The Rising Influence of Rising Affluence

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Chevron-Tepco Deal Shows North Asia's Energy Thirst

http://online.wsj.com/article/SB10001424052748704342404574577203938428062.html

›DECEMBER 5, 2009, 5:09 A.M. ET
By DAVID WINNING

SYDNEY -- Chevron Corp. said Saturday it has a preliminary agreement to sell liquefied natural gas from its Wheatstone project offshore Australia to Japan, the latest in a string of energy supply deals between oil majors and customers in North Asia.

Chevron has signed a heads of agreement with Tokyo Electric Power Co., known as Tepco, to deliver 4.1 million metric tons of LNG annually for a period up to 20 years. That's equivalent to more than 20% of Tepco's annual consumption of LNG.

Tepco also plans to acquire 15% of Chevron's share in the Wheatstone gas field licenses and an 11.25% interest in the onshore LNG terminal.

Large international oil companies like Chevron, Exxon Mobil Corp. and Royal Dutch Shell PLC are betting big on LNG to capitalize on what they expect will be a surge in demand for cleaner-burning fuels. Australia's stable political environment, substantial gas reserves and proximity to fast-growing Asian economies make it an attractive place to invest in, particularly with U.S. gas prices low due to a flood of domestic gas supply into the US market.

Chevron Chairman and Chief Executive David O'Reilly said in October that Chevron is investing so much in Australia that by 2020 it could be as big a profit-driver for Chevron as its U.S. operations are now. Chevron's agreement with Tepco comes just days after Exxon concluded a binding sales-and-purchase agreement with China Petroleum & Chemical Corp. for two million tons of LNG a year [#msg-44177827] from the rival PNG LNG project in Papua New Guinea.

Chevron is also the operator of the 43 billion Australian dollar (US$39.32 billion) Gorgon project offshore Western Australia state, which recently won the green light from Australian regulators to proceed and plans to ship LNG to customers in Japan, South Korea and China.

"Tepco is among the most experienced LNG buyers in the world. Their commitment to secure long-term LNG supplies from Wheatstone is a strong demonstration of their confidence in Chevron and represents another important step forward for the project," John Gass, president of Chevron Global Gas, said in a statement.

The first phase of the Wheatstone project will have an annual processing capacity of 8.6 million tons of LNG and will include a domestic gas plant. A final investment decision is expected in 2011. In October, Apache Corp. and Kuwait Foreign Petroleum Exploration Co. agreed to join Chevron in the development of Wheatstone, spurning overtures from Woodside Petroleum Ltd. to supply gas from their offshore discoveries to the competing Pluto LNG project. Apache and KUFPEC jointly own 25% of the Wheatstone LNG facilities, but took no interest in the Wheatstone gas field.‹