China gas contract decision imminent: Report

A decision is imminent on China's first liquefied natural gas supply contract, with the Woodside-led North-West Shelf joint venture remaining in the hunt for the $20 billion revenue prize, Australian news website TheAge.Com reported Monday.

Success by the NWS joint venture would underpin the further expansion of the project through the construction of a fifth LNG processing train on the Burrup peninsula, where work on the $2.4 billion fourth processing train is under way.

But the NWS joint venture faces stiff competition for the lucrative three million-tonne-a-year supply deal, notwithstanding lobbying efforts in China on their behalf recently by Prime Minister John Howard.

Other bidders short-listed for the 20-year contract were Exxon Mobil, from its Qatar plant, and BP, a one-sixth partner in the NWS joint venture, from its yet-to-be built Tangguh project in Indonesia. There has also been speculation that the Chinese could split the contract between two or all three contenders.

Although Tangguh is still on the drawing boards, BP is considered to have the edge because it has previously won the right to build China's first LNG receiving terminal at Guangdong.

In a recent research note on the Chinese LNG contract, analysts at Deutsche Bank said that the NWS joint venture was believed to have submitted the highest price among the contenders, but if price alone were the main determinant for success the joint venture would not have been short-listed in the first place.

"Political stability and security of supply must rank in the criteria for selection. The question remains as to how high these criteria rank on the priority scale. Geo-politics should not be dismissed and remains difficult to predict," Deutsche said.

BP looked to be in the pole position to win the contract by virtue of it winning the right to build the Guangdong receiving terminal, Deutsche said.

But should the NWS joint venture get up, Deutsche estimates it would add $200-$300 million or 30-50 cents a share to Woodside's valuation. Woodside traded at $13.57 on Friday.

Deutsche said while success by Woodside would have less than a 5 per cent impact on its valuation, the group's "long-term earnings visibility becomes clear and mitigates Woodside's sole reliance on the Japanese LNG market". Gas currently represents only 2 per cent of the Chinese market. But in an effort to reduce pollution, the Chinese government wants the gas market share to rise to 6 per cent by 2010. Additional LNG supply contracts are forecast to result in Chinese consumption of LNG rising to 10-15 million tonnes-a-year by 2010. (*)