OREANDA-NEWS. March 03, 2011. China has agreed to buy natural gas from a planned AUD35 billion Australian gas export project owned by ConocoPhillips (COP) and Origin Energy Ltd. (ORG.AU), as the powerhouse Asian economy continues to diversify its energy supply base to fuels that burner cleaner than coal.

Under a preliminary agreement that is yet to become binding, China Petrochemical Corp, or Sinopec, will buy up to 4.3 million metric tons of liquefied natural gas from the project each year for 20 years and also buy 15% of the development, Origin said, without disclosing a price.

The stake purchase would reduce Origin and Conoco's holdings in the Australia Pacific LNG project slated to ship its first cargo in 2015 to 42.5% each.

International energy companies are spending billions of dollars developing giant natural gas projects on Australia's coast to tap rising Asian demand. The island continent's vast gas reserves, stable regulatory regime and proximity to Asian buyers make it an attractive place to invest.
 
Four developments including Conoco and Origin's are planning to chill gas trapped from coal seams for export by tanker from the Queensland port of Gladstone.

A rival project by BG Group PLC (BG.LN) last year agreed to sell LNG to China National Offshore Oil Corp. and Royal Dutch Shell PLC (RDSB.LN) sold 50% of its venture at Gladstone to PetroChina, which will also buy LNG from the development.

China has also agreed to buy LNG from conventional natural gas projects on Australia's west coast and is currently a customer of the operational North West Shelf joint venture.

A price on the stake sale to Sinopec won't be released until the heads of agreement becomes binding, an Origin spokeswoman said.

If the deal is finalized, Origin and Conoco will overcome a major hurdle to making a final investment decision on the first phase of their project, planned to occur some time this year.

Investors were concerned the pair wouldn't be able to find customers in time, given that some rivals have already sewn up buyers, taking them out of the market.

The Sinopec deal to buy up to 4.3 million metric tons a year of LNG will underpin the first of APLNG's two foundation LNG processing units estimated to have a combined production capacity of 9 million metric tons.

The Origin spokeswoman said offtake discussions with other potential LNG buyers continue.