CNOOC cuts order from BP's Tangguh
Enid Tsui from Hong Kong and Shawn Donnan from Jakarta
China National Offshore Oil Corporation (CNOOC) has unexpectedly cut the amount of gas it is buying from the BP-operated Tangguh project in Indonesia, amid market rumours that the two parties are at odds over pricing.
The news could be a setback for China's efforts to diversify its energy sources, dominated by coal and crude oil.
In September 2002, CNOOC signed a 25-year, US$7.5bn contract with Tangguh to buy 2.6m tonnes of gas a year for its Fujian liquified natural gas terminal with delivery originally slated for 2007. The Chinese group, the parent of Hong Kong and New York-listed CNOOC Limited, holds a 17 per cent stake in the project set in the remote Papua province.
But Purnomo Yusgiantoro, the Indonesian energy minister, said recently: "China has told us that ... in the near term it appears Fujian can only receive 1.0m tonnes per year," without elaborating on what prompted the decision.
Speculation has been rife in Beijing and Jakarta recently that BP, the UK energy group that is majority owner of Tangguh, has put pressure on CNOOC to renegotiate the 2002 contract. Managers at CNOOC's gas and power subsidiary could not confirm the news until the middle of this month.
"On paper, the gas that CNOOC ordered in 2002 was very cheap considering how much prices have increased in the years since," said Gavin Thompson, head of China research at Woo Mackenzie, the industry consultants.
Under the original agreement, the Chinese group was due to pay US$0.98 per barrel of oil equivalent for the gas, based on market estimates. As a comparison, South Korea and Japanese buyers have been paying about US$4 boe in recently signed gas contracts.
The Fujian terminal, together with CNOOC's LNG project in Guangdong province, is seen as a testing ground for the wider adoption of gas use around China.
The Beijing government has set an ambitious target of having gas make up 8.0 per cent of the country's energy mix by 2010, up from the current 3.0 per cent.
The $5.5bn Tangguh project has been beset by construction delays.
Last year, BP pushed its start date back from 2007 to 2008 after it was slowed down by lengthy talks with Jakarta over the terms of its licence for related gas fields.
Under syndication arrangement with FE