The Chinese government is considering ratification of a 25-year agreement for one of China's big three state-owned energy companies to buy liquefied natural gas (LNG) from Petronas, the Malaysian state-owned energy corporation.

The agreement before the National Development and Reform Commission would see Petronas supply the Shanghai LNG terminal at a contract price of five to six U.S. dollars per million British thermal units (MMBtu) when the terminal opens in 2008.

The Xinhua-run China Securities Journal reported the news on Thursday quoting a China National Offshore Oil Corporation (CNOOC) spokesman.

Designed to receive six million tons of LNG annually, China's third LNG terminal in Shanghai is being built in two phases. The first will be completed in 2008 when it will be able to process three million tons of LNG and supply four billion cubic meters natural gas annually to Shanghai Municipality.

The Shenergy Group, a state-owned energy company based in Shanghai, holds a 55-percent stake in the project, while CNOOC, China's largest offshore oil company, holds the other 45 percent.

The CNOOC spokesman said the Supply Purchase Agreement (SPA), the final agreement for LNG supply, had not yet been signed as prices from other suppliers were still being considered.

The acceptable price range was five to six U.S. dollars per MMBtu, the report quoted industry insiders as saying.

The world's largest LNG importer, Japan, saw the cost, insurance and freight of LNG rise from 3.05 U.S. dollars per MMBtu in 1998 to 6.05 U.S. dollars last year, but China's sustainable capacity for LNG price was lower, said industry insiders.

International LNG prices had surged in recent years, so the supply price for Shanghai would be higher than for CNOOC's LNG projects in southeastern Fujian and Shenzhen city, in Guangdong Province.

The price for China's first terminal in Shenzhen, which went into operation last month, was within three US dollars per MMBtu.

The price for terminal in Fujian Province was still be negotiated with Indonesian suppliers, said the report.

China's three oil giants, China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and CNOOC, all have an LNG development plan, under which they will import at least 60 million tons by 2020.

Source: Xinhua