Shanghai LNG Project Shanghai LNG Project, China

China is developing into the major economic power in the world at a rate of knots. To succeed in the drive to be the centre of manufacturing for just about everything they have a need for more and more power. One of the big challenges for China is securing sufficient gas supplies for the next 25–30 years.

The Shanghai LNG (Liquefied Natural Gas) project is one of may LNG receiving terminals currently being constructed around the coast of the country to supply natural gas to industrial / power companies and domestic customers.

Shanghai is now a key energy supply project for transmitting LNG from Malaysia to the economic hub in east China. The project will supply approximately 1.1 million tons a year in the initial three years and from 2012 it will rise to three million tons a year.

SHANGHAI LNG PROJECT DEVELOPMENT

The National Development & Reform Commission of China approved the project in December 2006 and this project, together with the west-to-east gas pipeline of China and the East China Sea gas project will help in fulfilling the demands of energy for Shanghai, improving the efficiency of energy, and cutting emissions.

The gas market in China looks promising owing to the increasing use of natural gas. In the near future natural gas is expected to completely replace manufactured gas and there are a large number of LNG terminals being constructed to service this need.

In January 2007 it was announced that CNOOC Gas and Power Ltd of China, a subsidiary of China National Offshore Oil Corporation, had signed an agreement with Shenergy Group Ltd for the development of the Shanghai LNG terminal. The two companies will develop this project through the formation of a new company, Shanghai LNG Company Limited.

CNOOC Gas & Power Limited holds a 45% interest in the new company, while Shenergy Group Limited owns the remaining 55% interest. To date, CNOOC has entered into four LNG deals in Guangdong, Fujian, Zhejiang and Shanghai. The project will require an investment of ¥7bn ($900m).

LNG PROJECT AND SUPPLY

The Shanghai LNG project comprises a LNG dock, a receiving terminal and a subsea gas trunk line. The facility will ultimately have the capacity to receive six million tons of LNG per annum.

The project will be implemented in two phases; the first phase is scheduled to start operation in 2008. The design capacity of the first phase will be three million tons a year.

Shanghai will receive LNG from Malaysia beginning in 2009; this will amount to 1.1 million tons per annum over the first three years increasing to 3 million tons per annum in 2012 – the contract is for a period of 25 years.

The contract was signed by the Shanghai LNG Co Ltd and a subsidiary of Petronas, Malaysia’s national petroleum corporation, in October 2006. This deal is one of the largest trade contracts ever agreed between China and Malaysia.

Petronas obtains natural gas supplies from the Bintulu region, one of the world's largest LNG production bases in eastern Malaysia. It boasts an annual output of 23 million tons.

CONSTRUCTION

The terminal for the Shanghai LNG project will be located in the Yangshan Deepwater Port, Shanghai International Shipping Center – an international shipping centre in Shengsi County in neighbouring Zhejiang Province, at the mouth of the Yangtze River, about 45km from Pudong International Airport.

The first phase includes the construction of three 165,000t concrete tanks, a special LNG jetty that can anchor ships from 80,000m³ to 200,000m³ in capacity and the associated regasification and sea-bed gas pipelines to link to the Shanghai gas distribution network. The first phase of the Shanghai terminal is being constructed by a consortium led by IHI of Japan and includes Taiwanese engineering company CTCI Corp and the Chinese design firm Wuhuan Engineering Co.

GAS PRICES

It has been reported that Shanghai LNG will pay Petronas somewhere in the region of $5–$6 per million British Thermal Units (BTUs) for the Malaysian gas when the terminal opens for business in 2008–2009.

This rate indicates how natural gas prices have climbed since the contract for the supply of gas from Australia to Guangdong Dapeng LNG was finalised. The price negotiated for that deal was around $3/BTU.