VZCZCXRO5994
PP RUEHDT RUEHPB
DE RUEHPT #0038/01 2310851
ZNR UUUUU ZZH
P R 190851Z AUG 09
FM AMCONSUL PERTH
TO RUEHC/SECSTATE WASHDC
INFO RUEHBY/AMEMBASSY CANBERRA 0418
RUEHDN/AMCONSUL SYDNEY 0314
RUEHBN/AMCONSUL MELBOURNE 0310
RUEHPT/AMCONSUL PERTH 0444
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0007
RUEHKO/AMEMBASSY TOKYO 0007
RUEHUL/AMEMBASSY SEOUL 0003
RUEHJA/AMEMBASSY JAKARTA 0007
RUEHGH/AMCONSUL SHANGHAI 0008
RUEHGZ/AMCONSUL GUANGZHOU 0006
RUEHSH/AMCONSUL SHENYANG 0001
RUEHCN/AMCONSUL CHENGDU 0001
RUEHHK/AMCONSUL HONG KONG 0006
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 PERTH 000038 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/ANP, EAP/CM, AND EEB MONOSSON 
DOE FOR JEFF SKEER 
USDOC FOR 3132/USFCS/OIO/EAP/JRULAND 
USDOC FOR 4530/MAC/EAP/OPB/GPAINE 
 
E.O. 12958: N/A 
TAGS: ENRG EINV ECON AS CH
SUBJECT: HUGE GORGON GAS DEAL WITH CHINA 
 
REF: (A) CANBERRA 758, (B) PERTH 36 
 
PERTH 00000038  001.2 OF 002 
 
 
¶1. (SBU) Summary:  Western Australia's massive Gorgon Gas 
project took a big step forward August 18 with partner 
ExxonMobil's announcement of a projected A$50 billion (US$40 
billion) liquefied natural gas (LNG) deal with PetroChina. 
Touted as the largest energy deal in Australian history and 
spotlighted by Federal Resources Minister Martin Ferguson's 
attendance at the signing ceremony in Beijing, the 20-year 
agreement with PetroChina is not a surprise, and follows closely 
after a similar deal between ExxonMobil and India's Petronet a 
week earlier.  With two-thirds of the project's gas now 
committed to long-term sales contracts, ExxonMobil's latest 
agreement provides added justification to the corporate boards 
of project partners Chevron, Shell, and ExxonMobil - due to give 
their final investment approval later this year - of the 
long-term certainty of covering the operational costs of the 
project.  A Western Australia (WA) state official confided to 
the Consul General the state's concerted efforts to facilitate 
approval for the Gorgon project, which is expected to bring 
significant economic benefits including 6,000 jobs and over A$40 
billion (US$32 billion) in royalties to the Federal government 
over its 30-year life.  End Summary. 
 
HISTORIC ENERGY DEAL 
 
¶2. (U) In a signing agreement in Beijing August 18, China's 
largest oil company, PetroChina, agreed to buy 2.25 million tons 
per annum (mtpa) of LNG for 20 years from Gorgon Gas project 
partner ExxonMobil.  The projected A$50 billion (US$40 billion) 
agreement is the largest trade deal in Australian history, 
eclipsing the previous record agreement between the Northwest 
Shelf Joint Venture and the China National Overseas Oil Company 
in 2002.  The deal does not include an equity stake in the 
project for PetroChina, but along with an agreement signed with 
Gorgon project partner Shell last year, brings PetroChina's 
share of Gorgon gas to about 30 percent.  No pricing details of 
the agreement are available but market analysts say that LNG 
prices are depressed and LNG is trading at about one-third the 
price of oil. 
 
LIKELY IMPACT ON IVESTMENT DECISION 
 
¶3. (SBU) The deal with PetroChina, along with a 20-year off-take 
agreement for 1.5 mpta with India's Petronet finalized in early 
August, fully commits ExxonMobil's 25-percent share of Gorgon 
gas.  (Exxon had been considered to be the least-engaged of the 
three Gorgon partners:  Chevron, maintaining a 50-percent stake, 
has sold about 70 percent of its share of gas to three Japanese 
utility companies and to South Korea's GS Caltex; Shell, with a 
25-percent stake, committed last year to sell PetroChina two 
mpta.)  The long-term sales contracts are considered to increase 
substantially the odds of a final investment decision later this 
year, likely as early as mid-September.  ExxonMobil's corporate 
board, along with those of its project partners, has been 
seeking the greatest degree of certainty of early profitability 
in considering an FID for the massive project. 
 
STAKEHOLDERS UPBEAT ON WAY FORWARD 
 
¶4. (SBU) Gas stakeholders have welcomed the deal with 
PetroChina.  Federal Resources Minister Martin Ferguson flew to 
Beijing to attend the signing.  A top WA government official 
told the Consul General that the State government, having pulled 
out the stops to facilitate the Gorgon project's final approvals 
processes, was very pleased with the recent announcements. 
Senior ExxonMobil official Richard Ellis told us that the deal 
is "very significant for Exxon Mobil."  He added that the deal 
had been in the works for months, and represented the 
"culmination of years of relationship-building and hard work." 
A senior Chevron official told the CG that the ExxonMobil 
announcement was "excellent news," and that the company expected 
Federal environmental approval "any day," putting the Gorgon 
 
PERTH 00000038  002.2 OF 002 
 
 
project "on a good trajectory for a final investment decision." 
 
 
COMMENT:  PRAGMATISM PREVAILS 
 
¶5. (SBU) The Gorgon partners have vocally maintained over the 
past year that they are not concerned about signing up 
foundation customers for the project.  Chevron, in particular, 
told a WA audience in July that "we are not worried about the 
market for LNG."  Nevertheless, given questions over whether 
ExxonMobil was giving the project the same global priority as 
its partners, the ExxonMobil deals with PetroChina and Petronet 
provide greater assurance to the corporate boards in the lead-up 
to the final investment decisions for the project.  Proponents 
also believe that the deal with PetroChina validates Australian 
governmental determination to move forward on high-stakes 
economic ties with China despite current political strains.  End 
Comment. 
CHERN