BG Signs Gas Deal With Cnooc

BG Group PLC and China National Offshore Oil Corp. on Wednesday signed a 20-year sale-and-purchase agreement for liquefied natural gas from Queensland state, Australia's Energy Minister Martin Ferguson said, in a deal that could extinguish some doubts about the viability of using coal seam gas for export.
Source:wsj.com     Time:24 Mar 2010
 BG Group PLC and China National Offshore Oil Corp. on Wednesday signed a 20-year sale-and-purchase agreement for liquefied natural gas from Queensland state, Australia's Energy Minister Martin Ferguson said, in a deal that could extinguish some doubts about the viability of using coal seam gas for export.

Cnooc will purchase 3.6 million metric tons of gas a year from BG's proposed export terminal in Queensland state. Subject to regulatory approvals, Cnooc also will buy 5% of BG's interests in certain coal-seam gas tenements in Queensland's Surat Basin, and become a 10% shareholder in one of the plant's first two LNG processing trains, Ferguson said. The binding deal comes nearly a year after Cnooc agreed on initial terms for the purchase.

"This deal makes Australia the world leader in the coal seam gas-based LNG industry and it brings us one important step closer to opening up a new LNG province on Australia's east coast," Ferguson said in a statement, adding that it is an "unprecedented vote of confidence" in the industry.

Coal-seam gas--trapped stores of methane hundreds of meters below the Earth's surface--is one of the world's hottest energy plays. On Monday, Royal Dutch Shell PLC and PetroChina agreed to buy most of the Australian assets of coal seam gas producer Arrow Energy Ltd. in a $3.15 billion deal, subject to regulatory and shareholder approval.

The increasing global interest in coal-seam gas--where the gas is super-cooled into liquefied natural gas--reflects shrinking access that Western companies have to conventional natural gas reserves and the environmental benefits of coal seam gas, which doesn't produce sulfur dioxide or particulates and emits 50% less carbon dioxide than coal. However, technical hurdles must be overcome, as coal-seam gas hasn't been turned into liquefied natural gas for export before.

In a sign of Canberra's willingness to back the fledgling sector, Ferguson confirmed Wednesday that Australia's Foreign Investment Review Board already has approved Cnooc's equity investment in BG's coal-seam resources and LNG train. Environmental approvals from the Queensland state government are among the few regulatory barriers that remain to a final investment decision that BG has previously said is likely by mid-year.

Ferguson's upbeat comments about coal-seam gas may also reassure others with interests in the sector, like PetroChina, that recent tensions in the Australia-China relationship won't deter Canberra from approving their investments.

Australia has grappled in recent times over how to deal with China's growing appetite for resources assets, particularly where it also is a key customer of its targets. Those tensions have come to the boil this week with the Shanghai trial of Rio Tinto Ltd. executive and Australian citizen Stern Hu on charges of bribery and stealing commercial secrets in iron ore negotiations.

In a speech at the BG-Cnooc signing ceremony in Beijing, Ferguson said he hopes Australian LNG can be the "predominant source of supply" for a series of new LNG terminals along China's coastline.

"Australia's trading relationship with China is healthy and mutually beneficial," he said. "Australia is committed to strengthening that relationship and being an important partner in our region's economic growth."

In volume terms, Wednesday's deal is the biggest single LNG contract in Australia's history--dwarfing a similar deal announced by ExxonMobil Corp. last year to supply 2.25 million metric tons of LNG a year to PetroChina Co. from the Gorgon gas field offshore Western Australia state.

Cnooc, the state-owned parent of Hong Kong-listed Cnooc Ltd., has been a frontrunner in importing LNG to China, with three LNG terminals in operation along China's coastline and plans for several more.

China wants natural gas to play a bigger role in its energy mix because it is a cleaner fuel than crude oil and coal, which currently meet around 90% of its energy needs.
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