Regional LNG: CNOOC signs deals for $880m Guangdong LNG project
Saturday, May 1 2004 - 03:16 AM WIB
Analysts said the success of the project, 30-percent owned by oil giant BP, hinged on the sales contracts -- for which CNOOC has declined to provide financial details -- and could spur the construction of more terminals in the energy-starved country.
The financing deal came the same day Chinese banks were told by banking regulator to curb loans to red-hot sectors such as steel and autos and divert funds to the power, coal and oil sectors in a bid to rein in over-investment amid fears it is fuelling overheating and inflation.
"This is the last step. China hopes to facilitate the growth of gas demand," said LNG analyst John Meagher of Wood Mackenzie in Edinburgh.
CNOOC, the parent of Hong Kong and New York-listed CNOOC Ltd. and the leading shareholder with 33 percent, said four cities in Guangdong province -- Guangzhou, Shenzhen, Dongguan and Foshan -- have signed 25-year take-or-pay contracts.
Domestic banks, including Bank of China, Industrial and Commercial Bank and Agriculture Bank, have agreed to provide 5.2 billion yuan ($628 million) to finance the project, it said in a statement.
"The Guangdong LNG project financing represents precedent setting participation by Chinese banks in a large-scale energy infrastructure project...they are flush with liquidity and motivated by state-led energy policies," Raj Pande of legal advisers White & Case said in a statement.
Pande said Chinese banks would even lend to large-scale projects at "lower non recourse loan margins" because they were cash-rich and had government support in improving China's energy infrastructure.
China, the world's second-largest oil consumer and a net importer, is spending billions of dollars on pipelines and LNG terminals to boost natural gas to eight percent of its energy mix by 2010, from less than three percent now.
The financial success of the Guangdong project could lead to the construction of other terminals in China, which is gasping for energy to fuel an economy that grew 9.7 percent in the first quarter.
Potential terminals being studied include one in Tianjin, near Beijing, and another in the bustling financial metropolis of Shanghai.
China has already said it is building a terminal in southern Fujian province and one in Zhejiang province, near Shanghai.
But analysts warned LNG would still face an uphill battle to dislodge cheap coal, which fires three quarters of China's power plants, as the king of China's energy mix.
CNOOC said it had awarded a $250 million contract to build the Guangdong terminal and pipelines to a French/Italian group.
It also signed letter of intent for shipping with China Ocean Shipping (Group) Co and Merchants Group.
The Guangdong LNG project, due to come on stream in mid-2006, will provide 5.1 billion cubic metres of natural gas a year to booming cities in the province as well as neighbouring Hong Kong, it said.
In 2002, CNOOC picked Australia LNG to supply the three-million-tonne-per-year Guangdong LNG terminal.
CNOOC Ltd acquired a 5.56 percent stake in Australia's Northwest Shelf joint venture after the project won a A$25 billion ($19.2 billion) contract to supply Guangdong.(*)