ROYAL Dutch Shell Plc signed an initial agreement with PetroChina Co yesterday for the long-term supply of liquefied natural gas from a project in Western Australia.
Shell will sell one million tons of LNG a year to PetroChina under the 20-year contract. The agreement is conditioned on a final investment decision on the project, the Anglo-Dutch energy giant said in a statement.
The pair will work together to conclude a detailed sales and purchase agreement before December next year.
"Shell is delighted to have secured this strategic agreement with PetroChina, which sets a new benchmark for LNG supplies into China and underlines Shell's commitment to Chinese LNG customers and to the Gorgon project," Jon Chadwick, executive vice president of Shell Gas & Power Asia, said in the statement.
The so-called Gorgon project is led by US oil major Chevron Corp, which has a 50-percent holding. Exxon Mobil Corp and Shell share the balance equally. Amid concern over soaring construction costs, the partners dropped a 2006 deadline for approving the Gorgon project, which contains about 40 trillion cubic feet of gas, Australia's largest-known undeveloped gas resource.
Cleaner burn
China wants to use more of the cleaner-burning natural gas. Natural gas is chilled to make LNG, which constitutes one-six-hundredth of the original volume, for easier sea transport. Globally, strong demand has driven up LNG prices, turning the LNG industry into a seller's market.
China National Offshore Oil Corp, at the forefront of China's efforts to promote LNG use, started shipping in China's first LNG imports from the Woodside Petroleum Ltd-operated North West Shelf venture in Western Australia last year. CNOOC scrapped an initial agreement in 2005 with Chevron to buy LNG from Gorgon because of a price disagreement. To feed its terminals, CNOOC has to make some spot LNG purchases, whose prices are typically much higher than the contract price paid to North West Shelf.
Shell and PetroChina declined to disclose commercial terms of the deal. PetroChina shares fell 0.18 percent yesterday in Hong Kong to close at HK$11.44 (US$1.47) amid concern over higher LNG contract prices.