OMEN
06-27-2006, 08:58 PM
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Escalating row ... John Howard in China for extra gas money.
JOHN Howard has flown into China and an escalating row over Australian attempts to extract a higher price for billions of dollars' worth of gas exports.
International petroleum companies that control Australia's massive offshore gas reserves want to renegotiate the low-ball prices agreed under the inaugural, $25billion export deal signed with China in 2002.
And they want to ensure future contracts to supply liquefied natural gas to feed China's booming economy are set at far higher levels than the 2002 agreement - the nation's biggest export deal - reflecting the jump in global LNG prices. If they are successful, Australia could secure future export orders three times the size of the original deal, enough to jump-start the development of new gas fields off the West Australian coast.
The Prime Minister will hold talks today with Chinese Premier Wen Jiabao, with China keen for Mr Howard to intervene in the gas negotiations.
Mr Howard and Mr Wen will today greet the second of three so-called "goodwill cargoes" of gas supplied under the 2002 contract, ahead of the full shipments in September. The 2002 contract to supply gas from Australia's North West Shelf to the Guangdong industrial centre in southern China is capped at the equivalent of an oil price of $US25 a barrel. However, skyrocketing global demand for LNG, viewed as a greener fuel than coal and oil, has pushed the price close to the price of crude oil, at $US70 a barrel.
The 2002 deal, which was sealed after the last-minute intervention of Mr Howard, was always considered a cheap tender by Australian gas producers.
It is understood that at present prices, they could have been getting an additional $20 billion over the 25-year life of the deal.
Unlike China, which is only just beginning to use LNG to feed its rapid economic expansion, Japan has a long-established LNG market and knows the necessity of paying a premium to secure a reliable supply of gas.
Last night, Mr Howard insisted it was "not up to the Government to negotiate price" but warned China that there was big demand for Australia's LNG from Japan, South Korea and the US.
Speaking in Shenzhen, he said the $25 billion contract was "the largest single trade agreement Australians have signed". He said: "It can, in my view, be the beginning of a further stage of expansion. We're here to help."
But he added: "Of course, China is not the only customer for Australian LNG. Japan and South Korea are wonderful customers, and I hope the United States -- in particular the west coast - can become a customer in time.
"It's part of the opportunity Australia has to underpin China's enormous industrial expansion. We have one super-duper economic relationship with China, to which we have quadrupled our exports over 10 years."
Woodside Petroleum, the operator of the North West Shelf project, does not want to renegotiate the price of the 2002 contract. But it is understood some of its partners in the project, possibly Britain's BP, are keen to revisit the amount it receives for gas.
Australia's Woodside and other international companies, such as Shell and Chevron, are expecting much better prices for their gas in future contracts.
When Mr Wen meets Mr Howard today, he will ask for many billions of dollars' worth of LNG, having successfully put the hard word on the Prime Minister for a uranium deal during his visit to Australia in April.
Guangdong, the industrial powerhouse province where Mr Howard arrived last night, is already commissioning plants with a capacity to process more than five times the amount of LNG that Australia's North West Shelf has agreed to ship.
China's capacity and renewed readiness to pay a market price for strategic commodities was proved a week ago, when its steel mills signed iron ore deals with BHP Billiton and Rio Tinto, conceding a 19 per cent rise, after a 71.5 per cent hike last year.
The State Council, the key body shaping China's economic policy, has indicated it recognises that global energy prices have changed. And with regional competitor Japan starting to re-negotiate its gas contracts, China appears prepared to consider making deals that would see new gas basins developed in Australia.
Wu Qingbiao, secretary-general of the Guangdong Oil and Gas Association, said the leaders' visit was "a chance we shouldn't miss" to start negotiating for big new gas contracts.
Arthur Dixon, president of the gas marketing group Australia LNG when the Guangdong contract was signed, said yesterday from Hong Kong there was pent-up demand in China for LNG, which could lead to big contracts for deliveries beginning next decade. He said Australia's insistence on new contracts that reflected world prices had cooled interest for Australian-supplied LNG, but China had been unable to secure supplies from other countries.
http://network.news.com.au/images/h14_theaustralian.gif
Escalating row ... John Howard in China for extra gas money.
