Australia's Woodside bets on reputation in China LNG bid: Report
Thursday, June 27 2002 - 08:11 AM WIB
But the Shelf faces competition from BP PLC's Tangguh LNG project in Indonesia and ExxonMobil's Ras Laffan operation in Qatar, both of which are believed to be undercutting the Shelf on price.
The state-owned China National Offshore Oil Corp. has shortlisted all three bidders to supply an LNG receiving terminal now under construction in the southern province of Guangdong. The terminal is expected to take in about 3 million metric tons of LNG a year, starting in 2005.
A decision by the Chinese bureaucracy on the successful bidder had been expected before the end of June, but now appears destined to drag into July. Woodside and Shell don't know when the winner will be announced.
Winning the business would be a substantial boost for the Shelf and would underwrite plans for the construction of a fifth production unit at the operation situated on Australia 's northwest coast.
But in a research report this week Deutsche Bank AG tipped BP's Tangguh project as the favorite to win the contract, noting it is the closest, geographically, of the three bidders.
In addition, as a new project with a simple ownership structure, Tangguh ability's to offer equity to China appears easier than for the other two bidders.
BP is also a member of the CNOOC-led consortium building the terminal.
But security of supply is likely to be a concern for the Chinese given the greater relative political risk posed by exposure to Indonesia
"Geopolitically, Indonesia offers the least stable regime of the three on offer, with Tangguh located in Irian Jaya, which is raising secessionist issues, not least related to the gas plant," Deutsche Bank said.
What is more, Tangguh hasn't yet been constructed. Infrastructure development at Tangguh is expected to start in July.
And that is where the North West Shelf can differentiate itself, given the stable political environment in Australia and the Shelf's long record of supply.
"While we believe the North West Shelf has submitted the highest price amongst the contenders, if price alone was the main determinant for success, we doubt whether North West Shelf would have been short-listed," Deutsche Bank said.
However there is speculation that China may split the contract between two, or maybe all three, of the bidders. Such a move would encourage ongoing price tension among the suppliers while allowing China to hedge its bets.
Such a result could complicate the Shelf's plans for building a fifth processing plant, which would have the capacity to produce about 3.5 million tons a year. Without all of the 3 million ton contract being offered by China, the Shelf would likely have to find other customers before going ahead with the expansion.
Deutsche Bank speculates that in the event of a split contract, the North West Shelf may have the flexibility to increase the capacity of its fourth LNG plant now under construction.
It said a fifth plant at the Shelf would add about 30 cents to 50 cents a share to its Woodside base case valuation, or A$200 million to A$330 million.
"While less than a 5 percent impact on valuation, long term earnings visibility becomes clearer and mitigates Woodside's sole reliance on the Japanese LNG market," Deutsche Bank said, rating the company a "Buy" with a 12 month price target of A$15.50 a share.
At 0545 GMT Woodside shares were up 1.8 percent to A$13.52.
Woodside is the operator of the North West Shelf, an equal joint venture also comprising Shell, ChevronTexaco Corp., BHP Billiton, BP and Japan Australia LNG, itself an equal joint venture between Japan 's Mitsubishi Corp. and Mitsui & Co.
Exxon Mobil has a 25 percent stake in Ras Laffan Liquefied Natural Gas Co. State-owned Qatar Petroleum owns 63 percent of Ras Laffan and is partnered by Korea Gas Corp. with 5 percent, Itochu Corp. with 4 percent and Nissho Iwai with 3 percent.
BP is partnered at Tangguh by Indonesia 's state-owned oil and gas company Pertamina. (*)