Identifier | Created | Classification | Origin |
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09PERTH38 | 2009-08-19 08:51:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Perth |
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 |