wikileaks ico  Home papers ico  Cables mirror and Afghan War Diary privacy policy  Privacy
IdentifierCreatedClassificationOrigin
09PERTH38 2009-08-19 08:51:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Consulate Perth
Cable title:  

HUGE GORGON GAS DEAL WITH CHINA

Tags:   ENRG EINV ECON AS CH 
pdf how-to read a cable


1. (SBU) Summary: Western Australia's massive Gorgon Gas
project took a big step forward August 18 with partner
ExxonMobil's announcement of a projected A$50 billion (US$40
billion) liquefied natural gas (LNG) deal with PetroChina.
Touted as the largest energy deal in Australian history and
spotlighted by Federal Resources Minister Martin Ferguson's
attendance at the signing ceremony in Beijing, the 20-year
agreement with PetroChina is not a surprise, and follows closely
after a similar deal between ExxonMobil and India's Petronet a
week earlier. With two-thirds of the project's gas now
committed to long-term sales contracts, ExxonMobil's latest
agreement provides added justification to the corporate boards
of project partners Chevron, Shell, and ExxonMobil - due to give
their final investment approval later this year - of the
long-term certainty of covering the operational costs of the
project. A Western Australia (WA) state official confided to
the Consul General the state's concerted efforts to facilitate
approval for the Gorgon project, which is expected to bring
significant economic benefits including 6,000 jobs and over A$40
billion (US$32 billion) in royalties to the Federal government
over its 30-year life. End Summary.

HISTORIC ENERGY DEAL



2. (U) In a signing agreement in Beijing August 18, China's
largest oil company, PetroChina, agreed to buy 2.25 million tons
per annum (mtpa) of LNG for 20 years from Gorgon Gas project
partner ExxonMobil. The projected A$50 billion (US$40 billion)
agreement is the largest trade deal in Australian history,
eclipsing the previous record agreement between the Northwest
Shelf Joint Venture and the China National Overseas Oil Company
in 2002. The deal does not include an equity stake in the
project for PetroChina, but along with an agreement signed with
Gorgon project partner Shell last year, brings PetroChina's
share of Gorgon gas to about 30 percent. No pricing details of
the agreement are available but market analysts say that LNG
prices are depressed and LNG is trading at about one-third the
price of oil.

LIKELY IMPACT ON IVESTMENT DECISION



3. (SBU) The deal with PetroChina, along with a 20-year off-take
agreement for 1.5 mpta with India's Petronet finalized in early
August, fully commits ExxonMobil's 25-percent share of Gorgon
gas. (Exxon had been considered to be the least-engaged of the
three Gorgon partners: Chevron, maintaining a 50-percent stake,
has sold about 70 percent of its share of gas to three Japanese
utility companies and to South Korea's GS Caltex; Shell, with a
25-percent stake, committed last year to sell PetroChina two
mpta.) The long-term sales contracts are considered to increase
substantially the odds of a final investment decision later this
year, likely as early as mid-September. ExxonMobil's corporate
board, along with those of its project partners, has been
seeking the greatest degree of certainty of early profitability
in considering an FID for the massive project.

STAKEHOLDERS UPBEAT ON WAY FORWARD



4. (SBU) Gas stakeholders have welcomed the deal with
PetroChina. Federal Resources Minister Martin Ferguson flew to
Beijing to attend the signing. A top WA government official
told the Consul General that the State government, having pulled
out the stops to facilitate the Gorgon project's final approvals
processes, was very pleased with the recent announcements.
Senior ExxonMobil official Richard Ellis told us that the deal
is "very significant for Exxon Mobil." He added that the deal
had been in the works for months, and represented the
"culmination of years of relationship-building and hard work."
A senior Chevron official told the CG that the ExxonMobil
announcement was "excellent news," and that the company expected
Federal environmental approval "any day," putting the Gorgon

PERTH 00000038 002.2 OF 002


project "on a good trajectory for a final investment decision."


COMMENT: PRAGMATISM PREVAILS



5. (SBU) The Gorgon partners have vocally maintained over the
past year that they are not concerned about signing up
foundation customers for the project. Chevron, in particular,
told a WA audience in July that "we are not worried about the
market for LNG." Nevertheless, given questions over whether
ExxonMobil was giving the project the same global priority as
its partners, the ExxonMobil deals with PetroChina and Petronet
provide greater assurance to the corporate boards in the lead-up
to the final investment decisions for the project. Proponents
also believe that the deal with PetroChina validates Australian
governmental determination to move forward on high-stakes
economic ties with China despite current political strains. End
Comment.
CHERN