Australian coalseam and shale gas explorer Icon Energy signed a binding agreement Tuesday to supply China's Shantou Sinogas Energy with 2 million mt/year of LNG over 20 years from mid-2016, despite having no confirmed gas reserves.
Icon took the Australian market by surprise in April 2010 when it signed a memorandum of understanding to sell the LNG to China from its undeveloped gas resources in the states of Queensland, South Australia and Victoria.
Shantou SinoEnergy is based in Guangdong province's Shantou City, where it plans to build a A$727 million ($746 million) terminal, ultimately capable of receiving and regassifying up to 3 million mt/year of LNG. The terminal is to be located on Nan'ao Island near Shantou and would distribute the gas to commercial and residential customers in the city area.
State-owned electricity generator China Guodian Corporation has taken a direct interest in the proposed Shantou LNG terminal as a joint venture partner, according to Icon. Guodian has an asset backing of more than $90 billion and is planning to build gas-fired power stations in eastern Guangdong province, the company added.
The LNG sales agreement is conditional on, among other things, Shantou SinoEnergy obtaining the necessary Chinese government approvals to allow the construction of the terminal and import of LNG by March 31, 2013. By the same date, Icon Energy is required to have certified proven and probable reserves of at least 2 Tcf of gas.
Under the deal, Icon can source gas for its LNG project from its own existing fields and joint ventures, third parties or new tenements or joint venture partners. The supply terms give Icon flexibility to supplement its own reserves with suitable contracted third-party feedstock gas, which could unlock stranded gas in Queensland and elsewhere, according to the company's Managing Director Ray James.
"I envisage commencing discussions with identified and prospective co-venturers in the next couple of months, with a view to building Icon Energy's gas bank," James said.
"Another critical term of the agreement with Shantou SinoEnergy is that Icon Energy is not locked into supplying LNG from a single nominated port," he added. "We have already considered Queensland and South Australia-based options and are currently in the process of reviewing cooperative arrangements with one of the many Gladstone LNG projects for supply out of Queensland."
James said the supply agreement was a valuable commercial asset, which had been negotiated in parallel with the company's drilling development plans. Reserves cannot be certified unless a market exists for them, in accordance with international protocol, he added.
Icon plans to elaborate on prospective feedstock, supply, development and tolling options once discussions are at a more mature stage, James said. He added it was also premature to comment on funding and investment options, but indicated that talks were underway with preferred advisers with a view to securing project investment.
"Our strategy to pursue targeted commercialization opportunities in parallel with our operations, rather than waiting to identify markets subsequent to drilling, has paid off," James said.
Under the project timetable, first delivery of LNG is scheduled by June 30, 2016.
The gas contract price "has been competitively set" with regard to the price of LNG in China and is linked to the price of Tapis crude oil in Singapore, Icon said. The price is to be reviewed every three years, the company added.
