China Petrochemical, parent of listed China Petroleum & Chemical (Sinopec), has signed a preliminary agreement to substantially boost its commitment to buy natural gas from an Australian project and increase its stake in it.
The pact, which is expected to be firmed up to a binding contract soon, would allow the project's developers to build the infrastructure needed to extract gas trapped between coal seams in Queensland state, liquefy it and ship it via tankers to its Asian customers.
China Petrochemical has signed a non-binding 'heads of agreement' with project developer Australia Pacific LNG, under which China's second-largest gas producer and distributor will buy 3.3 million tonnes of liquefied natural gas (LNG) a year until 2035.
In April, China Petrochemical signed a binding contract to buy 4.3 million tonnes of LNG a year for 20 years, starting in 2015. It also bought a 15 per cent stake in the project for US$1.5 billion. CLSA Australian-based analyst Mark Samter estimated at the time the purchase could be worth up to A$85 billion (HK$675 billion) over 20 years.
The latest deal would bring its purchases to 7.6 million tonnes a year and raise its stake to 25 per cent. United States-based energy major ConocoPhillips and Origin's stake will each be diluted to 37.5 per cent.
Australia is a major LNG supplier to East Asia. According to a Sanford Bernstein research report, a wave of new supply will come on stream by 2015, as projects involving A$100 billion of investment have won sufficient gas buyers' commitment and bankers' support to go ahead.