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China deal a gas for Gorgon

THE $30 billion liquefied natural gas deal signed last week has underpinned the commercial viability of the Gorgon gas field and provided a further boost to economic relations between Western Australia and China.

It also confirms WA’s place as a leading oil and gas producer, adding to the bullish sentiment in the resources industry.

The agreement between China National Offshore Oil Corporation (CNOOC) and the proponents of the Gorgon Venture Participants is expected to lead to one of the biggest LNG deals in the industry’s history and far outstrips last year’s $25 billion LNG deal signed between the North West Shelf proponents and China.

Putting the agreement in the context of Australian trade relations, the deal follows the announcement of an economic framework agreement between Australia and China – the precursor to a Free Trade Agreement – signed during Chinese president Hu Jintao’s visit to Australia.

It also goes some way to silencing critics of FTAs, who feared that our economic ties with Asian countries, including China, would suffer if Australia pursued a FTA with the US.

Austrade’s chief economist, Tim Harcourt, said China was the “big story” in economic terms and the Gorgon deal and the economic framework indicated that China “clearly values its relationship with Australia in its own right and sees our bond with the US as a bonus”.

“With China looking set to overtake Japan [our largest trading partner after the US] as Australia’s number one export destination by 2012, the size of the opportunity of this [economic framework] agreement presents for companies should not be underestimated,” he said.

“The agreement means that our resource sector will have fewer constraints to deal with as it powers ahead in the Chinese market.

“The $A30 billion LNG deal just announced shows how important China is to the resource sector.”

However, Mr Harcourt said it wasn’t just the resources industry that would benefit from stronger trade ties with China.

He said closer economic integration lead to opportunities for both small and large players in manufacturing and services industries, agriculture, technology, education, as well as improved two-way foreign investment opportunities.

“Australia has given China a lot of support in its close encounters with the global economy. From Australia’s recognition of China in 1972, to our support for their entry into the WTO in recent times, we are regarded among Chinese elite circles as being a long-standing and reliable supporter of China,” Mr Harcourt said.

In a statement, ChevronTexaco Australia’s managing director Jay Johnson said Gorgon’s world class gas reserves positioned it to meet demand in the growing Chinese energy market.

He said WA’s sister State of Zhejiang, the fast-growing province south of Shanghai, is one of several new locations identified for the expanding LNG trade in China’s southern and eastern provinces.

Under the $30b deal, CNOOC will acquire a 12.5 per cent stake in the Gorgon LNG production project – set to be located on A-class nature reserve Barrow Island

WA currently exports no LNG to China, with the most recent figures from the Department of Industry and Resources indicating 97.9 per cent of WA LNG exports go to Japan.

However, of the 5,000,000 tonnes of LNG the Gorgon project is expected to produce from 2009, 3,000,000t of LNG would be available for sale to China.

A Memorandum of Understanding has already been signed for the sale of 2,000,000t of LNG from Gorgon to the US.

The Gorgon development won in-principle approval from the WA Government last month, despite drawing criticism from conservationists, and a State agreement has been signed to facilitate the establishment of gas processing facilities on the island.

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