Chevron Reaches Deal on Gas Supply, Joint Exploration With China National

Chevron Corp. said it aims to supply China’s largest oil company with liquefied natural gas from its proposed Wheatstone project in Australia, the nation at the center of the U.S. energy producer’s growth plans.

Chevron and China National Petroleum Corp. may collaborate on the development of gas fields in the Carnarvon Basin off northwest Australia and on exploration in China as part of a preliminary accord signed in Beijing, Gareth Johnstone, a spokesman for Chevron in Singapore, said in an e-mail today.

Wheatstone is among A$200 billion ($187 billion) of proposed LNG ventures in Australia targeting Asian demand for cleaner-burning alternatives to coal, according to figures this month from the Australian Petroleum Production & Exploration Association. The biggest of the projects is Chevron’s A$43 billion Gorgon development on Australia’s Barrow Island.

“Our Australian investments will transform Chevron into one of the world’s leading LNG producers,” Jim Blackwell, president of Chevron’s Asia-Pacific exploration and production, said at a conference in New York yesterday. Blackwell called Australia “the centerpiece of the growth story for Chevron.”

Wheatstone may have as many as six processing units, producing as much as 25 million metric tons of the fuel a year, Chevron said in July. The second-biggest U.S. energy company aims to approve Wheatstone in the middle of 2011, after gaining environmental approval, a development timeline shows.

‘Considerable Expertise’

Chevron continues to talk with “third-party” suppliers that would provide gas to support an expansion of Wheatstone, Blackwell said, according to a transcript on Chevron’s website.

Apache Corp. and Kuwait Foreign Petroleum Exploration Co. have agreed to feed gas to the first two Wheatstone processing units. In exchange, Houston-based Apache will receive a stake of about 16.3 percent in the project and Kuwait’s state-owned oil company will take about 8.8 percent, Chevron said last year.

The Chevron and CNPC memorandum of understanding “allows each company to leverage the other’s considerable technology, operational expertise and processes to explore, appraise and develop strategic upstream projects around the world,” Johnstone said. The agreement offers CNPC an “offtake opportunity from the expanded project,” according to his e-mail.

Liu Weijiang, a Beijing-based spokesman for CNPC, the state-owned parent of PetroChina Co., didn’t answer calls made to his office and mobile phone.

Strengthen Relationship

Asian customers typically seek to acquire stakes in Australian LNG projects, Benjamin Wilson, an analyst with JPMorgan Chase & Co. in Sydney, said by phone today. Chevron didn’t provide any details about how much fuel it may provide to CNPC or how big a stake it may sell to the Chinese company.

“Chevron looks as though it is trying to strengthen its relationship with PetroChina, presumably with the intention to have it participate in Wheatstone expansion,” Wilson said.

The initial agreement doesn’t preclude a supply deal between PetroChina and Woodside Petroleum Ltd., the Australian producer advancing plans for the Pluto and Browse LNG developments, he said. It indicates China is “not finished with their willingness to contract Australian LNG,” he said.

Chevron in August announced its ninth gas discovery off Australia in 12 months as it advances with Gorgon and Wheatstone. The San Ramon, California-based company has found enough gas to support a Gorgon expansion, Blackwell said yesterday.

“As we continue to discover more gas, expansions at Gorgon and Wheatstone become more likely,” he said.

Chevron initially plans to produce 8.6 million tons of LNG a year from two Wheatstone units, known as trains, located near the town of Onslow, 1,400 kilometers (870 miles) north of Perth.

Tokyo Electric Power Co. plans to take 4.1 million tons of LNG a year from Wheatstone. Korea Gas Corp. said it would buy almost 2 million tons of LNG a year under an initial accord that also gives it a 5 percent stake in the venture.

LNG is gas chilled to liquid form for transportation by ship between points not connected by pipelines.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

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