The company, which is leading the country's LNG development efforts, plans to expand the capacity of the Guangdong LNG terminal, its first, to 10 million tons a year from the current 3.8 million.

The first phase of the project will begin operations in the first half of 2006 and the second phase could start as early as 18 months later, said CNOOC chairman and chief executive Fu Chengyu. The project is contracted to buy 3.7 million tons per year of gas from Australia's Northwest Shelf.

Fu said the higher-than-expected demand for gas in Guangdong was largely due to the narrowing of the gap between coal and gas prices.

Senior vice president Cao Yunshi told The Standard that the company is focused on four terminal projects in Guangdong, Fujian, Zhejiang and Shanghai that the central government has already approved.

Other proposed projects in less mature markets could take longer to develop, Cao said.

The company previously proposed to build eight to 10 LNG terminals along China's eastern coast. However, its planned purchase for about US$275 million (HK$2.15 billion) of a 12.5 percent stake in Australia's Gorgon project faces stumbling blocks due to disagreements with partners over pricing and equity shares, Cao said. Gorgon gas was earlier designated to supply the Zhejiang LNG terminal.

``CNOOC may have to pay a higher price for the project compared to a year ago if there is a change in the partnership terms,'' said Michael Lee, an analyst with UOB Kay Hian.

The company told analysts it would increase the capacity of the Guangdong and Fujian LNG terminals by 15 percent. The Guangdong terminal will buy gas from Australia's Northwest Shelf and the Fujian terminal will buy from Indonesia's Tangguh project.

While gas projects remain the company's long-term focus, oil continued to drive revenue growth in 2004. Due to high oil prices, the firm posted record net profits of 16.19 billion yuan (HK$15.27 billion), up 40.3 percent from 11.54 billion yuan a year earlier, in line with analysts' expectations. However, CNOOC's targeted oil production in 2005 is 160-165 million barrels of oil equivalent, an increase of 14 to 17 percent that analysts described as conservative.

From 2006, by contrast, the company has targeted 265 to 305 million barrels of oil equivalent.

To help it raise output, it recently offered 10 deepwater blocks, mainly in the South China Sea, for foreign participation. But Cao said as the development costs for these blocks were many times greater than for shallow blocks, foreign investors would be hard to attract.

The company said it plans to spend 33 percent more in 2005 to develop its China offshore oil fields. It has budgeted US$2.2 billion of development capital expenditure this year for its China offshore fields, whose production has not met expectations.

CNOOC expects 16 more projects to begin production in 2005 and 2006. Due to delayed production in some of these fields, CNOOC produced 140 million barrels of oil, up only 7 percent from a year ago.karen.teo@singtaonewscorp.com