Failure of LNG deal won't affect gas supply in China
- By Maverick Chen
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China.org.cn, January 6, 2010
The liquefied natural gas (LNG) framework deal between Australian oil firm Woodside Company and China National Petroleum Corporation (CNPC) expired before a formal contract between the two sides was made, Woodside announced recently. The deal was worth US$40 billion.
CNPC's international department confirmed the statement, saying the postponement of the Browse Project included in the framework deal made Woodside unable to provide LNG on time and was the main reason the deal failed to be extended.
At a time of occasional gas shortages marked by a sharp imbalance in the demand and supply of China's LNG market, the miscarriage of this deal is stirring concern about the future supply of LNG in China.
Liu Xiaoli, deputy director of the Energy Research Institute at the National Development of Reform Commission, told Xinhua News Agency that failure to reach a formal agreement after a framework deal expires is normal in business, and is unnecessary for excessive concern or interpretation of the market.
In addition to the inability to provide LNG according to schedule, Professor Liu Yijun at China University of Petroleum thinks the excessive global supply of LNG is another reason for Woodside's cautious attitude. According to the latest prediction of the International Energy Agency, the excessive natural gas supply will increase to at least 250 billion cubic meters by 2015, four times as much as in 2007. Yet another reason could be insufficient funding for the Australian oil and gas producer.
According to Professor Liu, the annual three million tons of LNG stated in the framework deal equals four billion cubic meters of natural gas. Looking at the 2009 registered annual consumption of 90 billion cubic meters, Woodside's contracted supply only accounts for 4.5 percent of that amount. Assuming the Chinese natural gas market will have expanded by the year 2013, the absence of Woodside's LNG should not cause a substantial impact on the Chinese natural gas market.
Liu Xiaoli noted that the Chinese natural gas market is currently fueled by five major sources – homemade natural gas, imported LNG, and natural gas from central Asia, Russia and Myanmar. Having five major sources greatly reduces the risk potentially caused by a shortage of one source.
The framework deal was signed between the two countries on September 6, 2007, and required Woodside to provide CNPC 2-3 million tons of LNP from its Browse Project for 15-20 years, starting anytime from 2013-2015.
The estimated deal was worth AU$45 billion, and would have been the biggest single export Australia ever contracted. The preliminary framework deal was due on December 31, 2009, but failure to sign a formal agreement made the deal automatically expire.
Some foreign media reports said that since CNPC successively obtained several natural gas deals with Qatar, it's more likely that China voluntarily dropped the deal because it had a substitute for Woodside. Chinese analysts refuted this, saying the natural gas from Qatar is to sustain the next few years, as the supply from Australia wouldn't have started until 2013.
Supplement: Other natural gas deals China signed in 2009
August, 2009 – CNPC and Exxon Mobile signed a US$41 billion LNG deal stating China will import 2.25 million tons of LNG from the Gorgon Project in Australia.
May, 2009 – China National Offshore Oil Corporation (CNOOC) and British Petroleum Corporation (BP) signed a deal that CNOOC will buy 3.6 million tons of LNG each year for 20 years from the Curtis Natural Gas Project in Queensland, Australia, once production starts.
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