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Sinopec buys LNG from Exxon/OilSearch’s PNG project

November 4th, 2009 · 1 Comment

BIG numbers involved

Sinopec Agrees to Buy LNG From Exxon’s PNG Project
By Bloomberg News

Nov. 4 (Bloomberg) — China Petroleum & Chemical Corp., Asia’s biggest oil refiner, will buy liquefied natural gas from a $12.5 billion Exxon Mobil Corp.-led project in Papua New Guinea as China seeks to cut its reliance on more polluting coal.

China Petroleum, also known as Sinopec, will buy 2 million metric tons of LNG a year, Exxon said in a statement today. Exxon and its partners are working with Sinopec to complete a binding, long-term sales agreement and a final investment decision is planned for later this year, Exxon said.

China, which received its first LNG cargo in May 2006, plans to build more than 10 terminals on the east coast to meet a government target to double the use of natural gas in five years by 2010. Sinopec’s rival PetroChina Co. signed an estimated A$50 billion ($45 billion) agreement in August to buy LNG from Exxon’s Gorgon project in Australia.

Only just under 3 percent of China’s energy is from gas compared with over 20 percent in some developed countries,” said Wang Aochao, an analyst at UOB-Kay Hian in Shanghai. “This deal is part of the process of steadily increasing that figure.”

The length of the contract has yet to be agreed, said Stuart Symons, a Port Moresby, Papua New Guinea-based spokesman at Exxon. The explorer also didn’t give details on the cost of the contract in today’s statement.

Deal Value

Sinopec Chairman Su Shulin said last month the two companies were still negotiating over the price of the LNG and that a possible deal could last 20 years. The Exxon statement released today refers to an agreement for the “long-term” supply of LNG.

Japan, the world’s biggest LNG buyer, paid an average of $438 per ton for imports of the fuel in September, according to data from Japan’s customs.

At these prices, Sinopec’s contract would be valued at $876 million a year, or $17.5 billion over 20 years. The Japanese import price is calculated based on a basket of crude imports and doesn’t take into account future movements in prices. Crude oil is a benchmark for Asian term LNG contracts.

Huang Wensheng, Sinopec’s spokesman, said today’s agreement is a framework accord which won’t specify pricing details. Sinopec shares rose 1.1 percent to close at HK$6.69 today in Hong Kong.

Exxon said in June it would begin talks to supply three Asian customers with LNG from the Papua New Guinea venture.

The project plans a two-production-unit gas liquefaction plant near Port Moresby, the capital, with gas sourced from the South Pacific nation’s highlands. The project will have a capacity to produce 6.3 million tons of LNG a year.

China Terminal

The gas secured under today’s deal will be delivered to a terminal to be built in China, Wang Zhigang, senior vice president of Sinopec, said in the statement. Su said on Oct. 15 that the LNG will supply the Qingdao terminal in eastern China.

“We hope that the working teams from both parties continue to work closely to finalize the sale and purchase agreement as soon as possible,” Wang said.

LNG is natural gas chilled to liquid form for transport by ship to destinations not connected by pipeline. Exxon owns 41.5 percent of the Papua New Guinea project, Oil Search Ltd. 34 percent, Santos Ltd. 17.7 percent and Nippon Oil Corp. 5.4 percent.

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The first indications arefor a value of $876 a year for 2 million metric tons, or $438 per ton.
1 metric ton liquefied natural gas (LNG) = 48,700 cubic feet of natural gas
So 48.7Mcf for $438, that’s 438/48.7= $8.99 per Mcf, but prices vary with the oil price.

The following fact we found even more interesting: “Only just under 3 percent of China’s energy is from gas compared with over 20 percent in some developed countries.” That leaves ample room for expansion on an already rapidly growing eneregy need itself. Throw in some electric cars and the shift from coal to gas powered power plants, and you have a whopping demand for natural gas…

Tags: IOC · Natural Gas

1 response so far ↓

  • 1 kencooksam // Nov 4, 2009 at 5:46 pm

    I agree that 3% grwing to 20% coud make IOC investors quite rich in time.