PetroChina leads search for gas
An agreement signed last month by PetroChina to buy liquefied natural gas (LNG) from Australia has the market guessing whether the mainland is ready to pay higher international prices for imported gas to underpin plans to develop multiple gas import terminals.
PetroChina last month said it signed a framework deal to buy two to three million tonnes of LNG a year from the Browse gas project of Australia's Woodside Energy for 15 to 20 years, with targeted delivery to start between 2013 and 2015.
It also has a similar initial agreement with Royal Dutch/Shell to buy one million tonnes of LNG annually from its Gorgon project in Western Australia at US$10 per million British thermal unit (Btu), Xinhua reported.
Another contract has been signed with Indonesia's Tangguh gas field at US$3.50 per million Btu to supply a China National Offshore Oil Corp-led LNG terminal in Fujian province.
'China has long insisted on buying gas at the same old prices it got in 2002,' said an LNG sales manager familiar with mainland oil firms' negotiations with foreign oil groups. 'It has a lot to do with concerns from top government officials on the low affordability of domestic [users].'
Beijing has a long-stated intention to gradually raise domestic gas prices to better reflect the fuel's scarcity and its being environmentally friendly but it has kept them on hold since raising them about 10 per cent in late 2005.
With only 1.3 per cent of the world's natural gas reserves but 12.6 per cent of its coal reserves, the mainland must rely on coal for 70 per cent of its energy consumption and gas for only 3 per cent.
PetroChina's new deals with Australian gas project developers may signal a change if they materialise.
The landmark agreement to pay US$10 per million Btu for long-term LNG supplies from Australia was based on an oil price equivalent of US$60 a barrel, said CLSA China oil and gas director Gordon Kwan.
'Clearly, PetroChina must be convinced by the government's commitment toward domestic natural gas pricing reform to have commercially justified this Australia LNG contract,' Mr Kwan said.
Gas Strategies Consulting managing consultant Pat Roberts said PetroChina's commitment was only a framework agreement, subject to more negotiations.
