PetroChina Ups Bet on Second Aussie LNG Project

With the timing of its multibillion dollar joint venture with Royal Dutch Shell slipping, China's biggest listed oil company is pushing ahead with a smaller adjacent project that has the added bonus of testing its ability to build a liquefied natural gas terminal on its own.

Its partner in the Fisherman's Landing project is a little-known Australian minnow, Liquefied Natural Gas Ltd., and there remains a healthy dose of skepticism that it will get off the ground. LNG Ltd. may also become a tasty morsel for a larger rival if it secures reliable gas supply.

But in a sign that PetroChina is actively committed to the project, the Chinese oil giant has bought gas-developer Molopo's properities in Queensland's Bowen Basin for 43.4 million Australian dollars ($45.5 million). LNG Ltd. later confirmed that PetroChina intends to process the Molopo gas through Fisherman's Landing, slated to produce up to 3 million tons of LNG a year.

When LNG Ltd. last year sold 20% of its shares to the engineering unit of China National Petroleum Corp., the state-backed parent of PetroChina, the Chinese agreed to provide all engineering, procurement and construction services for Fisherman's Landing. In addition, the door opened for PetroChina to negotiate preferential terms to use LNG Ltd.'s liquefaction technology.

That's potentially significant as China has been unable to build LNG export terminals overseas because it didn't have the know-how to convert raw gas to a liquid form so it could be shipped home.

Putting a foot on some gas marks another major step towards the development of Fisherman's Landing. But they will need to find more gas, perhaps through concluding talks with Australian producer Westside, and then there's project financing to worry about.

Independent assessments indicate Molopo's properties have the capacity to produce up to 65 terajoules of gas per day, or about 50% of the small LNG project's requirements. And that's only when the fields have been proved up to their full potential.

With larger rival coal seam gas joint ventures in Queensland scrapping over gas supplies, it could be a while before PetroChina's work in Australia pays off.