PetroChina Signs Two $37 Billion Agreements to Buy LNG from Australia

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Researched by Industrial Info Resources (Sugar Land, Texas)--PetroChina has signed agreements with Shell and Woodside Petroleum to buy millions of tons of LNG every year from the two companies. The agreements may last 20 to 30 years and represent an investment of $37 billion each.

PetroChina (NYSE:PTR) (Beijing, China) plans to annually import 3 million tons of LNG from Australia, as confirmed by Royal Dutch Shell (NYSE:RDS.A), a move for PetroChina to diversify its natural gas supply after it expands domestic gas output and ensures Turkmenistan gas.

Shell will take responsibility to provide 1 million tons of LNG from its Gorgon project in Australia to PetroChina, as an agreement signed between Shell and PetroChina on September 4.

Shell said the agreement is a 20-year contract term and is conditional on the Gorgon partners reaching an expected final investment decision on the project. If it goes smoothly, the pair will conclude a detailed LNG sales and purchase agreement before December 2008.

LNG insiders in China estimate that importing at a rate of 2 million to 3 million tons a year for 15 years, PetroChina will buy 30 million tons to 45 million tons of LNG from Australia. Therefore, the unit price of LNG on this contract will range between $826 and $1,240 per ton. Using the conversion rate of 1:7.6 between U.S. dollars (USD) and yuan, the pricing of this LNG will be 4.71 to 7.07 yuan per cubic meter. However, the current pricing of LNG, even in China’s most expensive cities like Shanghai, is only 2.1 yuan per cubic meter.

On September 7, PetroChina signed an initial agreement with Woodside Petroleum Limited (Perth, Australia), a leading energy company, for the potential purchase of 2 million to 3 million tons of LNG a year from Browse Offshore Gasfield, lasting 20-30 years. Woodside Petroleum may start the supply between 2013 and 2015. Browse Gasfield has gas reserves of 20,000 billion cubic meters, co-launched by Woodside, BHP Billiton Limited (NYSE:BHP) (Melbourne, Australia), Royal Dutch Shell and Chevron Corporation (NYSE:CVX) (San Ramon, California), with Woodside taking a 46% percent stake.

In an effort to rein in its aggravating air pollution and reduce its reliance on crude oil and coal, China is seeking more gas supplies at home and abroad. An agreement with Turkmenistan has promised a supply of 30 billion cubic meters of natural gas to China.

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