Petrochina Invests in the Future29 July 2008
China’s major oil companies are investing in big new projects to address the country’s growing energy shortage. Projects such as the construction of new LNG terminals present great opportunities for the likes of PetroChina, and for Western companies to involve themselves in underpinning China’s energy future.
The rapid development of China’s natural resources and its thirst for energy will be key factors in shaping the world’s energy markets in the years to come. The country’s energy companies have already started to become more important players on the global scene and groundbreaking developments, such as the new liquefied natural gas (LNG) terminals being built, represent a big opportunity for energy companies – both in China and from Europe and the US.
China’s demand for energy is rising sharply and shows no signs of letting up in the near future, so the development of sophisticated, high-technology energy infrastructure is crucial.
PetroChina, the listed division of state-owned China National Petroleum Corporation (CNPC), is in the midst of one such project – the construction of one of its first LNG terminals, which it expects to have capacity to receive 3.5m tonnes of LNG by 2011. With further investment this could eventually be extended to 6m tonnes.
The new terminal is part of a long-term plan for LNG infrastructure. For the past five years China has been examining the construction of three new LNG terminals – one in Qingdao on the Shangdong Peninsula in the north of the country, and two near Shanghai – following pilot projects in Guangdong and Fujian, where China National Offshore Oil Corporation (CNOOC) has been the main developer.
In 2005, PetroChina’s first bid to enter the LNG market was backed by government officials, and the company began the Jiangsu project, making it the country’s third player in LNG, joining CNOOC and Sinopec.
Built on reclaimed land in China’s Yellow Sea, the terminal now under construction will stand on reclaimed land – a 0.3 square km landfill site in Jiangsu’s Rudong County. Much of its gas will supply a 2,400MW gas-fired power plant and it will be linked to the 4,000km west-east gas pipeline, which is also operated by PetroChina.
PetroChina and its partners in the project – Singapore's Pacific Oil & Gas and Jiangsu Province's investment firm Guoxin – have also bought a 600m yuan, 2-square km plot of reclaimed land from Hong Kong-based port developer PYI Corp to house the $1 billion gas-fired power plant, which will incorporate four 600MW generators.
The province of Jiangsu is an important economic hub for China and as its growth continues it faces an ever more severe energy shortage. It already relies on imports for about 80% of its energy needs, so the new LNG terminal and its pipeline connection will be crucial to the region’s future development.
For PetroChina, which is China’s largest producer and distributor of oil and gas, the project represents another step on the road to becoming one of the world’s leading energy companies – a goal to which it has committed itself as part of a programme of internationalisation. Its underlying principles are "expanded resources, perfected pipeline networks, uniformly planned production and distribution, and guaranteed security".
SUPPLY AND DEMAND
As well as the technical and physical infrastructure to handle large volumes of imported LNG to meet China’s rapidly increasing energy needs, the country has carefully considered the sources of the gas to ensure a reliable supply. In June CNOOC inked a 25-year deal for 2m tonnes a year of LNG from the Qatargas development.
The gas will ultimately arrive at five terminals: Fujian and Guangdong, which are already in operation; the Shanghai terminal, which will come online in 2009; and the new Zhejian and Hainan terminals, which are slated for construction.
"LNG has a key role to play in helping governments around the world to improve the diversity of their energy supplies. Qatargas is pleased with this exciting development, which builds on earlier agreements to supply LNG to meet the growing demand for energy in China," says Faisal M. Al Suwaidi, chairman and chief executive officer of Qatargas Operating Company Ltd.
Similarly satisfied was Fu Chengyu, president of CNOOC, who says he is "pleased that CNOOC has reached an agreement with Qatargas. I believe the deal will further enhance the cooperation between Qatar – one of the largest LNG producers – and China, which is believed to be the market with the most potential for gas. I am confident that this deal will benefit both parties."
Qatargas is ramping up its production capacity, building four new LNG processing trains that will boost production from 10 million tonnes per annum to 42 million tonnes by 2010. The project will also supply gas to PetroChina in a 3 million tonnes per annum, 25-year deal signed in April 2008.
PetroChina's Jiang Jiemin noted not only that this has important implications for China’s energy supply, but that LNG is a way for the country to combat concerns over the environmental impact of its rapid economic development. He says: "The cleaner energy from LNG will contribute to fuelling China's fast and sustainable economic development."
Last September PetroChina signed an agreement with Shell for the long-term supply of LNG from Western Australia’s Gorgon project, which is seen as a milestone in the development of China’s LNG capability. The 20-year deal will see Shell supply 1 million tonnes per annum of LNG, though it is still dependent on a final investment decision being made by the remaining joint venture partners behind Gorgon – Chevron Corp and ExxonMobil.
Jon Chadwick, executive vice-president of Shell Gas & Power Asia, believes that this strategic deal "sets a new benchmark for LNG supplies into China and underlines Shell’s commitment to Chinese LNG customers and to the Gorgon project".
Shell is not alone in seeing the potential value in being closely involved in the development of China’s energy infrastructure, and the mutual benefit of such relationships is likely to underpin more innovative and expensive developments in the coming years.