China's first liquefied natural gas (LNG) project took a big step forward on Friday, securing contracts for gas sales, financing and construction.

The China National Offshore Oil Corporation (CNOOC), the nation's biggest offshore oil and gas producer, signed take-or-pay gas sales contracts with users in Guangdong Province.

The contracts require users commit to buying certain quantities of gas from CNOOC's LNG terminal in Guangdong for 25 years at set prices.

The sales contracts are crucial to providing continuing cash flow for the Guangdong LNG project.

In the LNG project, CNOOC will import LNG from Australia to feed a terminal where it will be turned back into natural gas and transported to local power plants, residents and industrial users through pipelines.

The oil corporation holds a 33 percent share in the terminal which is able to handle 3.7 million tons of imported LNG annually.

British company BP holds a 30 percent stake, local companies in Guangdong hold 31 percent, and Hong Kong China Gas holds the remaining 6 percent.

The US$894 million project is due to start operation by the middle of 2006. Upon completion, the project will supply 5.1 billion cubic meters of natural gas a year to users in Guangdong and Hong Kong.

The gas will ease energy shortages in the booming Guangdong Province.

On Friday, CNOOC also awarded a French-Italian consortium a US$250 million engineering, procurement and construction contract to build the terminal and pipelines.

Meanwhile, five State-owned banks have agreed to provide 5.2 billion yuan (US$628.7 million) worth of loans to finance the Guangdong LNG project.

A memorandum of understanding for LNG cargo leasing was also signed on Friday.

"Natural gas is important for China to resolve its energy shortage and reduce heavy reliance on oil," said Fu Chengyu, general manager of CNOOC, at the signing ceremony. "And LNG is an important part of the natural gas situation."

Fu said the LNG imports were set to increase in coming years because domestic natural gas reserves cannot keep up with the demand growth.

Annual LNG imports are expected to rise to 60 million tons, which are equivalent to 80 million tons of oil by 2020, Fu said.

Fu said earlier almost 40 percent of China's natural gas consumption would be satisfied by LNG imports by 2020.

A manager from the Shenzheng Meishi Power Plant, one of the end users of Guangdong LNG, said LNG was in high demand among power companies and industrial users in Guangdong Province because it was relatively cheap compared with oil.

Fu said they will try to build more LNG projects in booming coastal provinces.

(China Daily May 3, 2004)