China Natural Gas Price Breakthrough Has Worldwide Implications

China, the world’s largest coal burning polluter, apparently overcame its resistance to pay market price for clean fuel by signing long-term contracts for Australian natural gas, a move that has positive implications for nearly all the world’s natural gas producers.

Coincident with the Asia- Pacific Economic Cooperation [APEC] leaders meeting in Sydney hosted by Australian Prime Minister John Howard and attended by Chinese President Hu Jintao, China agreed to buy Australian liquefied natural gas [LNG] in two multi-year contracts.

The parent of buy-recommended PetroChina (PTR) would buy 3 million metric tons a year of LNG beginning around 2013 from Woodside Petroleum, 34% owned by buy-recommended Royal Dutch Shell (RDS.A) and another 1 million tons a year from RDS. Eighty million tons of LNG delivered in twenty years would have a sales value of about $32 billion at today’s global benchmark of $8 a million btus and more at likely future prices.

The market implications are wide-reaching as in the words of Deputy Chief Executive Officer Alexander Medvedev of buy-recommended Gazprom (OGZPY.PK), quoted on Bloomberg from Australia, “Demand [for natural gas] in China in the long term is so huge….”