The Real Deal on PetroChina's Purchase of Australian Liquified Natural Gas

Submitted by Uma Shyamala Dixit on September 11, 2007 - 6:26am.

China’s president signed a 20-year agreement between PetroChina and Royal Dutch Shell in Perth yesterday for liquefied natural gas from Western Australia (Financial Times, Sept 5, 2007).

The FT says that “the move was motivated by the fact that power production is far ahead of this year’s first-half GDP growth of 11.5 percent, and rising pressure to reduce greenhouse gas emissions.”
LNG is a more expensive fuel. Also, soaring energy needs mean that long-term supplies must be secured.

The fact remains that China baulked at going through with an LNG deal five years ago, also with Australia, because the prices were too high (FT, Sept 5, 2007)

They still are. So what is the real deal ?

The change in stance is of course welcome, considering that China has until now not been overly accommodating when it comes to cutting back on green-house gas emissions.

Taking a cynical point of view, could guaranteeing long-term needs be the overriding priority ?

China has of course a lot of coal to burn, sources it for most of its energy requirements, and is slated to overtake the U.S. this year as the world’s largest emitter of greenhouse gases.

And supplies of other energy sources have definitely become more volatile and unreliable in a scene of shifting geo-politics.

Nobody said that environmental protection must be motivated by purely altruistic considerations.

Hedging risks from a long-term point of view to sustain GDP growth – shorn of all pretty notions of sustainability - is not a shabby idea, especially if it yields positive externalities like the reduction of greenhouse as emissions.

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SKI (not verified) said:
September 11, 2007 - 3:32pm

Hope I am not intruding but I thought I would chime in. I think that this new partnership is a combination of both China's long-term need to diversify its energy sources as well as another example of China's "dollar (yuan?) diplomacy." Given the timing of this agreement around the recent APEC Summit, it seems that China continues to go the route of strategic bids and investments in order to maintain a smooth relationship between markets for its manufactured goods and sources for its own hunger for natural resources (Africa is the most striking example). Plus there have been grumblings in Australia regarding China's growing presence in Southeast Asia (Australia's backyard) so this purchase by PetroChina looks to be another attempt at mollifying the Australians. Thoughts?

SKI

Uma Shyamala Dixit said:
September 12, 2007 - 8:44am

Thank you SKI. (Just curious. Can you identify yourself ?)

I am still consolidating my ideas on this particular event.

At first blush, it seems a welcome sign that China does not as recalcitrant about curbing (or refusing to for that matter) green-house gas emissions.

And as you suggest, there may be many other factors involved.

I agree with you. China needs to diversify its energy sources and given its economic clout is in a position to do so by even making strategic alliances with African "rogue states", other countries are giving a wide berth to. It is an excellent way to smoothing out supply risks in the production chain, given the prevailing uncertainties in the geo-political scene.

(Also, interesting to note that the International Energy Agency forecasts a fall in world-wide demand for oil. This however, according to the IEA does not include China and other emerging economies).

Can you expand on the "dollar (yaun) diplomacy" part a bit more ?

Thanks
Uma

SKI (not verified) said:
September 12, 2007 - 11:20am

Hi Uma, I'm simply a consultant in NYC with a strong interest in geopolitics. Your post caught my eye while browsing the NYU Journalism page.

The "dollar diplomacy" I mentioned basically has to do with growing and securing geopolitical alliances based less on shared values and more on gratuity. Dollar is the most common prefix since the US has been most prominent in strategically bidding on projects, giving aid, and forgiving loans in order to cement favorable trade and political alliances. A recent example of dollar diplomacy was America's "Coalition of the Willing," constituted by many countries that were given large sums of unqualified aid by the US in exchange for their support for the Iraq adventure.

From China's perspective they are leveraging their newfound clout by giving huge amounts of aid to African and Asian nations in order to secure raw materials and markets for Chinese goods. China also uses "yuan diplomacy" to support their southern allies in a bid to counter India's growing strength; heavy investment and aid to Pakistan and Burma (among others) is part of China's "string of pearls" diplomatic strategy.

I could go on for a while so I will end here and await your reply.

Shyam