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Chinese independents set to take major role in gas

Liberalisation of energy supply infrastructure is accelerating and attracting investment beyond the state giants

Emboldened by China’s encouraging progress in opening up its gas market to new players, independent domestic developers of emerging LNG import projects are starting to discuss their ambitious plans more publicly—something amply demonstrated today at the China LNG & Gas International Exhibition & Summit.

Gas project executives from lesser-known provincial markets in China lined up at the Shanghai event to promote their multibillion-dollar developments. It underlines how so-called second-tier Chinese importers are emerging as a buying force in the international LNG market—some of the companies at the event rank among China’s fast-growing players in the LNG sector outside the state-owned giants.

The decision to spotlight import projects years before they will be up and running represents an early move by the developers to drum up interest from outsiders in third-party access. The strategy comes after the Chinese government moved over the past year to accelerate the liberalisation of access to energy supply infrastructure, which has been dominated to date by China’s big three NOCs.

A key revenue stream for the project developers will be selling tolling access to their new terminals, complementing the core business of selling imported gas

A key revenue stream for the project developers will be selling tolling access to their new terminals, complementing the core business of selling imported gas to downstream users.

The latest step in liberalisation took place last week and saw PipeChina—the country’s new single midstream operator of key oil and gas infrastructure—publish regasification tariffs and details of spare import capacity at the six operational LNG terminals it has acquired from the NOCs.

Hopes for Hebei

The provinces of Hebei and Shandong—located next to Beijing and on China’s eastern seaboard, respectively—are each constructing large-scale LNG regasification terminals that their developers hope will become regional LNG hubs.

In Hebei, China’s biggest coal-consuming province, Hong Kong-listed China Suntien Green Energy is building a receiving terminal at the port city of Tangshan that will be able to handle 12mn t/yr once all three phases are finished. The first phase, under construction since the end of last year, will cost RMB8.07bn ($1.21bn).

The terminal is the largest LNG import project in the Bohai Economic Rim, a region that includes Hebei, Beijing and the northern port city of Tianjin. There are already four operational terminals in the area with combined capacity of 19.5mn t/yr.

Hebei’s policymakers hold grand ambitions for the project. Upon completion, the terminal will be able to supply 16.8bn m³/yr of regasified LNG—enough to meet most of the 20bn m³ that Hebei is expected to consume next year, and more than half of the 30bn m³ demand predicted for 2025. The project, combined with PetroChina’s existing 6.5mn t/yr terminal nearby, will make Tangshan the largest LNG hub in northern China, Lu Yang, vice president of Suntien Green Energy, told delegates at the event.

Hebei has been a focus of the Chinese government’s coal-to-gas switching campaign over the past four years, with gas demand rising from 10bn m³ in 2017 to 16.9bn m³ last year. There remains plenty of room for Hebei’s gas market to grow, as the fuel accounted for just 5.5pc of the provincial energy mix in 2018—below the national average of 7.8pc that year.

Shandong supply

The spotlight at the event also fell on Shandong, an industrial and petrochemicals hub in eastern China, where another ambitious regasification terminal is taking shape at the port of Yantai. The terminal won approval from China’s central planners in January and will include a 5.9mn t/yr first phase. Construction on a second phase will start in 2025 and raise overall capacity to 10mn t/yr, according to Wang Lin, chairman of project developer Poly-GCL Pan-Asia International Energy.

16.8bn m³ - Capacity of Hebei LNG terminal

Work on the foundations for the first-phase LNG storage tanks will start by the end of this month, with all equipment expected to be installed by December 2022, Wang told delegates.

As with Hebei, gas has plenty of potential in Shandong, where coal still dominates the provincial energy structure. Wang pointed out Shandong’s weak gas demand compared with comparable local markets: the coastal province, with a population of 100mn people, used just 13.9bn m³ in 2018, whereas Beijing with 22mn people consumed 18.0bn m³. Shandong is targeting demand of 20.5bn m³ this year and 56bn m³ by 2030 under a mid- and long-term gas development plan released in 2017.

In China’s southern province of Guangdong, city gas distributor Guangzhou Gas Group expects to begin commercial operations at a small-scale LNG terminal it is building by the second half of 2022, with initial throughput of 1.0mn t/yr. Guangzhou Gas will begin issuing tenders next year to procure more than 1.0mn t/yr of LNG for the medium and long term, said company vice president Liu Jingbo.

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