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PetroChina Inks Second Australian LNG Deal

Woodside Petroleum inked an initial multi-billion dollar deal on Thursday with PetroChina to sell liquefied natural gas (LNG) from its proposed Browse project off Western Australia.

The latest LNG sales agreement comes days after PetroChina signed a contract with Shell for LNG from the Chevron-led Gorgon project in Western Australia, signalling China's renewed interest in the cleaner-burning fuel.

Under the preliminary agreement, Woodside would sell 2-3 million tonnes of LNG a year to PetroChina for 15-20 years, the Perth-based company said. The deal, if confirmed, could bring in as much as A$45 billion ($37 billion) in revenues.

"The contracted volumes are not enough to say that the Browse project is definitely a go-ahead," said Stuart Baker, an oil and gas analyst with Morgan Stanley in Melbourne.

"But this is a very good sign and the company has stressed that it was in talks with other buyers. I'm sure there will be more deals announced in the months ahead."

Shares in Woodside, Australia's largest independent oil and gas producer, which is 34 percent-owned by Royal Dutch Shell, closed up 1.9% at A$46.10, outperforming a broader market that fell 0.19%.

Woodside said the supply of Browse LNG was targeted to begin between 2013 and 2015. Pricing of the LNG has been agreed, but it did not provide details.

"This agreement, being with such a significant foundation customer, provides increased certainty to enable Woodside and its partners to move the Browse development forward," Chief Financial Officer Mark Chatterji said in a statement.

China's Renewed Interest

Analysts said the deal signalled China's renewed interest in LNG despite rising prices and expected to see more Chinese firms sealing agreements to buy LNG from either Browse or other proposed LNG projects in the region.

"China's return to the LNG market will mean that there will be more competition for the Japanese, Korean and Taiwanese buyers," said Paul Balfe, a director at ACIL Consulting.

PetroChina's smaller rival China National Offshore OilCorp kicked off China's first LNG imports last year and bought LNG from the Woodside-operated North West Shelf project off Western Australia.

But industry sources said the sales were only for several cargoes and imports stopped when LNG prices began to rise.

Chinese media reported that the LNG deal between Shell and PetroChina for Gorgon gas was priced at about $10 per million British thermal units (mmbtu). Morgan Stanley's Baker said the high price tag was possible as recent spot LNG cargoes from the Atlantic to Japan were offered at $12-13 mmbtu.

Analysts say sustained high oil prices have pushed up LNG prices in recent years. Prices of the super-cooled gas are expected to keep the uptrend as they move closer to oil parity and as global demand continues to outstrip supplies.

Wood Mackenzie energy consultancy said that Asia's LNG demand, led by China and India, is forecast to rise about 20 percent in four years to 126 million tonnes per year (tpy) by 2010, while global LNG demand is expected to triple to more than 500 million tpy by 2020.

The Browse LNG project, which has an estimated gas resource of about 20 trillion cubic feet (tcf), is the largest of Woodside's three planned LNG projects that include the A$12 billion Pluto project off Western Australia and the Greater Sunrise project in the Timor Sea.

Woodside has a 50% interest within most blocks of the Browse project, which is made of three major gas discoveries. BP, BHP Billiton, Chevron and Shell have varying stakes in different blocks of the project.

Woodside said the agreement was subject to conditions including a final investment decision, which it expected to make between 2008 and 2010, as well as relevant government approvals on the Browse project.

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