Awarding LNG deals the Confucian way: Report
Wednesday, August 14 2002 - 12:05 PM WIB
The announcement of two winners Aug. 8 surprised almost everyone, but the day before China already had strongly hinted at the outcome. Wei Liucheng, Chairman of China National Offshore Oil Corp., or CNOOC, which headed the tender, told the press that there would be two news releases.
From among three bidders - the third was Qatar backed by Exxon Mobil Corp. - China chose Australia's North West Shelf Gas Joint Venture consortium as the sole supplier of LNG to the country's first LNG terminal, in Guangdong. Under the contract, the consortium will supply 3 million metric tons of LNG annually for 25 years beginning in 2005.
The Chinese then awarded the consolation prize to BP and Indonesia. CNOOC said that without tendering it was in negotiations with BP to supply LNG to a new terminal in Fujian province from Indonesia's Tangguh field. The Fujian supply contract for 2.5 million metric tons of gas a year by 2006 will be awarded on condition BP sticks by the terms it offered when bidding for the Guangdong LNG project.
"It is killing two birds with one stone and makes everybody happy," said Gordon Kwan, an energy analyst with Hong Kong-based HSBC Securities (Asia) Ltd.
A source close to China's oil industry said there really was no rush for China to enter into negotiations over the Fujian LNG supply contract because many "technical and policy issues" concerning the construction of the Fujian LNG terminal still need to be worked out. The Fujian project is still in the early stages of a pre-feasibility study.
But nonetheless China sought to balance its decision to award the Guangdong bid to the Australian consortium with its announcement of talks on the Fujian contract.
And to assure the contracts' success, China chose Aug. 8 as the day to make its announcement. That date contains double eights, which when pronounced in Mandarin sound like double prosperity.
The Guangdong contract should certainly help to bring prosperity to the Australians.
Australia's exports to China should rise about 14 percent, or almost $1 billion, a year once the deliveries of gas begin.
The tender for the Guangdong LNG supply contract also had been issued on an auspicious date, May 17, which in Mandarin sounds like "I want gas" - a literal expression of China's eagerness to develop its gas industry.
But Confucius and superstition aside, China chose the two winners because it decided that together they would be of the most benefit to the country.
"Indonesia and Australia provide the best sources of LNG in Asia," said Kwan.
China's based its decision on the security of supply as well as price. Since 1989 the Northwest Shelf has delivered just over 1,000 shipments of natural gas to Asian countries, all of it on time and to quality.
CNOOC, China's third-largest oil-and-gas company, intends to acquire reserves in the gas fields supplying the LNG.
Its Hong Kong-listed unit, CNOOC Ltd., will acquire a stake in the North West Shelf project. Last December CNOOC signed a framework agreement with an Australian consortium to jointly develop the gas field.
Meanwhile, CNOOC plans to enter into talks with BP and Indonesia's Pertamina for a stake in the Tangguh gas field.
CNOOC's chief financial officer, Mark Qiu, said he expects to reach a final agreement with the Australian consortium on the North West Shelf stake by the end of August. After that, he said, CNOOC will hold discussions on acquiring "a material equity stake in the Tangguh field."
Zhou Shouwei, the newly elected president of CNOOC Ltd., said "the potential of buying into two upstream assets...is a huge boost to the company's gas strategy."
Kwan at HSBC Securities (Asia) agrees.
With these ambitious acquisitions, "CNOOC Ltd. would then become the region's truly pan-Asian (gas exploration and production) play," he said. (*)