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LNG: key to growth
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Wu Yan
A GRAND alliance is likely to form sometime within the next year, linking two Hong Kong companies, six firms from the mainland and the multinational giant British Petroleum Company (BP) to build a liquefied natural gas (LNG) terminal and trunk-line project. The Chinese side expects construction to begin in the second half of 2002 while the project's first phase will be up and running by the end of 2005.
The terminal and pipeline project is expected to cost around five billion yuan (US$600 million). The Chinese parties will take up a majority share of 70 per cent with the rest going to the foreign partner.
The China National Offshore Oil Corp (CNOOC) is the biggest shareholder of the project, holding a 33 per cent stake.
Based in Shenzhen, the pilot project in the country is to allow the importation of LNG and turn it into gas, which will then be piped to users throughout Guangdong Province.
Significance
Guangdong Province is one of the most developed areas as well as one of the biggest energy consumers in the country. At the same time, it is seriously lacking in energy resources — it can only supply itself less than 20 per cent of the energy it uses. And the Pearl River Delta region, which will be the main consumer of the project, is hungry for energy — a hunger which will continue to grow as the economy expands.
Therefore, gargantuan amounts of coal, fuel oil and liquefied petroleum gas are shipped to the province every year. Coal, the most important of the three, is cheap but environmentally unfriendly, as it spews out waste gases and causes acid rain.
To optimize the province's energy infrastructure, it is obviously necessary to import LNG from abroad.
CNOOC President Wei Liucheng said the project is expected to play a key role in fuelling Guangdong's economy. It is also expected to be a profitable business venture.
The project is considered essential because rapid economic growth has resulted in an energy supply gap and serious environmental protection problems for Guangdong, said Yao Xinhuan, deputy director of the Guangdong LNG Project Leading Group Office.
Timetable
Construction of the project will be carried out in two phases. The first phase includes a regasification terminal with an annual processing capacity of three million tonnes of LNG. The plant will be located at Chengtoujiao on the eastern shore of Shenzhen's Dapeng Bay, and a 300-kilometre pipeline, which will carry four billion cubic metres of gas annually. Both are expected to enter service in 2005.
The second phase will be finished in 2008, allowing an additional two million tonnes of LNG per year to be handled. By then, the project will be capable of handling 8.2 billion cubic metres of natural gas annually, including 1.5 billion cubic metres of natural gas drawn from the floor of the South China Sea.
Employing a 500 kilometre-long pipeline, by 2008 the gas will flow to almost the entire Pearl River Delta area including such cities as Shenzhen, Guangzhou, Zhuhai, Zhongshan, Foshan and Huiyang.
Two LNG-fuelled power stations are scheduled to be built in Huizhou and Shenzhen. The first-phase installed capacity of the two plants will be two million kilowatts. The second phase will increase production by another two million kilowatts.
The two power plants are expected to consume 1.12 million tonnes of gas by 2005 and 2.23 million tonnes by 2009.
Five existing oil-burning power plants in Shenzhen and Foshan are expected to be converted to gas plants with an annual gas consumption of 850,000 tonnes.
The LNG project is designed to provide 1.99 million tonnes of fuel for cities in the Pearl River Delta area to use each year.
According to the Shenzhen Commercial Daily, of the three million tonnes of LNG of the first phase, Shenzhen will use two million tonnes, most of which will be used to generate electricity, though a minimal part will be piped into households.
Important for China
On average, natural gas accounts for 23.5 per cent of the consumed energy globally. But while natural gas makes up 52.4 per cent of the energy consumption in Russia, only two per cent of China's used energy is natural gas.
It is estimated that China has natural gas reserves of 38 trillion cubic metres and that 75 per cent of it, some 22 trillion cubic metres, is in western China. Thus, establishing a natural gas industry can also assist the Central Government's strategy of developing the west.
In speaking of natural gas consumption, some experts say that China is expected to produce 80 billion cubic metres of natural gas annually starting 2010.
Furthermore, the experts predicted that by 2010 China will consume 60 billion to 100 billion cubic metres of natural gas every year.
For the present, with China's natural gas exploration still at the primary stage and pipeline networks underdeveloped, the Central Government has decided to build a 4,200-kilometre pipeline that will run from the Xinjiang Uygur Autonomous Region and pass through eight provinces, regions and municipalities to reach eastern China.
It is believed that the Guangdong LNG project will constitute a model for the building of natural gas pipelines in other parts of China.
A hot ticket
Guangdong's LNG projects lit a fire under foreign firms. In August last year, around 80 foreign companies participated in a pre-application conference held in Beijing to select one foreign partner, and 27 of them, including Chevron, Exxon-Mobil and Shell, purchased the foreign partner selection documents.
Around that time, companies from countries like Australia, the United States, Britain, Japan and France sent delegations to Guangzhou to communicate with relevant provincial officials in an effort to become that sole foreign partner.
To win the project, three large energy companies, including Woodside and BHP, submitted a group bid. Representatives from this alliance visited the agency in Guangdong overseeing the project. These three companies also sent officials, along with Richard Court, the prime minister of the Western Australian Government, on his official visit to China last year.
Court admitted that the main purpose of his visit to China was to make sure the Western Australian companies got a piece of the action.
BP, however, was eventually named the foreign partner, and so the stage was set for one of China's largest energy project, a project that, its backers say, will ensure Guangdong will have enough energy to fuel its continued economic growth.
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