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PetroChina backs Australian LNG in deals with ConocoPhillips

The deal will see PetroChina take a 20% stake in the Poseidon gas discovery off Australia

PetroChina has sealed strategic deals with ConocoPhillips that will see it take a 20% stake in the Poseidon gas discovery off Australia and a 29% interest in the US major's unproven shale acreage in the Canning basin. 

The farm-in to Poseidon, which lies in the Browse basin offshore northwest Australia, demonstrates China's confidence in the long-term expansion of Australia's liquefied natural gas (LNG) sector, despite rising costs and emerging US competition.

Japan, the world's largest buyer of LNG, is pushing for LNG exports from the US to help its firms negotiate better deals elsewhere. China's national oil companies (NOCs) are less keen. So far, China appears to be forgoing US LNG projects to avoid long-term reliance on the US, partly due to fears over energy security, but also because of US-imposed trade restrictions.

Australia is emerging as long-term strategic partner for China to help meet its rising demand for LNG, predicted to grow to 50 million tonnes per year (t/y) by 2020, of which 39m t/y has been contracted, according to Bernstein Research.  More mergers and acquisitions are expected as the NOCs seek to shore up their long-term LNG supplies.

PetroChina's move to buy a stake in the 7 trillion cubic feet (cf) discovery, which lies next to the Woodside-led Browse LNG project, also boosts the probability that the controversial Browse project - which the NOC purchased an 8.33% stake in last December - will be developed.

The Poseidon gas field covers permit areas WA-314-P, WA-315-P and WA-398-P, 460km north of the Scott Reef that consists of the Torosa, Brecknock and Calliance gas fields. Pre-deal, ConocoPhillips operated the permits with a 60% interest, while independent Karoon Gas held the remaining 40% share.

Santos's Crown discovery is adjacent to Poseidon and has also been mooted as potential LNG feedstock.

Appraisal drilling is under way at Poseidon and it will eventually be developed either by pipeline to shore or floating LNG (FLNG).

Separately, the farm-in for a stake in the Goldwyer shale, which offers gas and liquids potential, sends a positive signal for Australia's nascent shale industry, but less so for China's development which is proceeding slowly, say analysts at Bernstein.

PetroChina seems to be showing as much interest, if not more, in shale outside China than in China, which Bernstein says makes its development more likely post-2020. PetroChina also recently farmed into tight/shale oil acreage in British Columbia with Calgary-based Encana.

The pair will also form a joint study venture to analyse shale resources in the Neijiang-Dazu Block in China's Sichuan province.

ConocoPhillips did not reveal the commercial terms of the deals, which will cut its stake in Poseidon to 40% from 60%. Its interest in the shale venture will drop from 75% to 46%.

ConocoPhillips now joins Anglo-Dutch supermajor Shell as a close global partner of PetroChina.

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