August 18, 2009 4:04 pm

China and Australia sign $41bn energy deal

China’s largest energy company agreed on Tuesday to buy $41bn worth of Australian natural gas at a signing ceremony intended to put a positive gloss on strained relations between the two trading partners.

Martin Ferguson, Australia’s energy and resources minister, was in Beijing to witness the signing of Petrochina’s agreement to buy 2.25m metric tonnes a year of liquid natural gas from the Gorgon project off the coast of Western Australia.

At current gas prices, the deal, which is with ExxonMobil, the world’s largest western oil company, would be worth $41bn over the next 20 years and is Australia’s largest-ever trade deal, Mr Ferguson said.

But the key terms and conditions of the deal were agreed months ago and the timing of the announcement was seen as an attempt to soothe battered relations between Australia and its most important trading partner.

Canberra revealed on Tuesday that China cancelled a high-level diplomatic visit to Australia earlier this month in protest over the granting of a visa to Uighur leader Rebiya Kadeer, who is blamed by Beijing for instigating ethnic riots in Xinjiang province last month.

Sino-Australian relations have also been damaged by the collapse of a high-profile Chinese investment in Anglo-Australian miner Rio Tinto and China’s arrest of four Rio Tinto iron ore sales executives, including Australian citizen Stern Hu, on alleged bribery and commercial espionage charges.

Mr Ferguson’s visit to Beijing and the ceremonial announcement of the Petrochina deal were timed to defuse rising tensions between the two countries, according to people familiar with the deal. Sino-Australian trade is worth about $53bn a year.

“This agreement is testimony to the strength of Australia’s continuing trade and investment relationship with China,” Mr Ferguson said in a statement. “As China continues to develop as a modern global industrial and commercial powerhouse, Australia is committed to walking with it on its remarkable journey.”

The terms of Exxon’s supply agreement with state-owned Petrochina were agreed as early as February, according to industry executives, and in May Petrochina’s president, Zhou Jiping, said talks with Exxon Mobil’s Australia unit over LNG supplies had been completed and faced no regulatory obstacles.

The Gorgon project off the coast of Western Australia is one of the world's largest proposed gas developments. As well as the agreement with ExxonMobil, which owns 25 per cent of Gorgon, PetroChina has a long standing agreement with Royal Dutch Shell, which also owns 25 per cent, to source gas from the field.

Chevron, the US oil group that is 50 per cent owner and operator of Gorgon, is yet to officially sign off on the project, however, a “final investment decision”, the last remaining milestone, is thought to be only weeks away.

In 2007, PetroChina signed what was then hailed as Australia’s biggest export contract when it reached an outline agreement with Woodside Petroleum to buy an estimated $37bn worth of liquefied natural gas from the Browse basin also in Western Australia.

Australia has more than ten LNG projects under development by some of the world’s top energy groups. Australia’s stable political system, vast energy reserves and proximity to energy hungry markets in Asia have made it a favoured development destination for the big oil and gas groups.

Mr Ferguson last week announced that India’s Petronet had signed a deal worth more than $20.5bn with Exxon-Mobil for LNG from Gorgon.

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