Kate Mackenzie Natural gas deal soothes Australia-China tensions

Never mind cheap(er) oil being a form of economic stimulus: Australia is getting its own stimulus from natural gas, and China. A chunk of production from the huge Gorgon natural gas project, off the coast of Western Australia, will be bought by PetroChina, which is paying $A50bn to Exxon, a partner in the field, over 20 years in exchange for 2.25m tonnes of LNG a year.

Australia’s resources minister Martin Ferguson labelled Gorgon a ‘major stimulus package’ and said it would yield 6,000 jobs for Australians, $30bn of spending on goods and services, and predicted Australian LNG projects could attract a total of $100bn of investments over the next 12 – 18 months. Prime Minister Kevin Rudd earlier said it would earn the government $40bn over 30 years.

The project is yet to gain environmental approval at a federal level, but with the federal and state governments agreeing to take joint liability for storing emissions from the project, that seems unlikely to get in the way. Ferguson himself said the approval was “a hair’s breadth” away. The three companies involved in the project – Chevron, Exxon and Shell – are also yet to make their final investment decision, but that is expected to happen next month.

The agreement came just as tension between China and Australia was reaching new heights. One key issue is the arrest of Rio Tinto executive Stern Hu in China last month. Although last week it was revealed that Stern will face lesser charges of stealing commercial secrets rather than state secrets,  there were more signs of China’s displeasure with Australia for granting of a visa for Rebiya Kadeer, a who lives in the US but speaks on behalf of China’s Uighur minority. There were even reports that Chinese hackers had targeted the website of the Melbourne Film Festival, who invited Kadeer. And yesterday it apparently got worse:

The Foreign Minister, Stephen Smith, told Parliament Beijing had made it ”very clear” it was unhappy with Ms Kadeer’s visit. He confirmed China also cancelled talks at the Pacific Island Forum involving the Vice Foreign Minister, He Yafei, to discuss Mr Rudd’s plan for a Asia-Pacific regional body.

But as Peter Hartcher writes in the Sydney Morning Herald, the Gorgon deal will be portrayed by the government as a sign that it can stand up to China on ‘values’ issues, while still continuing the trade with China that Australia’s economy relies on.

Meanwhile Exxon, which  holds a 25 per cent stake in the project (Chevron has 50 per cent and Shell the other 25 per cent has sold all of its share in the project.

Reuters however cites an unnamed source as saying Chevron could be about to sign an agreement to sell a similar volume of LNG to China’s CNOOC.