LNG trade to China begins Business Breaking News 24/7 - NEWS.com.au (15-05-2006)


THE first shipment of liquefied natural gas under Australia's biggest single export contract, worth $25 billion, will leave Karratha in Western Australia's Pilbara region this week for China's thriving industrial centre of Shenzhen, next to Hong Kong.Leading Australian LNG executives are in China to prepare for the event and to celebrate it with a series of performances in five cities by the West Australian Symphony Orchestra, on its first overseas tour in 23 years.
As shipments under the 25-year contract for North West Shelf gas - signed in October 2002 - finally get under way, they will help claw back Australia's widening trade deficit with China, which reached $6 billion in 2005 despite the surge in sales of iron ore worth $5.7 billion, copper ($628 million) and coal ($500 million).
Now, LNG is set to become Australia's third-biggest export item to China, after iron ore and wool, which had $1.3 billion sales last year.
It will underline the driving role played by Western Australia in the China trade, with 53 per cent of Australia's exports there coming from that state even before any LNG is shipped.
The date of the first shipment of about 50,000 tonnes was put back by a month as fine tuning was completed at the $1 billion Dapeng terminal, built and owned by 11 domestic and foreign corporations including BP and China National Offshore Oil Corp - the buyer of the gas and an equity holder in the North West Shelf.
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The gas will be piped from Dapeng to five power plants adapted to the new energy source, and to five cities in the region - the regional capital of Guangzhou, Hong Kong, the industrial centres of Dongguan and Foshan and to Shenzhen itself.
Prime Minister John Howard is set to fly to Shenzhen on June 28 for a more ceremonial launch of the gas trade. He is to then attend a forum on the crucial role of the resources sector in trade between the countries.
The first vessel, which is likely to arrive on May 28 or May 29, will provide an opportunity first to prove up the new terminal.
China's Government has made the production of cleaner energy an issue, but it has not negotiated any new LNG deals for almost four years.
The relentless rise in the gas price since those deals has meant that China's power companies could only afford to enter new contracts if the Government permitted them to raise their own prices accordingly, which it is reluctant to do with rapid growth remaining the top priority.
The president of the Australia LNG consortium that markets the North West Shelf, Peter Cleary, said in Beijing: "While we are aware of the extent of interest in LNG in China, we have agreed in discussions with our Chinese partners and the Government that this year we shall focus on safe and reliable supply under this first contract.
"Once this is successful, we shall see what the future holds."
Mr Cleary said the market had become more favourable for sellers, and "the Chinese understand that the circumstances are different" from when the original agreement was signed.
The 3.3 million tonnes to be supplied to China remains the North West Shelf's biggest single contract, although Japan is by some way the largest customer.
Mr Cleary said: "There's a lot of demand out there, but at the moment we're focusing on our existing customer base."