JOHN Howard has flown into China and an escalating row over Australian attempts to extract a higher price for billions of dollars' worth of gas exports.
International petroleum companies that control Australia's massive offshore gas reserves want to renegotiate the low-ball prices agreed under the inaugural, $25billion export deal signed with China in 2002.
And they want to ensure future contracts to supply liquefied natural gas to feed China's booming economy are set at far higher levels than the 2002 agreement - the nation's biggest export deal - reflecting the jump in global LNG prices. If they are successful, Australia could secure future export orders three times the size of the original deal, enough to jump-start the development of new gas fields off the West Australian coast.
The Prime Minister will hold talks today with Chinese Premier Wen Jiabao, with China keen for Mr Howard to intervene in the gas negotiations.
Mr Howard and Mr Wen will today greet the second of three so-called "goodwill cargoes" of gas supplied under the 2002 contract, ahead of the full shipments in September. The 2002 contract to supply gas from Australia's North West Shelf to the Guangdong industrial centre in southern China is capped at the equivalent of an oil price of $US25 a barrel. However, skyrocketing global demand for LNG, viewed as a greener fuel than coal and oil, has pushed the price close to the price of crude oil, at $US70 a barrel.
The 2002 deal, which was sealed after the last-minute intervention of Mr Howard, was always considered a cheap tender by Australian gas producers.
It is understood that at present prices, they could have been getting an additional $20 billion over the 25-year life of the deal.
Unlike China, which is only just beginning to use LNG to feed its rapid economic expansion, Japan has a long-established LNG market and knows the necessity of paying a premium to secure a reliable supply of gas.
Last night, Mr Howard insisted it was "not up to the Government to negotiate price" but warned China that there was big demand for Australia's LNG from Japan, South Korea and the US.
Speaking in Shenzhen, he said the $25 billion contract was "the largest single trade agreement Australians have signed". He said: "It can, in my view, be the beginning of a further stage of expansion. We're here to help."
But he added: "Of course, China is not the only customer for Australian LNG. Japan and South Korea are wonderful customers, and I hope the United States -- in particular the west coast - can become a customer in time.
"It's part of the opportunity Australia has to underpin China's enormous industrial expansion. We have one super-duper economic relationship with China, to which we have quadrupled our exports over 10 years."
Woodside Petroleum, the operator of the North West Shelf project, does not want to renegotiate the price of the 2002 contract. But it is understood some of its partners in the project, possibly Britain's BP, are keen to revisit the amount it receives for gas.
Australia's Woodside and other international companies, such as Shell and Chevron, are expecting much better prices for their gas in future contracts.
When Mr Wen meets Mr Howard today, he will ask for many billions of dollars' worth of LNG, having successfully put the hard word on the Prime Minister for a uranium deal during his visit to Australia in April.
Guangdong, the industrial powerhouse province where Mr Howard arrived last night, is already commissioning plants with a capacity to process more than five times the amount of LNG that Australia's North West Shelf has agreed to ship.
China's capacity and renewed readiness to pay a market price for strategic commodities was proved a week ago, when its steel mills signed iron ore deals with BHP Billiton and Rio Tinto, conceding a 19 per cent rise, after a 71.5 per cent hike last year.
The State Council, the key body shaping China's economic policy, has indicated it recognises that global energy prices have changed. And with regional competitor Japan starting to re-negotiate its gas contracts, China appears prepared to consider making deals that would see new gas basins developed in Australia.
Wu Qingbiao, secretary-general of the Guangdong Oil and Gas Association, said the leaders' visit was "a chance we shouldn't miss" to start negotiating for big new gas contracts.
Arthur Dixon, president of the gas marketing group Australia LNG when the Guangdong contract was signed, said yesterday from Hong Kong there was pent-up demand in China for LNG, which could lead to big contracts for deliveries beginning next decade. He said Australia's insistence on new contracts that reflected world prices had cooled interest for Australian-supplied LNG, but China had been unable to secure supplies from other countries.
http://network.news.com.au/images/h14_theaustralian.gif