Regional LNG: Australia studies LNG terminal project with China: Report

Australia said on Wednesday it expected to complete by mid-2004 a study for an LNG terminal in China, which might lead to its third multi-billion dollar supply deal with the world's most populous country, Reuters reported.

The proposed project in Zhejiang province, near Shanghai, would be China's third import terminal for liquefied natural gas.

Energy-thirsty China, which has signed two multi-billion dollar LNG supply contracts with Australia over the last two years, is expected to have its first import terminal up and running by 2006.

"We're establishing a joint study with our sister province in China... to look at future natural gas needs in that province with the possibility of a terminal being established," Western Australia Premier, Geoffrey Gallop told an LNG conference in Perth on Wednesday.

The government-to-government study began late last year, Gallop said.

China's first LNG terminal is being built by a consortium led by the country's largest offshore oil firm, CNOOC Ltd, and foreign partner BP Plc in the southern province of Guangdong. The terminal will have a capacity of three million tons per year (tpy) and take gas from Australia.

CNOOC in 2002 acquired a 5.56 percent stake in Australia's Northwest Shelf joint venture, after the project won a A$25 billion ($19.6 billion) contract to supply Guangdong.

"Guangdong started out as a joint study and it led to a commitment by China to get the gas and we won the contract, so we see this (study) as part of the building blocks," Gallop said.

MORE TERMINALS

CNOOC, which has led the country's drive for overseas energy resources, also owns a 60 percent stake in a 2.5 million-tpy import terminal -- China's second -- in neighbouring Fujian province. This is due to begin operation in 2007/2008 and take LNG from Indonesia.

The Chinese firm was also expected to get a 12.5 percent stake this year for about $275 million in Australia's huge Gorgon gas project, which has a proven reserve of 365 billion cubic meters (bcm), after Australia won a second supply deal worth $21 billion.

Chinese industry sources said the supplies from Gorgon could target east China's Zhejiang and Jiangsu provinces, and the city of Shanghai. But it remained unclear which terminal the gas would be shipped to.

Chinese companies are still studying the possibility of building more LNG terminals after those in Guangdong and Fujian.

Stijn van Els, general manager, commercial services, Shell Development Australia told the conference Australia's gas reserves were estimated at 136 trillion cubic feet (3.851 trillion cu meters) and growing.

He singled out the A$11 billion Gorgon development -- offshore Western Australia in which Shell has a 28.6 percent stake -- as the project that would secure Australia's position in the race to supply the United States, where demand for LNG is expected to shoot higher in coming years.

But he said the U.S. market, which has only four LNG import terminals, had to be approached with caution. Some 40 new terminals have been proposed but industry experts say just a handful are expected to be built.

"U.S. LNG imports grew rapidly in the 1970s, to a level only surpassed last year, before collapsing with market deregulation and rising oil prices," Gallop said.

Shell has said investments of about $100 billion were needed over the next decade to build LNG projects to meet energy demand in the United States and China.

Van Els said Japan and South Korea accounted for 60 percent of global LNG demand last year and Shell expected Asia Pacific demand to grow to 130 million-210 million tons per year by 2020 from 80 million tons. (*)