Regional LNG: Australia in talks with China on new LNG supplies - Report

One year after signing a $25 billion contract to supply liquefied natural gas to China?s southern Guangdong province, Australia is back discussing a similar deal.

Dow Jones Newswires reported on Tuesday that Australia is working with a different Chinese partner and looking to export LNG to the city of Shanghai or Shandong province to the North.

Last week, Geoff Gallop, the state premier of Western Australia, visited China and met with officials from both China Petrochemical Corp., or Sinopec, and Shanghai, including Sinopec Vice President Zhang Yaocang and Shanghai Mayor Han Zheng.

A Sinopec official said the talks "are at an initial stage, or fact-finding phase."

However, he said Sinopec officials might soon pay a visit to Western Australia to determine how much LNG could be supplied and when. The company also may discuss the possibility of entering into partnerships in oil and gas exploration in Western Australia.

A year ago last week, China National Offshore Oil Corp., or CNOOC, China?s sole offshore oil operator, announced it had agreed to import 3 million tons of LNG annually from Western Australia over 25 years beginning in 2006. It was China?s first big deal to import LNG from abroad in its effort to meet the country?s increasing energy needs.

Australia isn?t the only country interested in supplying LNG to Shanghai, a China-based industry source said. He said Western Australia could face competition from Indonesia, Malaysia, Oman, Qatar and Russia?s Sakhalin off the east coast of Siberia.

The week before Mayor Han met with Gallop, he met with Mohd. Hassan Marican, president and chief executive of Malaysia?s state-owned oil and gas company Petronas, also to discuss supplying gas to the city.

Malaysia is one of the six countries, which originally entered the bidding for the Guangdong LNG supply contract.

Han has said Shanghai is now quickly shifting from coal to natural gas as its major energy source for households, industry and power consumption, and the city is considering importing LNG to supplement its domestic supplies.

Shanghai has agreed to buy 8.5 billion cubic meters a year of onshore gas from PetroChina Co. (PTR) by 2006. The gas will be supplied to the city from the company?s reserves in the West via its 4,000-kilometer pipeline.

Sinopec?s LNG import plans could clash with those of CNOOC, which already has undertaken an in-depth study of the feasibility of importing LNG to Shanghai and possibly Shandong.

In Shangdong, Sinopec has signed several agreements with the provincial government to develop local gas markets, including the construction of an LNG import terminal. And two months ago it decided to build a gas pipeline from Ordos Basin in Inner Mongolia to Shandong by 2006.

CNOOC and PetroChina have their own agendas for Shangdong, with both already supplying gas to the province, CNOOC from its offshore fields in the Bohai Sea and PetroChina from its onshore field near Beijing. (*)