a final investment decision (FID) on Gorgon. Indeed, this could have a similar impact to an economic stimulus package, as the project could create up to 6,000 jobs during construction and around 3,500 permanent jobs. The project may cost as much as A$50 billion to fully develop and could provide an estimated A$60 billion in federal royalties over 30 years.
With reserves of 40 tcf and an estimated lifespan of over 60 years the Gorgon fields are also extremely attractive for PetroChina, which is looking to secure long-term supplies of LNG to meet future growth in gas demand within China. Indeed, the current deal follows Petronet's conclusion of a similar deal with ExxonMobil to import 1.5 million t/y of LNG from the Gorgon project earlier this month, reflecting PetroChina's concern to secure long-term supplies in view of competition from another Asian economic powerhouse, India. PetroChina is currently building two LNG receiving terminals in China. Work on the Rudong terminal in Nantong City, which will have an initial capacity of 3.5 million t/y, building to 6.5 million t/y, was recently resumed after an accident in July 2009, when a roof collapsed killing eight workers and injuring another five (see China: 17 August 2009: PetroChina Resumes Construction of Rudong LNG Terminal). However, this terminal will mainly be supplied with LNG from Qatargas IV, which is providing PetroChina with 30 million t/y of LNG for 25 years under a purchasing contract signed at the end of 2008. The Dalian LNG receiving terminal in Dalian city, Liaoning province, which is currently under construction and due for completion in July 2011, is also likely to be supplied mainly by Qatargas II.
This begs the question, how will PetroChina use LNG from ExxonMobil's stake in the Gorgon project? The answer is that the current supply contract will not go towards PetroChina's LNG terminals currently under construction but to another terminal, which only won initial approval from the National Development and Reform Commission (NDRC) in March this year. The Shenzhen import terminal located in Dachan Bay is estimated to require an investment of US$1.03 billion to construct and is due to supply regasified LNG to Guangdong province and to neighbouring Hong Kong. PetroChina chairman Jiang Jiemin announced in March 2009 that the terminal might sign an agreement to buy LNG from ExxonMobil's Gorgon project under a long-term contract. At this time PetroChina had just received an application for the ExxonMobil deal, which was going through the relevant approval processes. The agreement today has completed this process and promises supplies to the terminal, which could have a capacity of 2.5 million t/y and start up in around 2013 to 2014, coinciding with the launch of production from the Gorgon project. Although the PetroChina/ExxonMobil deal still requires further regulatory approval before a final decision is made next month, the agreement today suggests that the Chinese government is supportive of the venture.
Outlook and Implications
The supply contract to the Shenzhen terminal will build on ExxonMobil's efforts to become a principal supplier of gas to Hong Kong. Castle Peak Power Co. (CAPCO), the partnership between ExxonMobil (60%) and China Light & Power (CLP, 40%) is working to secure natural gas supplies to Hong Kong from the Second West-East pipeline, which will be bought from PetroChina and China National Offshore Oil Corp. (CNOOC, see China: 9 June 2009: ExxonMobil Eyes West-East Pipeline Gas for Hong Kong). Together with imported LNG to Shenzhen from Gorgon ExxonMobil is set to play a crucial role in meeting Hong Kong's future gas demand, helping to offset the decline in output from the offshore Yancheng gas field, which is currently the principal supplier of gas to the city.
Indeed, the Gorgon project is ideally suited to meeting long-term gas demand in China given its huge size, although the large supply contract also reflects the potential of the Gorgon project for Australia. As the project is now within touching distance of being officially sanctioned, Ferguson recently heralded the country as a "global energy superpower", and with its own rich domestic energy resource base, Australia could in time become one of the world's largest exporters of coal, uranium, and natural gas. There are numerous LNG projects planned such as Pluto, Wheatstone, Prelude, Sunrise, Browse, Ichthys, and Scarborough to add to output from the already exporting Darwin LNG and five-train operation at the North West Shelf. There also tens of billions of dollars being invested in the emerging coalbed methane industry, which is set to provide new gas feedstock for additional LNG projects in the eastern state of Queensland. Gorgon is a crucial project, and with its expected sanctioning next month Australia is well on the way to achieving its aim of becoming an energy superpower. There can be little doubting that Australia's energy resources sector is in an enviable position.