Posts Tagged ‘PetroChina’

Is the $50b gas deal a dumb deal for Australia?

Thursday, August 20th, 2009

A couple of days ago, Australia signed a deal to supply China with natural gas for the next 20 years. As the this news article reported,

THE largest single trade deal in the nation’s history – a $50 billion contract to sell liquefied natural gas to China – was sealed in Beijing last night, signalling the resources boom is far from over.

The contract, hailed by the Federal Government as an indicator Australia’s relationship with Beijing remains sound, will supply China with gas for 20 years.

Mr Rudd said the project would be worth 5 per cent of the nation’s gross domestic product. It would deliver the Government $40 billion in revenue over 30 years and would generate 6000 jobs at the peak of construction, effectively making it a third stimulus package.

In this deal, Exxon will be selling LNG to PetroChina while the Australian government collect royalties payment. So far, Exxon gave no pricing details on the contract. But given that a dollar value of the contract has been announced, we wonder how much has China locked in the prices of the LNG (which will be delivered over a 20 year period from 2015) and how will the clauses adjust the pricing due to inflation. By 2035, with the value of the US dollar in grave doubts (see Is the GFC the final crisis?), the Australian government may end up receiving payment in a rapidly depreciating currency.

We doubt there’s a gold clause in the contract. If so, that may be a big mistake for Australia.