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US$41b gas pact eases Australia, China tensions

Staff reporter and agencies, SCMP

China and Australia have kissed and made up to the tune of more than US$40 billion, overlooking recent tensions to seal a gas supply agreement that is the latter’s biggest deal on record.

PetroChina, the nation’s biggest oil and gas producer, late on Tuesday ordered 2.25 million tonnes of liquefied natural gas (LNG) a year over 20 years from ExxonMobil Corp’s Gorgon plant in Australia in a deal totalling US$41.29 billion.

The deal signals that even as an Australian citizen working for mining giant Rio Tinto languishes in a mainland jail for allegedly stealing commercial secrets from the Chinese, realpolitik is prevailing in both Beijing and Canberra.

China, which received its first LNG cargo in May 2006, plans to build more than 10 terminals on the east coast to meet a government target to double the use of natural gas in five years by 2010.

LNG is natural gas that is chilled to liquid form for transport by ship to destinations not connected by pipeline.

Woodside Petroleum, the operator of the Browse LNG export project in Australia, had already agreed to sell fuel worth about A$45 billion (HK$286 billion) to PetroChina.

“The long-term interests of the two countries will always trump the occasional crisis,” said Michael McKinley, a professor of global politics at the Australian National University. “China’s interest is in obtaining resources at the right volume and price and it’s able to do so in Australia.”

Australian mineral and energy exports to the mainland have been credited with helping the nation of 22 million people avoid a recession, but the country’s growing reliance on China has raised political tensions.

The Gorgon deal brings the value of various mining and energy deals agreed between China and Australia over the past year to more than US$183 billion – more than the gross domestic product of New Zealand.

China now consumes almost 80 per cent of Australia’s iron ore exports by volume, up from less than 60 per cent a year ago and about 20 per cent at the start of the decade.

Fortescue Metals Group, Australia’s third-biggest iron ore exporter, remains in talks with Chinese groups to secure as much as US$6 billion in capital to expand.

The relations between the two nations, which had improved after the election of the Putonghua-speaking Kevin Rudd as Australian prime minister in 2007, have been strained recently. The arrest of the Rio executives and Canberra’s decision to approve the recent visit of exiled Uygur leader Rebiya Kadeer have raised hackles in both capitals, underscoring the vast political divide between the two countries.

But when it comes to energy and minerals, the two sides are on the same wave length – the bigger the deals the better.

“The [PetroChina] deal proves that Rio is just an individual case … and the close trade ties between China and Australia will not be affected,” said Han Xuegong, a professor at CNPC Managers Training Institute in Shanghai.

Officials in both countries have sought to play down the frictions between them.

Australian Resources and Energy Minister Martin Ferguson was quoted as saying the ExxonMobilPetroChina deal was “testimony to the strength of Australia’s continuing trade and investment relationship with China”.

Bloomberg, Reuters

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