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Sinopec to Spend $1 Billion to Increase Australian LNG Stake

Sinopec to Buy Further 10% Stake in Australian LNG Project
A worker cycles through the China Petroleum & Chemical Corp. (Sinopec) Yanshan refinery in Beijing. Sinopec, which agreed to pay $1.5 billion for a 15 percent stake in the venture in April, said today it would buy an extra 3.3 million metric tons of LNG a year through 2035. Photographer: Nelson Ching/Bloomberg

China Petrochemical Corp., Asia’s biggest refiner, agreed to invest an estimated $1 billion to increase its stake in an Australian liquefied natural gas project led by ConocoPhillips and Origin Energy Ltd.

Sinopec Group, as the company is called, signed an initial accord to buy a further 10 percent of the venture, Sydney-based Origin said in a statement today. Sinopec Group, which agreed to pay $1.5 billion for 15 percent of the project in April, will also purchase an extra 3.3 million metric tons of LNG a year through 2035, clearing the way for an investment decision on the second phase of the $20 billion Queensland state venture.

China, the world’s largest energy consumer, plans to more than double natural gas consumption to cut its reliance on coal and oil. The country needs to increase LNG imports as it develops unconventional sources such as shale gas, said Ivor Ries, an analyst at E.L. & C. Baillieu Stockbroking Ltd.

“There’s a lot of talk about China seeking its own unconventional gas,” Ries said by phone today from Melbourne. “What this tells you is that Sinopec thinks developing domestic supplies will take a lot longer” than expected.

Origin gained 3 percent to A$14.72 at the 4:10 p.m. close in Sydney, while the S&P/ASX 200 Index rose 1.2 percent.

Energy Assets

The accord comes a month after Sinopec agreed to invest $5.2 billion in Galp Energia SGPS SA’s Brazilian unit. Chinese energy companies have bid at least $16 billion for overseas oil and gas assets this year to expand reserves.

Arrow Energy Ltd., the Australian coal-seam gas producer owned by PetroChina Co. and Royal Dutch Shell Plc, is planning a rival LNG venture on Queensland’s Curtis Island. BG Group Plc and Santos Ltd. are also building Queensland LNG projects.

Origin and Conoco, the third-largest U.S. oil company, are among energy companies in Australia planning or already building A$200 billion ($203 billion) of LNG projects to tap Asian demand for the cleaner-burning alternative to coal. Their venture last month agreed to supply Japan’s Kansai Electric Power Co. with 1 million tons of LNG a year.

While Australia is set to surpass Qatar as the biggest LNG exporter by the end of the decade, projects in the country face delays and cost overruns that threaten to undermine their credit quality, Standard & Poor’s said in November.

Conoco and Origin earlier this year agreed to supply 4.3 million tons of LNG a year to Sinopec. Annual capacity from the first two stages of the LNG project will be 9 million tons.

Consistent Terms

The terms of the agreement announced today are “consistent” with the previous Sinopec transaction, Origin Managing Director Grant King told reporters on a call today. Conoco and Origin may receive at least $1 billion by selling 10 percent to Sinopec Group, Ries said.

Conoco and Origin will each own 37.5 percent of the Australia Pacific LNG project, while Sinopec will have 25 percent when the transaction is completed. The majority shareholders reiterated today they plan to make an investment decision on the second phase of the development in early 2012 after committing to the first processing unit in July.

“There is certainly potential” to proceed with a third LNG unit, King said on the call today.

Origin doesn’t expect delays amid concerns that coal-seam gas projects will harm the state’s water supplies, King said. Origin, which followed BG and Santos in approving its LNG development, expects exports from the first stage to begin in mid-2015 and shipments from the second unit in 2016.

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