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Shenzhen LNG eyes Australia supply


First shipment for China National-BP venture to come from North West Shelf

China National Offshore Oil Corp, parent of Hong Kong-listed CNOOC Ltd, expects to secure supply from Australia to partly fill the second phase of its liquefied natural gas (LNG) project in Shenzhen despite tight global supply.

President Fu Chengyu, also CNOOC's chairman, said additional infrastructure investment for the seven-million-tonne-a-year second phase of the project was 'small', as much of it had been built in the first phase.

The biggest hurdle was sourcing sufficient gas at a price affordable to mainland consumers, he said.

'Some of the gas will come from Australia ... [at least] we hope so,' he said after CNOOC's annual shareholders' meeting, without naming the potential locations. 'The rest we can source from many places in the world.'

The Shenzhen LNG import project, 33 per cent owned by China National and 30 per cent by British energy giant BP, was due to receive the first shipment in two days from the North West Shelf gas project, located offshore West Australia, Mr Fu said.

Gas is expected to start flowing by late next month from the 3.7 million-tonne-a-year first phase of the processing terminal, to residential and industrial customers in the Pearl River Delta.

The Shenzhen LNG project is China's first and is part of the government's goal to raise gas use to 8 per cent from 3 per cent of the country's total energy consumption by 2010.

However, such goal could prove too ambitious as rising gas prices have led to a void of gas import contracts over the past three years after cheap deals were landed in 2002 and 2003. This threatens to delay planned LNG projects in coastal regions.

Import deals from Russia via proposed pipelines have been equally difficult to come by since Russia is asking for a higher price than the mainland could afford.

China National failed to clinch a deal to buy gas after two years of talks from another offshore West Australia gas project called Gorgon whose biggest shareholder is Chevron. Some of the gas was sold to Japanese utilities with deeper pockets.

Industry sources say China National may want to buy more gas from North West Shelf or projects of Australia's Woodside Petroleum, but supply is tight.

'Supply for deliveries next year and 2008 has pretty much all been committed to customers,' said an LNG sales manager at a foreign oil and gas firm. 'The Japanese buyers have been very aggressive in renewing contracts due to reduction in output from Indonesia.'

Mr Fu declined to comment on media reports that China National and the Indonesian government had agreed to raise the reference ceiling price of a contract signed in 2002 for gas to be delivered from the Tangguh gas project to Fujian province in 2008. The price was based on the increase of crude oil price from US$25 to US$38 a barrel, the reports said.