Chevron Corp. (CVX) is close to an initial deal with China National Petroleum Corp. to import natural gas from Australia, in the energy industry's latest bet that growing demand from China will justify multibillion-dollar projects aimed at tapping and transporting new gas supplies.
Chevron Corp. (CVX) is close to an initial deal with China National
Petroleum Corp. to import natural gas from
Australia
, in
the energy industry's latest bet that growing demand from
China
will
justify multibillion-dollar projects aimed at tapping and transporting new gas
supplies.
Chevron said it is near a preliminary agreement with CNPC to buy liquefied
natural gas that the
San Ramon
,
Calif.
,
company plans to produce from a facility in
Western
Australia
. CNPC also would take a stake in one of the
natural gas fields supplying Chevron's proposed LNG plant, called Wheatstone.
In addition, Chevron would partner in onshore oil and gas exploration with CNPC
in China, giving the company greater access to the world's largest energy
market even as it potentially gives its Chinese partner access to greater
skills and know-how on enhanced oil-recovery technology.
(This story and related background material will be available on The Wall
Street Journal website, WSJ.com).
Chevron, which said it expected to sign the preliminary agreement late
Wednesday, didn't disclose further details. CNPC,
China
's
biggest oil and gas producer by volume, declined to comment further.
In an interview Monday on the sidelines of the World Economic Forum in Tianjin,
John Watson, chairman and chief executive of Chevron, said that commercial
terms remain to be determined but added that gas being sold from Chevron's
other Australian LNG plants is being sold at "oil-linked pricing--not
exactly oil parity. We've been very satisfied with that pricing. I've got no
reason to believe we won't continue to get good pricing."
Comparable deals tend to be valued at significant levels in part because of the
major upfront costs associated with plants that produce LNG, which is natural
gas cooled into a liquid so it can be shipped overseas via tanker. Exxon Mobil
Corp. (XOM) last year signed a 20-year agreement to supply CNPC's listed
subsidiary PetroChina Co. Ltd. (0857.HK, 601857.SH, PTR) from Gorgon, another
Australian natural gas exporting facility that also involves Chevron, in a deal
Australian officials have estimated to be valued at $47 billion at current
exchange rates over the life of the agreement.
If approved by Australian regulators, Wheatstone would become Chevron's second
major LNG project after Gorgon. Getting CNPC onboard is important because it
would be the cornerstone buyer underpinning Chevron's plans to more than double
the capacity of Wheatstone to 25 million metric tons.
The gas intended for
China
would
go to market by 2016. Chevron says it has already committed 60% of the gas from
the first phase of the project to other Asian buyers including
Japan
and
South
Korea
, which have also taken small
stakes in the gas fields themselves.
The project marks the continued reorientation of Chevron away from the
lower-growth economies of
Europe
and
North
America
to
Asia
, where developing economies
like
China
and
India
are
pushing up demand for oil and especially natural gas, which is seen as a
cleaner alternative to coal.
"We are becoming the gas company of
Asia
,"
said Mr. Watson.
As
China
seeks
ways to reduce oil dependence, it will increase natural gas use from nine
billion cubic feet a day in 2009 to 43 billion cubic feet a day by 2030,
Edinburgh-based energy consulting firm Wood Mackenzie predicts.
China
is
building massive infrastructure to funnel in gas, including pipelines from
Central and
Southeast Asia
and multibillion dollar
terminals to receive LNG ships along the eastern coast.
Banking on that growth, companies like Chevron are investing in the complex
infrastructure needed to ship natural gas and are rushing to lock in long-term
contracts. After 2020, analysts predict,
China
's
exports could slow as it develops domestic supplies of unconventional gas locked
in hard-to-develop shale and coal-bed methane fields.
Unconventional gas produced in the
U.S.
is
already having a ripple effect across the world. With
U.S.
importing less, Middle Eastern gas is eyeing
Asia
and
competing with supplies from
Indonesia
and
Australia
. "Right
now, it's a buyers market," said John Vautrain, an energy analyst at
Purvin & Gertz based in
Singapore
. "Longer
term, oil is still expensive and coal is still dirty and the prospect for gas
expansion is there."
China
wants
to copy that success in natural gas, and also wants to start exploring in
deeper waters off its shore as part of its plans to diversify energy sources. But
China
doesn't have the know-how yet to tap unconventional gas or drill very deep
offshore oil wells. That's opened up an opportunity for international oil
companies including Chevron, Royal Dutch Shell PLC (RDSA, RDSA.LN, RDSB,
RDSB.LN), BP PLC (BP, BP.LN), and Exxon Mobil who have that expertise.
Mr. Watson said Chevron is talking to Sinopec about cooperating on shale gas in
China
.
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