China Petrochemical Corp., the nation’s second-largest oil company, agreed to acquire 15 percent of an Australian gas venture planned by ConocoPhillips and Origin Energy Ltd. as part of a fuel-purchase accord.
Sinopec Group, as China Petrochemical is known, will buy as much as 4.3 million metric tons of liquefied natural gas a year for two decades under the preliminary pact, the Beijing-based company said in a statement today. The supply agreement would be the largest for any of the Queensland ventures intending to liquefy gas extracted from coal deposits, Grant King, managing director of Sydney-based Origin Energy, told reporters.
“This should give an increasing amount of confidence that this project will proceed,” King said. “The message to other customers with whom we’re in discussions and with contractors is that our project is building some very substantial momentum.” Origin shares rose the most in two years.
ConocoPhillips and Origin propose one of four coal-seam gas-to-LNG ventures in Queensland state targeting Asian demand. BG Group Plc has committed to a $15 billion LNG venture and Santos has approved a $16 billion development, while Arrow Energy, owned by Royal Dutch Shell Plc and PetroChina Co., plans another development on the central Queensland coast.
The companies didn’t disclose the value of the deal in their separate statements. The stake in Australia Pacific LNG may be worth about A$1.13 billion ($1.14 billion), UBS AG analyst David Leitch estimated by phone from Sydney.
The price ConocoPhillips and Origin receive for their LNG would be “at market,” King said. “It is important any price recognizes the quality of APLNG resources, both quality and quantity. We’re comfortable the price will do that.”
The agreement would cut the partners’ stakes to 42.5 percent each. Origin and ConocoPhillips will “intensify the dialogue” with other potential customers and may sell more of its interest in the venture, King said.
Origin Energy rose 5.8 percent to A$16.83 in Sydney, the most since Feb. 5, 2009. China Petroleum & Chemical Corp., Sinopec Group’s Hong Kong-listed unit, was 3.3 percent higher at HK$7.91 at 3:08 p.m.
“Sinopec Group has been active in overseas upstream assets purchases as their assets at home are relatively small,” said Anna Yu, an analyst at ICBC International Research Ltd., by telephone from Hong Kong. “This will not only secure fuel supply, but also share the profit gain from the project.”
Increasing Gas Supplies
China is importing gas and increasing domestic output as it aims to almost triple use of the cleaner-burning fuel to about 10 percent of energy consumption by 2020.
Australia was China’s biggest supplier of LNG last year, accounting for 42 percent of the 9.4 million tons in imports, according to customs data. China paid an average $191 for each ton of Australian term-contract supplies in 2010, compared with an average $323 for all imports, including both term and spot cargoes, customs data show.
Australia Pacific LNG won environmental approval from the federal government Feb. 22 and is due to begin production in 2015, Origin said. The venture may cost $17 billion, and Origin may need to sell as much as $4 billion in shares and reduce its stake to 35 percent to fund it, Xavier Grunauer, an analyst at Nomura Holdings Inc. in Sydney, said in a report today.
Origin and Conoco aim to make a final investment decision to proceed with the project later this year, King said.
ConocoPhillips and Origin are among companies planning as much as A$200 billion of Australian LNG ventures aimed at Asian markets. LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume for shipment by tankers to destinations not connected by pipeline.
BG, the U.K.’s third-largest gas producer, agreed last year to supply China National Offshore Oil Corp. with 3.6 million tons of LNG a year over two decades.
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