Taipei (Reuters)
Taiwan's state-owned Chinese Petroleum Corp (CPC) won a coveted LNG supply contract yesterday for a lower-than-expected $8.7 billion by undercutting rival consortia with links to international supermajors.

CPC, which owns the island's sole LNG terminal, underbid competitors, including a Royal Dutch/Shell venture, to win the 25-year deal to supply Taiwan Power Co's (Taipower) Tatan power plant with liquefied natural gas (LNG).

"The bid was awarded solely on price," said state utility Taipower Vice President Edward Chen, dismissing speculation political considerations were involved.

CPC submitted the lowest bid at T$298.2 billion ($8.7 billion), Chen said. All the bids were below Taipower's ceiling price and were far less than the estimated T$400 billion, based roughly on current prices of LNG.

Under the terms of the deal, CPC is required to start supplying the plant with LNG from Qatar's Ras Laffan Liquefied Natural Gas Co, owned by Qatar Petroleum and ExxonMobil Corp, beginning 2008.

CPC must build a receiving terminal in northern Taiwan, but the company declined to say how much it would spend on the infrastructure.

Taipower said in a statement in present value terms it would pay CPC T$5.69 per cubic metre of LNG, cheaper than the T$8.33 it now pays.

However, if market prices fluctuate beyond a certain range, actual prices could be adjusted to shift some of the burden of price volatility off CPC.

Analysts said supply outpaced LNG consumption in Asia, although demand for the clean and efficient energy was on the rise.

"There are many suppliers chasing for markets. So it's a good market environment for buyers of LNG like Taiwan," said Victor Shum of energy consultants Purvin & Gertz in Singapore.

Shum said Asian demand for natural gas was expected to nearly double to account for 15 per cent of overall energy needs in 2015 from around eight per cent in 2000.

The three failed bidders were a Royal Dutch/Shell venture, Tung Ting Gas Corp - which includes Mitsubishi Corp, Osaka Gas Co Ltd and Kansai Electric Power Co Inc - and United Resources Inc, a venture led by Kuo Yang Construction that had planned to source LNG from fields developed by BP Plc and Indonesia's Pertamina.

"Obviously we are disappointed, but we remain an active player in this region and the leader in the LNG industry," said Bernard Samuels, executive director of TaLNG Co Ltd, a 50/50 venture between Shell and Taiwan's Asia Cement Corp.

Indonesia, one of the world's top liquefied natural gas exporters, brushed off the failure.

"We don't put a priority on Taiwan for our LNG markets. Our priorities are Japan and South Korea and some other countries, and we are still optimistic," Rachmat Sudibyo, head of oil watchdog BP Migas, told reporters.

"However, we will evaluate why we lost in Taiwan. Whether our price is too high or not."
The Tatan plant in northern Taiwan, with six generating units, will be the island's largest gas-fired power plant when completed.

Taiwan is Asia's third-largest consumer of LNG after Japan and South Korea, consuming 5.9 million tonnes in 2002 of which nearly all was imported, and the island expects demand to rise 8.5 per cent each year over the next 20 years.