Regional LNG: CNOOC's bid to buy stake at Gorgon stalled: Report
Monday, September 12 2005 - 11:34 PM WIB
CNOOC Ltd's bid to buy a stake in Australia's Gorgon gas project and to import gas from the US$11 billion (HK$69 billion) development into China is stalled, more than two years after the company reached a preliminary agreement, industry sources say.
CNOOC, the mainland's third- largest oil company, in October 2003 signed a preliminary agreement with project partners including Chevron, Royal Dutch/Shell and ExxonMobil to take a 12.5 percent stake in Australia's biggest untapped gas deposit and to buy A$30 billion worth of the fuel.
The talks have been suspended due to a failure to agree on pricing, the timing of gas delivery, and the volume of gas sales, a CNOOC source said this week.
The sellers also "could not come to an agreement on gas markets," he said.
Scott Walker, a Gorgon spokesman, denied the talks were suspended, although he said there were some issues waiting to be resolved, including pricing and schedule of gas delivery.
"Our negotiations with CNOOC remain ongoing," Walker said. "Apart from the North American market, we are also targeting Japan, Korea and China markets."
Hong Kong-listed CNOOC was defeated last month by Chevron, Gorgon's operator, in a US$18.5 billion battle to buy Unocal, raising speculation the Chinese oil firm had ended talks on the Australian gas deal. Both sides later said negotiations were continuing.
CNOOC's chairman and chief executive Fu Chengyu said the company was still negotiating and that talks had dragged on because of changes in the project's ownership.
A restructuring in April more than doubled the amount of gas that can be marketed from the project after Gorgon was combined with several other fields.
The project's more than 40 trillion cubic feet of gas resources are now owned 50 percent by Chevron, 25 percent by Exxon and 25 percent by Shell.
Previously, Chevron had 57.1 percent, Shell 28.6 percent and Exxon 14.3 percent of 13 trillion cubic feet of gas reserves.
CNOOC, which is 70 percent held by state-owned China National Offshore Oil Corp, was widely expected to import the Gorgon gas to a planned liquefied natural gas terminal in Zhejiang, scheduled to begin operations in 2008.
CNOOC also has plans to import gas for another LNG project in Shanghai, targeted for operation in 2008.
However, in April, Shell said it had committed to take Gorgon gas to the Energia Costa Azul terminal in Baja, California. This secured a market for 2.5 million tonnes of LNG a year, with first deliveries only expected in 2010. The partners are also in discussions to market the gas to other Asian markets.
"Everybody says it is a sellers' market and, therefore, a high gas price is a problem for us. But, in actual fact, there are so many other issues, and timing is one of them," the CNOOC source said.
China's gas market is in its infancy and the fuel faces competition from domestic coal, a cheaper but less environmentally friendly fuel.
In addition, the Gorgon project involves high development costs as it contains more carbon dioxide than any other field in the world.
The joint venture is expected to revise upwards its estimates of the original development cost of A$11 billion by early 2006, when the final investment decision will be made.(*)