Cnooc Parent Agrees to Buy Australian LNG From BG for 20 Years

By John Duce and Ben Sharples

May 13 (Bloomberg) -- China National Offshore Oil Corp. agreed to buy liquefied natural gas from BG Group Plc’s planned $6 billion Australian project as demand for cleaner fuels rises in the second-largest energy-consuming nation.

China National will buy 3.6 million metric tons annually from the Queensland Curtis LNG project for 20 years, the companies said in statements today. Beijing-based China National will acquire 5 percent of BG’s reserves in Queensland’s Surat Basin, the U.K.’s third-biggest gas producer said.

BG’s first accord to sell Queensland LNG may be worth as much as $600 million a year, or $12 billion over two decades, said Gordon Kwan, an energy analyst at Mirae Asset Securities. Oil prices have slumped almost 60 percent from the July record of $147.27 a barrel, cutting the cost of gas in supply contracts.

“The move by China National reflects its ambition to secure reserves overseas at the bottom of the price cycle,” Hong Kong-based Kwan said in e-mailed comments.

Cnooc Ltd., China National’s listed unit, rose as much as 9 percent to HK$10.56 in Hong Kong after the agreement was announced, the highest since Sept. 8. The benchmark Hang Seng index gained 0.7 percent. BG, which has gained 29 percent in London in the last six months, fell 0.6 percent to 1,097 pence yesterday.

China wants to boost the use of gas to 10 percent of total energy consumption by 2020 from about 3 percent to reduce reliance on more-polluting coal. State-controlled China National has signed term contracts to buy LNG from Australia, Malaysia and Indonesia for terminals in Dapeng, Putian and Shanghai on Chinese coast.

LNG Tankers

PetroChina Co. signed a 25-year agreement in April last year to buy 3 million tons of LNG from Qatar starting 2011.

China National will acquire a 10 percent stake in one of the two liquefaction trains, or units, that will form the first phase of the Queensland Curtis project, said BG.

The companies will be part of a group to build two LNG tankers to transport the fuel, BG said, without giving any figures for the transaction.

Australia’s coal-seam gas industry attracted about A$22 billion ($17 billion) in investment last year and BG, Santos Ltd. and ConocoPhillips are among companies with stakes in rival ventures aiming to convert gas extracted from coal beds in Queensland into LNG for export.

“It is a really good result, it underpins the project, and we’re really glad to have brought it out,” said Hedley Thomas, a spokesman for BG in Australia. “The terms for the Cnooc deal, when they’re executed, will be highly attractive.”

Environmental Impact

BG will submit a draft environmental impact statement on the project, near the central Queensland coastal city of Gladstone, to the state government “in the coming weeks,” he said. Santos and Petroliam Nasional Bhd. submitted the draft environmental report on their Gladstone LNG project during the first quarter.

Arrow Energy Ltd. said April 16 that the Queensland government approved the environmental impact statement for its proposed coal-seam gas to LNG plant at Gladstone. Queensland may export about 20 million tons a year of LNG by 2020, equal to Australia’s total existing output, according to Brisbane-based Bow Energy Ltd.

Asia’s LNG demand may drop by as much as 10 percent this year because of reduced energy consumption, New York-based consultant Poten & Partners said on March 27.

The China National deal will allay concerns in Australia over whether there is a viable market for the country’s LNG, John Wilson, an analyst at Wilson HTM Investment Group, said by telephone from Melbourne.

‘Buyers Market’

“It shows that people are willing to sign up,” he said. “There has been concern about whether it is going to become a buyers market again and whether there’s going to be too much LNG around.”

BG and China National aim to complete negotiations for the transaction, which needs government and regulatory approval, next year, the Reading, England-based gas producer said in its statement. The companies signed a memorandum of understanding in 2008 under which they agreed to explore opportunities for strategic cooperation.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 258 degrees Fahrenheit) for transportation by ships to destinations not connected by pipeline.

To contact the reporter on this story: John Duce in Hong Kong at jduce1@bloomberg.net; Ben Sharples in Melbourne bsharples@bloomberg.net