Massive energy deal signed despite political tensions

20 August 2009

Chinese energy giant, PetroChina, has signed a $41bn (£25bn) deal to purchase 2.25 million tons per year of liquefied natural gas produced by ExxonMobil, from the yet-to-be developed Gorgon gas field 120 miles off Australia's north-western coast. The Gorgon project is one of the world’s largest proposed gas developments, containing more than 40 trillion cubic feet of gas, and its construction will cost an estimated A$50bn.

Massive energy deal signed despite political tensions

The pact is the largest trade deal in Australian history, will create up to 6,000 jobs and inject billions of dollars into the economy. The Australian national and state governments have agreed to accept joint liability for any future problems with storing carbon dioxide emissions in the underground geological formation.

The massive 20-year energy deal shows that relations are on track between Asia-Pacific economic powerhouses despite political tensions over iron ore prices, with China arguing that it deserved a bigger cut than the 33% discount offered to other nations. The arguement escalated when four employees of Anglo-Australian mining giant Rio Tinto were formally arrested in China on suspicion of stealing Chinese trade secrets and taking bribes. Stern Hu, head of Rio's iron ore operation, was later arrested in Shanghai and charged with commercial spying.

Furthermore, Beijing recently voiced disapproval over Australia's decision to give an exiled Uighur activist a visa to enter the country, whom Beijing accused of instigating the ethnic riots between Uighurs and Han Chinese in Xinjiang province.

China is Australia's second-most important trade partner, with the relationship worth US$58 billion last year. Energy-hungry China has increasingly turned to resource-rich Australia this year to keep its economy - the world's third largest - growing, investing heavily in oil, gas and mining firms. China has been buying liquefied natural gas, which can be stored unlike traditional pipeline gas, for about three years. It has plans to build ten new storage facilities, as the government plans to have doubled its use of natural gas over five years by the end of next year.