London-listed BG Group is set to become China’s largest LNG supplier after it signed a 5 mtpa supply contract with China National Offshore Oil Corp. (CNOOC) on Monday, in a deal that will boost the British company’s total Chinese commitments to 8.6 mtpa.
The deal will also see CNOOC take an additional interest in “the Queensland Curtis LNG [QCLNG] project in Australia for $1.93 billion and for the supply of an additional 5 mtpa of LNG. Additionally, CNOOC will reimburse BG for its share of QCLNG project expenditure incurred from 1 January 2012”, BG said in a statement.
Market sources told Interfax the pricing of the deal included an element of hub indexation – with 25% indexed against the Henry Hub and 75% indexed against oil – in what would mark the fourth Asia Pacific supply deal linked to benchmark prices at the United States trading hub. BG would not discuss pricing details when contacted by Interfax on Tuesday, citing confidentiality reasons.
“There have been some rumours the deal included an element of hub indexation. And with BG Group signing the 5.5 mtpa agreement with Cheniere’s Sabine Pass, it wouldn’t be surprising if they were looking to hedge out some of their price risk with this deal,” LNG consultant Andy Flower told Interfax on Tuesday.
In November last year, Kansai Electric and BP closed a 500,000 ton hub-indexed supply deal, with the UK major set to supply the Japanese utility from its global portfolio.
Shortly after, Japan’s largest utility Tepco signed an 800,000 ton offtake deal with US-based Cameron LNG – also priced against the US trading hub. Kogas, meanwhile, has agreed to offtake US LNG from Cheniere Energy’s Sabine Pass liquefaction plant at a 15% premium to NYMEX Henry Hub prices.
Queensland Curtis LNG
- Status: Under construction
- Startup: 2014
- Location: Curtis Island, Gladstone, Queensland
- Capacity: 8.5 mtpa
- Trains: 2
- Contributing fields: Surat Basin in southern Queensland
- Operator*: Queensland Gas Co. (QGC), an alliance between BG Group and QGC (73.75%)
- Stakeholders*: Tokyo Gas (1.25%), CNOOC (25%)
Notes: QGC has 240 bcm of proven reserves in its CBM acreage. The Surat basin has proven and probable reserves estimated at 640 bcm. The LNG plant will secure additional gas from Australia Pacific LNG through joint ownerhsip of CBM tenements ATP 648P and ATP 620P and through purchase agreements. A 540 km pipeline will connect the gas fields to the LNG plant. The plant requires infrastructure including roads and a bridge to provide better access to Curtis island.QCLNG is the largest infrastructure project in Australia. A third LNG train is planned and would increase the capacity of the plant to 12 mtpa. These figures do not include common facilities, such as LNG storage and jetty pipeline network, which accounts for 30% of project spend 2011-2014. Source: Interfax/EnergyHub
“With the market set to loosen towards 2018 and US capacity soon scheduled to come online, there has been some pressure on the oil index – especially with BP and Kansai Electric recently signing a 100% Henry Hub-indexed portfolio supply deal,” Graeme Bethune, chief executive of Adelaide-based EnergyQuest, told Interfax on Tuesday.
Under the terms of the deal, CNOOC will acquire a 40% equity interest in QCLNG Train 1, increasing its equity ownership from 10% to 50%. CNOOC will also acquire a 20% interest in the reserves and resources of certain BG tenements in the Walloons Fairway region of the Surat Basin, Queensland, increasing its ownership from 5% to 25%.
“Combined with the 3.6 mtpa LNG sale agreement signed with CNOOC in 2010, BG Group now has total committed volumes to China of 8.6 mtpa, which will make the group the largest supplier of LNG to the world’s fastest-growing energy market” said BG Chief Executive Chris Finlayson.
With BG and CNOOC building the 8.5 mtpa QCLNG on Curtis Island, the company is expected to source some of its portfolio supplies from the plant. “This means Australia is now set to become both China and Japan’s largest supplier, overtaking Qatar as the world’s premier LNG exporter” said Bethune.
The deal could also mark one of the last large Chinese offtake deals on the horizon, said Tony Regan, principal consultant at Singapore’s Tri-Zen International.
“China now has term commitments for 46 mtpa – including a provision for 8 mtpa from Arrow equity – which should keep them well supplied for a while. They probably need stronger domestic demand before committing to buying much more,” he told Interfax.