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Now we can really step on the gas

AUSTRALIAN share traders had virtually given up on the North-West Shelf partners winning the $25 billion jackpot to supply LNG to China, which goes to show they were not much good at reading Chinese tea leaves.

The breakthrough that ultimately led to the contract had nothing to do with natural gas. Early one morning in May 1997, holiday makers at Perth airport waiting for their flights to Bali were startled to see a Boeing 747B aircraft, bearing the red and gold livery of the PRC, touch down on the tarmac. On board was a delegation of 80 officials, led by Chinese Premier and economic strongman, Zhu Rongji.

Within hours Zhu was on his way to the Pilbara to inspect a joint venture China has with Rio Tinto Zinc in the Channar iron ore mine.

The high point of his eight-day trip to Australia was a $100-a-plate lunch for 300 business people in Sydney, hosted by the Australia-China Business Council. The charismatic Zhu fairly rocked them in the aisles. He promised the PRC would cut tariffs for Australian wool exports, and add us to the list of designated Chinese tour group destinations. Both pledges were honoured.

There is no doubt why Zhu was visiting Australia with such a high-powered delegation at that time. Shortly before, the Howard Government had declined to support the annual condemnation of China at the United Nations Human Rights Commission in Geneva. Canberra naturally denies such an unsubtle link, but the visit swiftly paid dividends in business, trade and diplomacy. When Zhu returned to Beijing, he told President Jiang Zemin that Australians were whatever the Chinese translation is for ‘fair dinkum’. Two years later, Jiang himself came over for an economic summit. It is sometimes forgotten that, among the memorandums of understanding signed on that trip, was the endorsement of Australia as China’s preferred source for natural gas supplies.

There was a terrific effort by dedicated and highly experienced people determined that we should clinch the prize. West Australian David Irvine, our ambassador to China who first worked in Beijing back in 1982, personally spearheaded the diplomatic effort. BHP Petroleum chief Philip Aiken led the negotiations. Arthur Dixon and his eight-strong team were indefatigable in their three-year joint marketing push on behalf of the NWS partner BHP-Billiton, BP, Chevron, Mitsui/Mitsubishi, Shell, and the operator Woodside Petroleum.

Former WA premier Richard Court and present leader Geoff Gallop also did their bit, and Prime Minister John Howard was as responsible as anybody for bringing home the bacon.

Being chosen as sole supplier to the Guandong LNG terminal is a huge win for the country, the State and the North-West Shelf project. The expected construction of a fifth LNG production train, and further infrastructure work on the Burrup Peninsula, will create several thousand jobs in WA. Additional royalties for the State Government have been put at $50 million a year – already interest groups are squabbling over how it should be spent.

The Chinese economy is set to double in size within 20 years. The fact that the China National Offshore Oil Corp will become a full member of the joint venture to supply the LNG to China, and that its shipping companies will be part of the transport fleet, ties the project firmly to the PRC. The Beijing leadership wants to diversify away from 70 per cent dependence on coal. Clean green LNG now comprises only 3 per cent of its needs and there will be more contracts to be won.

Australia sells $7.5 billion worth of wool, iron ore and other commodities to China, and imports more than $10 billion in manufactured goods. The $1 billion per year natural gas sales will start closing the trade gap by late 2005, and WTO membership will open up further big opportunities to our exporters.

Stockbroker analysts arguing the toss about whether the deal is worth 50 cents or 80 cents to the Woodside share price miss the point – typifying the short-termism that bedevils investment around here. Local institutions had sold Woodside shares down to under $13, convinced that rival BP’s Tangguh Indonesian bid would win the day. They have now recovered to $13.80. That is still under the $14.20 a share takeover bid from Shell blocked by the Government last year, and values the energy champion at a paltry $9 billion – less than St George Bank, Foster’s or Woolworths. There is something out of whack here.

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