Petro China Buys into Australia LNG Project

Asia's largest oil producer seeks to increase its energy assets abroad

Asia's biggest oil producer Petro China Co Ltd agreed to buy BHP Billiton Ltd's shares of liquefied natural gas project in Australia at a price of $1.63 billion - the biggest overseas acquisition by the company this year - to further expand its foreign assets.

International mining giant BHP announced on Wednesday that it will sell its 8.33 percent interest in the East Browse Joint Venture and 20 percent interest in the West Browse Joint Venture, located off western Australian, to the Chinese oil and gas company.

The deal is expected to be completed by the first half of 2013, the statement said.

It will help Petro China enlarge its overseas energy assets even though it is an LNG project, said Wang Hui, an analyst at chem365.net, an online information provider for the petrochemical industry.

She said the company's overseas businesses are currently mainly in Asia. The deal will definitely help the company diversify its businesses by acquiring assets in other parts of the world.

Petro China Chairman Jiang Jiemin said earlier this year that the company will invest at least $60 billion this decade in global oil and natural gas assets to increase its share of overseas output to half of its total by 2020.

This is the first time that the company has stepped into western Australia's offshore natural gas industry.

The Browse project has natural gas reserves of about 15.5 trillion cubic meters and is expected to start production in 2018 at the earliest.

China is trying to reduce carbon emissions by increasing the use of clean energy, and the country is making more efforts on LNG development as its appetite for natural gas rapidly grows.

Natural gas output this year is estimated at 107.7 billion cubic meters, a 5 percent rise compared with last year, and consumption is expected to reach about 147.68 billion cubic meters, a 13 percent increase compared with last year, according to the energy information consultancy ICIS C1 Energy.

Meanwhile, the country's natural gas imports have maintained fast growth. It imported about 40 billion cubic meters of natural gas this year with an annual growth rate of 35.7 percent, C1 Energy said.

Chinese traders are turning to foreign sellers for LNG because of a domestic supply shortage, C1 Energy said on Wednesday.

It said the domestic LNG resources cannot meet the demand from downstream buyers.

Given this situation, the Chinese energy company has been expanding its LNG businesses overseas.

Petro China announced in May that it would jointly develop a proposed LNG export facility in Canada with Shell Canada Ltd, Korea Gas Corp and Mitsubishi Corp.

The project, located near Kitimat, British Columbia, will initially consist of two LNG processing units, each with the capacity to produce 6 million metric tons of LNG annually, with an option to expand the project to a total of 24 million tons a year.

The seller, BHP, is facing falling iron ore demand globally, especially from the biggest consumer China.

"The iron ore industry is in a declining path globally," said Zhang Tieshan, an analyst from steel information provider Mysteel.com. "Many global iron ore miners are cutting their investments in order to be more focused on their profitable businesses."

(chinadaily.com.cn, )

China Puts Its Foot on the Gas Again

PETROCHINA'S high-priced acquisition of a stake in the Browse LNG project cements the company as a significant player in Australia's oil and gas industry and is unlikely to be the company's last purchase here.

The deal is the latest in a long line of acquisitions made by China's state-owned energy giants in recent years, with Petro China and its rivals Sinopec and CNOOC spending an estimated $US70 billion since 2006 to secure oil and gas assets around the world.

The wave of deals has been driven by Beijing's eagerness to see China shore up potential oil and gas supplies at a time when demand for energy is growing and internal production is declining.

That strategic rationale saw Petro China join Royal Dutch Shell in acquiring Queensland coal-seam gas player Arrow Energy for $3.4 billion in 2010, and is also a factor behind yesterday's deal.

Simon Powell, the Hong Kong-based head of Asian oil and gas research at CLSA, told The Australian Petro China had paid a high price for a stake in an asset that was not certain to be developed, given rising costs and an uncertain outlook for LNG markets. "They've paid a shockingly big price for it," he said.

..."If we're right, Browse may not actually get up."

Mr Powell has previously voiced concerns about the outlook for Australia's LNG industry, warning that Australian projects are among the most costly in the world.

In addition, he says LNG demand beyond 2015 could weaken as China's unconventional gas production begins to build up and Japan -- the world's biggest buyer of LNG -- potentially re-starts the nuclear power capacity idled since last year's Fukushima disaster.

But yesterday's acquisition is likely to be motivated by much more than just Petro China’s perceived interpretation of Browses’ economics.

Firstly, the acquisition will send a strong message of goodwill from Petro China towards Royal Dutch Shell, which holds a 27 per cent direct interest in Browse and which has been actively working behind the scenes to push its floating LNG technology as a development option for the project.

Petro China and Shell have forged an increasingly close alliance in recent years, with Shell having pledged to share its entire unconventional gas expertise with Petro China, and Shell will be happy to see a close ally join it in a project that has historically been wracked by joint-venture partner disagreements. "Shell would be quite pleased about this deal on a number of levels," Mr Powell said.

"One, it makes their stake in Browse potentially worth more, and two, they've got a friend in the consortium that they may not have had before."

It is also worth noting that Sinopec, courtesy of its state-owned status, enjoys considerable access to China's treasury and therefore enjoys significantly lower financing costs than BHP or any of the other partners in Browse.

More broadly, the deal can also be seen as China sending a message to Russia.

The two countries have been deadlocked in negotiations about piping Russian gas into China, with Russia demanding a higher price than China is willing to pay.

China's desire to secure the oil and gas supplies critical to its growth and the comparatively cheap finance available to its energy giants means the spree of big-ticket acquisitions by the likes of Petro China, Sinopec and CNOOC won't end soon.

(theaustralian.com.au,)