Gorgon Again - A $50b gas deal with China  

The SMH reports that following the Gorgon consortium's deal with India recently, they have followed up with an even larger Chinese gas supply agreement - Piping hot: $50b gas deal with China.

THE largest single trade deal in the nation's history - a $50 billion contract to sell liquefied natural gas to China - was sealed in Beijing last night, signalling the resources boom is far from over.

The contract, hailed by the Federal Government as an indicator Australia's relationship with Beijing remains sound, will supply China with gas for 20 years.

The gas will come from the Gorgon project off Western Australia. The joint venture between ExxonMobil, Shell and Chevron is expected to start production in five years and contains deposits worth $300 billion.

ExxonMobil signed the deal with the state company PetroChina in Beijing. It is twice the value of the deal the Gorgon partner signed last week with India.

The Resources Minister, Martin Ferguson, flew to China to witness the signing, saying it showed Australia had a future as ''a global energy superpower''. ''This agreement is testimony to the strength of Australia's continuing trade and investment relationship with China,'' he said. ''As China continues to develop as a modern global industrial and commercial powerhouse, Australia is committed to walking with it on its remarkable journey.''

The $50 billion Gorgon gas deal with China will personally affect every person in Australia. The tremors will be just as great in the eastern states as they are in Western Australia.

In the publicity that goes with the deal, much is made of the construction activity and the on-going revenue that Gorgon will generate. Those benefits are huge but they are dwarfed by the fact that the deal cements in the amazing link between the Australian dollar and the Chinese economy.

And if someone can wake up the Canberra politicians, it is also a signal that renewables alone will not solve our carbon problems. What we need is the combination of gas and renewables and in Queensland we have the combination of low carbon-emitting coal gas reserves of North West Shelf proportions, connected to an eastern states pipeline network (New energy can't wait, July 15).

Gorgon underlines the significant research that has been undertaken by HSBC which shows the Australian dollar has become the mirror image of Chinese economic activity.

Measuring Chinese economic activity is always difficult, but HSBC has isolated Chinese electricity production as the most reliable measure of the Chinese economy. Our dollar and Chinese electricity share the same graph, at least over the past three years.

It is impossible to understate the importance of this development. The Chinese now know that they can invest in Australia and not face a serious currency risk. We are going to see them buy property in the eastern states and they will support our debt markets on a much larger scale.

There is enormous concern in China about the US currency and the fact that there could be huge losses ahead for China if the American dollar falls. The HSBC research shows that China does not face that risk in Australia. Global investors who want to invest in China can do so via Australia with far less risk. Accordingly our share market is set to follow China (Ten steps to a new world order, July 29).

The Santos deal with French owned GDF Suez is a reminder to Australians that we have very little understanding of the value the world is putting on gas in politically secure areas. GDF Suez is the biggest gas distributor in Europe and it is very conscious that two thirds of global gas comes from Russia and the Middle East and neither are reliable long term suppliers. That’s why it is looking at what’s available in Australia.

GDF Suez is paying $US200 million up front for 60 per cent of the Petrel Tern and Frigate gas field in the Bonaparte basin – fields that the sharemarket accorded very little value. But most countries in the world – with the notable exception of Australia – see gas as an important ingredient in cutting carbon emissions while maintaining living standards.

The three Santos fields looked to be too small for conventional LNG but Suez’s floating LNG technology made development feasible.

When Santos banks the $US200 million cheque from GDF Suez it will have more than $A3.8 billion in the bank. Borrowings are about $2 billion, so the Santos net cash position is around $A1.8 billion. That will go close to funding the equity required for the group's two massive projects – Queensland coal-seam gas and PNG gas.