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November 5, 2009

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Sinopec agrees to buy LNG from Exxon's PNG project

CHINA Petroleum and Chemical Corp, also known as Sinopec, has signed a preliminary agreement with Exxon Mobil Corp to buy 2 million tons a year of liquefied natural gas from the United States energy giant's project in Papua New Guinea.

The two firms are working together to finalize a binding sale and purchase agreement by this year.

The gas will be supplied to Qingdao, Shandong Province, where Sinopec will build a receiving terminal, Wang Zhigang, a Sinopec senior vice president, said in a statement yesterday.

If it is finalized, the deal will be Sinopec's first LNG purchase agreement. The company has planned the Qingdao terminal for years but it has made little progress as it has been unable to secure supplies of the super-cooled, cleaner-burning fuel. "The project will conduct exclusive discussions with Sinopec and other major Asian LNG customers for binding sale and purchase agreements covering the full project capacity," said Ron Billings, Exxon's vice president of gas and power marketing.

In the LNG project in PNG, Exxon holds a 41.5 percent stake and acts as the operator. Other joint venture partners include Australia's Oil Search Ltd and Santos Ltd, and Japan's Nippon Oil Corp.

The parties are rushing to finalize sales agreements for the full 6.6 million tons per year output as Exxon has set a target of December 8 for a final investment decision on the project. Oil Search estimated last month that costs for the first stage of the project could cost US$15 billion, up from its previous projection of US$12.5 billion.

Sinopec has lagged behind domestic rivals PetroChina Co and China National Offshore Oil Corp in the LNG import business.

A Shanghai LNG receiving terminal, jointly owned by CNOOC and Shenergy Group Co, recently received cargoes from Malaysia, marking the launch of China's third and also CNOOC's third import facility.


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