CHINA / Foreign Media on China
China resumes LNG hunt, at higher prices
By SHAI OSTER (WSJ)
Updated: 2006-11-01 11:03
http://online.wsj.com/public/article/SB116233789003009434-KZm4_YFLaDeAPj7i_
zOZTVu5gpI_20061107.html?mod=regionallinks
BEIJING -- China has re-emerged as a buyer of natural gas, signing a
string of deals and setting purchasing frameworks that signal a
willingness to accept higher prices.
While some question how much of a turning point these deals represent,
the emergence of China as a rising importer of liquefied natural gas will
likely encourage more investment in the sector. Uncertainty about the
size of the Asian LNG market has contributed to a slow pace of
development for gas-export projects across Asia and in the Middle East.
As China -- and to a lesser extent India -- demonstrates a willingness to
pay rising prices to ensure gas supplies, producers are likely to push
ahead. Still, most industry observers expect the Asian LNG market to
remain tight in coming years, keeping prices high.
Malaysian national oil company Petroliam Nasional Bhd said Monday it had
signed a deal to supply liquefied natural gas to Shanghai for 25 years,
starting in 2009. Petronas said it would initially deliver one million
metric tons a year, rising to three million tons annually after 2012.
Further details of the contract were unavailable, but people in the
industry said the deal would probably produce a cash flow of about $15
billion to $20 billion a year for Petronas.
The deal follows an announcement last week by China National Offshore Oil
Corp. that it signed frameworks with Suez SA, Total SA and Shell Eastern
Trading Ltd. to buy spot shipments of LNG to make up for any supply
shortfalls. The agreements didn't specify amounts or prices.
In September, Cnooc announced an agreement on the purchase of LNG from
Indonesia after haggling over a price increase.
Exxon Mobil Corp. said last week that it had reached a preliminary
agreement to sell natural gas from a project off Russia's Sakhalin Island
to China -- instead of to Japan as originally planned. That deal faces
hurdles, including the economics of building a very long pipeline and
getting the cooperation of OAO Gazprom, Russia's natural-gas distribution
monopoly.
China wants to reduce its reliance on highly polluting coal by switching
to natural gas, but to do so it must increase gas imports. A few years
ago, China was able to snare sweetheart deals for natural gas because
there were more projects than buyers in the region.
When global prices for natural gas shot up because of the surge in oil
prices and growing demand from the U.S., China balked at paying more and
found itself outbid by Japan and others for contracts to obtain liquefied
natural gas.
Long-term natural-gas contracts are priced in a sliding scale indexed to
the price of oil. At $60 a barrel for oil, the Shanghai contract with
Petronas would mean paying about $6 for one million British thermal
units, the measure for natural gas. That is about double what China had
paid three years earlier.
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