Woodside Petroleum on Thursday signed an outline agreement to sell up to A$45bn ($37.2bn) worth of liquefied natural gas to PetroChina in what would be Australia’s biggest ever export contract.
Woodside said China’s largest oil and gas group was set to become the foundation customer for its proposed Browse project in Western Australia after agreeing to purchase 2m to 3m tonnes of LNG a year from it for 15 years.
The agreement is the second big Australian gas deal signed this week by Petro-China, the overseas-listed subsidiary of China National Petroleum Corp, and marks a decisive return to the LNG market by Beijing.
On Tuesday PetroChina signed a preliminary agreement with Shell to buy gas from its Gorgon development, also off the Western Australian coast.
Woodside declined to reveal the terms of the Browse deal. But Mark Chatterji, its chief financial officer, said the contract had “the potential to bring revenues in the order of A$35bn to A$45bn into Australia”.
Analysts said it was likely to have been priced at about four times the $2.50-$2.70 per million British thermal units that China agreed to pay in its first LNG deal in 2002, also with Australia.
China has signed far fewer long-term contracts for LNG than it envisioned five years ago, because a tightening global market made such deals uneconomic in a domestic market with price caps.
George Gilboy, Woodside’s chief China representative, said the deal marked “the latest chapter of China’s integration into global markets on global market terms”.
He added: “This shows that Chinese companies and Chinese consumers are increasingly able to compete on the world stage.”
The purchase agreement significantly strengthens the chances that development of Browse will proceed, providing a further boost to Australia’s rapidly expanding LNG sector.
The country hopes to become the world’s second largest supplier of LNG, after Qatar, by the end of the next decade by quadrupling production.
Woodside, which in July approved the A$12bn Pluto LNG development, is due to make a final investment decision on Browse by 2010, with first production slated for 2013 onwards.
“The contracted volumes [from PetroChina] are not enough to say that the Browse project is definitely a go-ahead,” said Stuart Baker at Morgan Stanley in Melbourne. “But this is a very good sign and the company has stressed that it was in talks with other buyers.”
The Browse deal is one of several in the resources sector to be discussed during a visit to Australia by Hu Jintao, the Chinese president.
China unseated Japan as Australia’s largest trading partner earlier this year, following a rapid increase in its imports of local raw materials.
President Hu and John Howard, the Australian prime minister, also witnessed the signing on Thursday of a joint venture between Gindalbie Metals and Anshan Iron and Steel to invest A$1.8bn in an iron ore project in Western Australia“The growth in economic ties between Australia and China over the last 10 years has been nothing short of stunning,” Mr Howard said.