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PetroChina pays premium for Browse 10% stake

The company has agreed to pay $1.63 billion for BHP Billiton's 10% share in the LNG venture

The development of Australia's last greenfield liquefied natural gas (LNG) project looks set to proceed after PetroChina agreed to pay $1.63 billion for BHP Billiton's 10% share in the troubled Browse venture.

The deal seems expensive given the Chinese national oil company (NOC) is entering a high-cost stranded LNG development. However, it appears to signal a lack of confidence in the availability of alternative supplies. Browse is expected to come online around 2018 as the global market shifts from a sellers’ to a buyers’ market, note analysts at Bernstein. They say the move suggests less confidence in Russian pipeline gas, US LNG exports to China, domestic shale-gas production and the timely development of the PetroChina-Shell Arrow LNG venture in Queensland.

PetroChina’s acquisition implies a resource value of $5.4 per barrel of oil equivalent (boe), which is higher than the $4.4/boe implied by the MIMI deal, according to Bernstein.

BHP’s exit combined with the equity shake-up earlier this year, which saw Japan’s MIMI – owned by Mitsui and Mitsubishi – become a partner, Shell increase its stake and Chevron pull out, provides better alignment for the venture.

Many analysts were sceptical that the estimated $40bn Browse scheme, which is one of the most expensive undeveloped greenfield LNG projects on the market, would proceed, but it is now seen as likely.

The only outstanding uncertainty is now the development cost. But the arrival of PetroChina, who seems to have a global gas alliance with Shell, bodes well for a final investment approval expected next year.

The first phase of Browse includes three LNG trains, currently in the front-end engineering and design (FEED) phase, which total 12 million tonnes per year (t/y). The second phase, currently in the planning stage, totals 13m t/y.

The project has been plagued by controversy over its proposed site at James Price Point on the north-western coast of Australia. Opponents to the proposed location include some environmentalists and the site’s Aboriginal landowners.

Woodside, which leads the venture, is keen on building a greenfield onshore hub, but Shell’s proposed floating LNG (FLNG) option could gain traction given the land access challenges and soaring development costs in Australia.

Australia’s federal government is eager to see Browse, which is estimated to hold 15.5 trillion cubic feet of gas, developed as soon as possible. The conditions of the lease restrict the project site to James Price Point, which will have the capacity to develop future Browse basin finds.

BHP Billiton says the decision to exit Browse was in line with its strategy of investing only in top-tier projects that it either controls or has a significant shareholding in. But there has been persistent speculation BHP and Chevron were not happy with the proposed location for the onshore gas processing plant.

This is the second significant stake sale in an Australian LNG project in as many months after BG sold equity in its Queensland Curtis LNG (QCLNG) project to China National Offshore Oil Corporation (CNOOC) at the end of October. The deals signal a vote of confidence in the future of Australia’s LNG sector, which has been dogged by cost overruns and schedule delays.

Strong demand from Asia, particularly China and Japan, is underwriting a wave of projects that should see Australia become the world’s biggest LNG exporter by the end of the decade.

As Chinese gas demand is expected to soar there is increasing interest from China’s NOCs to lock in imported supplies of gas.

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