22-04-09 Oil Search and its partners have struck the first liquefied natural gas sales deal for the $ 12.5 bn Papua New Guinea LNG project. The agreement is to supply a state-owned Chinese company. The offtake agreement from the ExxonMobil-led PNG LNG project comes as China steps up its plans to secure global resources and moves to capitalise on the recent slump in world energy prices.
Oil Search said a deal had been struck to sell 2 mm tons of LNG exports a year to an unnamed major Asian customer pending government approval. The buyer is understood to be Chinese, with the most likely candidates PetroChina or CNOOC. Further boosting the prospects for the 6.3 mm tpy project, Oil Search said it expected all LNG capacity to be contracted by the middle of the year.

Oil Search managing director Peter Botton said the project would probably end up with two or three Asia-Pacific customers. He would not reveal the terms of the LNG contract, describing it only as "a fair agreement for all sides".
"The market as a whole has obviously shifted from the highs of early last year, but certainly the deal we've done is within our expectations," he said from Port Moresby. "The momentum has built, and agreeing terms with the first customer sends a message the project is moving forward, and it builds confidence in it."

Independent analyst Peter Strachan, who specialises in LNG, said signing a contract in the current market was a significant achievement. Mr Strachan, author of the StockAnalysis newsletter, said a softening in LNG spot prices meant there was no longer the prospect of contracts being signed near oil price parity. Instead, the contract was likely to have a base rate of around $ 6 a gigajoule, when oil was at $ 40 a barrel.
Any increase in the oil price above $ 40 would probably see a much lower relative increase in the LNG price paid, he said. Spot LNG prices peaked around $ 20 a gigajoule last year, when oil prices hit highs of nearly $ 150 a barrel.

Oil Search and its partners are hoping to have approval for the long-awaited project by the end of the year and are targeting first production in 2013-14. Exxon is the major partner in the project, with a 41.5 % stake, while Oil Search owns 34 % and Santos has 17.7 %.
China, which sat on the sidelines while LNG contracts were being negotiated with oil at $ 100-plus, has recently been eyeing more LNG deals in Australia and other countries. Oil Search said second-quarter revenue fell from $ 137.9 mm to $ 71.4 mm.