CNOOC, BP in talks for Fujian gas deal: Report
Thursday, August 22 2002 - 11:22 AM WIB
Analysts suggest Chinese officials are trying to console BP after awarding last week a US$10 billion liquefied natural gas (LNG) supply contract to Australia.
Some analysts say the second LNG project, in Fujian Province, might be premature.
The first project will be developed in neighboring Guangdong Province. "The location for the LNG terminal has not been settled," said an official from the State Development Planning Commission.
Candidates - including Fuzhou, the province's capital, Xiamen and Quanzhou ? are waiting for the final review.
China National Offshore Oil Corp (CNOOC), China's third largest oil company, said last week it picked ALNG (Australia LNG) to supply 3 million tons of LNG for 25 years to its first LNG terminal.
The terminal, in which BP will hold a minority share, is due to start operation in 2005.
Although BP failed to win the first contract, in which it proposed to sell LNG from its Indonesia's Tangguh fields, CNOOC officials said BP could be awarded the supply contract for the proposed Fujian terminal, provided it sticks to the terms it previously offered to the Guangdong project.
CNOOC's statement, however, also indicates China is wavering over the production schedule of the proposed Fujian project, which could be in 2006 or 2007.
Even if BP received the Fujian contract, the deal would be less lucrative than the first project, as the handling capacity - 2.5 million tons - would be smaller.
Also, the Fujian project would become operational more than a year later than the Guangdong terminal.
Some analysts suggest China's selection of Australia has given CNOOC bargaining power during talks with BP.
BP appears to be holding back enthusiasm for the Fujian contract.
While Zhang Jianning, vice-president of BP China, said he was happy by the potential involvement in the Fujian project, he refused to say whether BP would drop the Fujian deal.
China's gas market is poised to become one of the world's largest.
The SDPC official said the government would not consider more LNG projects in the other coastal regions - like Zhejiang and Jiangsu provinces and Shanghai - in the near future.
Officials worry more gas projects will squeeze the market for the US$8.5 billion west-east gas pipeline that will move gas from western China's Xinjiang Uygur Autonomous Region to Shanghai.
The LNG projects are part of China's plan to increase by four times its natural gas consumption from current 2 per cent in total energy consumption by 2010.
The question, however, is at what price.
One thing for sure is China will reward the supply contract in exchange for equities in overseas gas fields in Australia and Indonesia to increase its small reserves.
Reports suggest CNOOC will soon establish a new joint venture to develop Australia's North West Shelf gas fields, to supply LNG to Guangdong.
Philip Aiken, president of BHP Billiton Petroleum, one of the six partners, said CNOOC will take a 25 per cent stake in the joint venture.
That will leave the other six North West Shelf LNG partners each with a 12.5 per cent stake in the new venture, Aiken was quoted as saying. (*)