Oil Energy Money

Qatar, the world’s largest producer of Liquefied Natural Gas, finalised deals to export 5 million tons of LNG annually to The China National Offshore Oil Corp (CNOOC) and PetroChina.

CNOOC, currently China’s only LNG importer, will secure 2 million tons annually for a long term from the Qatargas 2 project for first delivery in 2009.  PetroChina will start importing 3 million tons for 25 years from Qatargas 4, an upcoming development jointly owned by Shell and Qatargas and due to open in 2011.  In comparison, the United States will import 15 million tons of LNG annually from Qatar.

China previously avoided purchasing LNG at market prices due to a $23billion, 3.3 million ton p/a LNG deal with Australia in 2002, for which it will pay the low price of $3.14 per million British thermal units(BTU) for 25 years.  But the country’s voracious demand has outstripped the Australian supply and it paid $9.25 per million BTU for a one-off shipment of LNG from Algeria in October.  The price for today’s deals has not yet been disclosed.

LNG is important for China due to the high cost per barrel of oil.  While most countries pass this cost on to the consumer, government price controls prevent Chinese companies from doing the same.  Thus they lose money whenever crude oil is above $65.  The chairman of PetroChina predicted an $18bn loss on its refining business if oil remained at its current level.  Securing cheaper sources of energy has become a priority in China.  CNOOC intends to build 17 offshore blocks for joint oil exploration with foreign companies this year and PetroChina plans to “take every opportunity” to expand internationally according to a March 18th Interview with the FT.

On a global scale, Russia holds the largest reserves of LNG with 31% of the world’s supply, accordingly Gazprom intends to control 25% of the LNG market by 2030.  Iran has 15% of the world’s supply, Qatar 9% and Saudi Arabia and the United Arab Emirates each control 4%.  Indonesia used to the be the world’s biggest exporter but is drastically reducing exports due to low reserves.