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Lloyds List: Bright future in store for LNG in China

Keith Wallis, Lloyds List
Published: Sep 21, 2007

CHINA’S liquefied natural gas imports are still tiny compared with the volume of coal imports. But that is set to change as oil companies continue to invest in new LNG terminals, ink supply pacts and China implements a blueprint for future LNG use.

Recent figures from China’s General Administration of Customs show the country imported 27.07m tonnes of coal in the first six months of this year, up 47.6% year-on-year.

By comparison, China imported just 1.37m tonnes of LNG between January and July, including 356,139 tonnes in July alone with 300,516 tonnes coming from Australia.

This reflects the importance of China’s sole dedicated LNG import terminal at Shenzhen in southern China, which is being supplied by Woodside Petroleum’s North West Shelf project in Western Australia under an agreement with China National Offshore Oil Corp.

The 3.7m tonnes per year Guangdong Dapeng LNG terminal was developed by CNOOC and other investors and had received 40 LNG cargoes by the end of August.

Currently, chartered-in tonnage is serving the terminal, although that should change from the end of this year when the 147,200 cu m LNG carrier Dapeng Sun enters service. The ship, which was launched in December 2005, is one of three LNG carriers being built by Shanghai’s Hudong-Zhonghua Shipbuilding to transport LNG from the North West Shelf project to Shenzhen.

The ship will be delivered to shipmanager China LNG Shipping (International)by the end of this year. CLSICO is 40% owned by BP Shipping and 60% by China LNG Shipping (Holdings), a 50:50 joint venture between China Ocean Shipping (Group) and China Merchants Group.

CLSICO will initially operate five LNG carriers, with the two other vessels serving a LNG terminal in Fujian, eastern China.

CLSICO general manager Captain Doug Brown said delivery of the second vessel, the Dapeng Moon, is scheduled for summer 2008. Hudong-Zhonghua Shipbuilding is then due to deliver the two ships serving the Fujian terminal in October 2008 and July 2009. The third ship for the Shenzhen project is scheduled for delivery in October 2009.

CLSICO is alsomulling orders for a further six LNG carriers to serve the still to be built import terminals in Shanghai and nearby Ningbo in Zhejiang province.

CNOOC will import LNG from Malaysian state oil company Petronas to supply its Shanghai terminal and the BP-led Tangguh project in Indonesia for the Fujian facility.

China LNG Shipping deputy general manager Xu Jianping said China needed up to 30 LNG carriers by 2020 when natural gas consumption is expected to top 240bn cu m, more than four times the current level.

China has recently taken steps to secure these additional volumes after PetroChina inked a raft of supply deals in early September totalling about $49bn.

In the first pact the firm signed an initial deal with Royal Dutch Shell to buy 1m tonnes of LNG a year over 20 years from the Gorgon project in Western Australia. The contract is expected to be finalised in a detailed sales and purchase agreement by December 2008.

The Gorgon field, which is being developed by US oil major Chevron, which has a 50% stake, with Shell and Exxon Mobil, is Australia’s largest gas resource with about 13,000bn cu m of gas reserves.

PetroChina also agreed to buy up to 3m tonnes of LNG a year from Woodside Petroleum’s Browse project in Western Australia under a 15-20-year contractstarting from 2013.

The deals ended a hiatus that lasted several years after China agreed its first LNG supply contract with Woodside Petroleum in 2002 at bargain rates.

‘In the last five years the LNG market has changed considerably and has altered from a buyer’s to a seller’s market,’ says one gas analyst.

‘Despite discussing supply agreements with countries such as Australia and Indonesia, China always held out for the cheap rates seen in its first deal. But they always floundered mainly because producers refused to soften their pricing. The PetroChina agreements show the Chinese have accepted the current reality that higher prices must be paid.’

The PetroChina agreements were confirmed as China issued a new gas policy at the end of August that banned the use of domestic natural gas for LNG projects.

By implication the regulations, introduced by the National Development and Reform Commission, will limit LNG terminals to coastal provinces supplied by solely imported feedstock.

But the new policy will not affect seven LNG terminals currently planned by oil majors PetroChina, Sinopec and CNOOC. These include the four either operating, under construction or approved by CNOOC at Shenzhen, Fujian, Shanghai and Ningbo. The others are PetroChina’s terminals at Nantong in Jiangsu province and at Dalian in Liaoning province, which have both been approved, and a Sinopec terminal at Qingdao, Shandong province, which has also received the green light. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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