China has emerged as the world’s largest importer of natural gas and second largest importer of LNG. But how best to feed that insatiable appetite?
In January, China imported a record 6.58M tonnes of LNG, surpassing December’s record volume of 6.29M tonnes. On a year-on-year basis, China’s LNG imports in January were up 27.8% from January 2018.
In an effort to improve the air quality in its cities, under its “blue skies again” policy, China is looking to switch from coal-fired power plants to ones that burn natural gas. As a result, the country’s imports of LNG jumped by 16M tonnes in 2018, up by 40% from 2017, according to Shell’s LNG Outlook 2019.
“The continued surge in Chinese LNG imports has helped improve air quality in some of its biggest cities over the last few years,” explains Shell integrated gas and new energies director Maarten Wetselaar. “China’s success in making the air cleaner for millions of people shows the critical role that natural gas can play in providing more and cleaner energy to the world.”
In the World Energy Outlook 2018, International Energy Administration (IEA) energy analysts Peter Zeniewski, and Tae-Yoon Kim report that gas accounts for 7% of China’s energy mix, well below the global average of 22%, but the expectations are that the share of gas will double to 14% by 2040. Demand for LNG is set to quadruple over the same period, accounting for nearly 30% of global LNG trade flows.
“China has long driven global trends for oil, coal and, more recently, also for many renewable technologies,” wrote Mr Zeniewski and Mr Kim. “The ‘China effect’ on gas markets is now becoming a pivotal element for those working in gas markets.”
Based on a draft proposal by China’s Ministry of Transport, the so-called “China Effect” will shape the LNG market for decades to come. The proposal calls for a four-fold increase in the amount of LNG the country currently imports. Last year, China’s 19 LNG import terminals with a total capacity of 2,860Bn cubic feet (bcf) handled 67.5M tonnes of LNG. Under the proposed policy, China would grow its LNG imports to 247M tonnes and build 15 additional terminals to handle a total of 11,000 bcf by 2035.
Work has already begun in earnest on new import terminal capacity. One of the new LNG import terminals currently under development is the Tianjin Port LNG Public Terminal is northeastern China. Chinese developer Tianjin Hongfa Investment Group has invested approximately CNY20Bn (US$3Bn) into the project, which will be constructed in three phases.
One of the goals of the project is to expand the availability and use of natural gas and LNG for industrial companies, power generation and LNG vehicle refueling in the Beijing-Tianjin-Heibei region.
Situated on the northern side of Tianjin Port Deep-Water Channel, the terminal will have a capacity of 10 mta when it is completed in 2025. When the construction of the first phase is completed in 2021, the terminal will open with a capacity of 2.8 mta, followed by an additional 3.2 mta in the second phase at the end of 2023 and another 4 mta in by 2025.
“The ‘China effect’ is now becoming a pivotal element for those working in gas markets”
The LNG import terminal will have two LNG piers, each capable of berthing three 270,000 m3 LNG ships, and one additional berth for a 3,000-dwt general cargo ship.
The LNG receiving station will have 10 LNG storage tanks, each with a capacity of between 160,000 and 200,000 m3, along with LNG unloading arms and gasification facilities. The receiving station will be completed in 2025.
About 1,500 km south of Tianjin, Sinopec plans to build its fourth LNG terminal in a partnership with Zhejiang Energy Group Co Ltd. The 3 mta facility will be built in Wenzhou in the Zhejiang province on the east China Sea. The project will include four 200,000 m3 storage tanks, a dock to berth LNG carriers ranging from 30,000 to 266,000 m3 capacity, and a 26-km pipeline. The first phase of the project will open at the end of 2021.
Construction of the LNG import terminal is being carried out by Zhejiang Zheneng Wenzhou LNG Co. Ltd., a new company owned by Zhejiang group (51%), Sinopec (41%) and minority investors (8%).
Sinopec also owns LNG terminals in Beihai and Tianjin, with plans to increase its LNG import terminal capacity from the current level of 9 mta to 26 mta by 2023.
Sinopec’s Qingdao LNG terminal in northern China marked a milestone on 31 January when it welcomed the CESI Wenzhou, the 200th ship to be unloaded at the receiving terminal. Since it opened in November 2014, the Qingdao LNG terminal has received 14.2M tonnes of LNG.
Delivered in 2018 by China’s Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. (Hudong), the 174,100 m3 CESI Wenzhou is one of a fleet of six LNGCs under charter by Sinopec that are owned by a joint venture of China Energy Shipping Investment Co Ltd (CESI) (80%) and Mitsui OSK Lines (20%). CESI itself is a 51/49 joint venture involving China COSCO Shipping and Sinopec, respectively, The dual-fuel, diesel-electric LNGC transports LNG from the Australia Pacific LNG Project for Sinopec under a long-term charter agreement.
Australia Pacific LNG is the largest producer of natural gas in eastern Australia and a major exporter of LNG to Asia. It is a joint venture of ConocoPhillips (37.5%), Origin Energy (37.5%) and Sinopec (25%).
China’s seaborne supply line
China imports the majority of its natural gas via pipeline from Russia and its LNG from Australia, Qatar, Malaysia, Indonesia, Papua New Guinea and the US.
China gets about 45% of its LNG from Australia, with exports of 14.2M tonnes of LNG shipped last year from three terminals at the Port of Gladstone in Queensland, Australia. That represented a rise of 22% from the 11.6M tonnes shipped in 2017.
The port handles LNG from Australia Pacific LNG, the Santos-operated GLNG and Queensland Curtis Island, a Shell-owned business, with China National Offshore Oil Corporation and Tokyo Gas.
China has also solidified its supply of LNG from Qatar. Last September, Qatargas signed a sale and purchase agreement with PetroChina under which it will supply the company’s Chinese terminals with around 3.4 mta of LNG over a period of 22 years.
Qatargas is the world’s largest LNG-producing company and is responsible for marketing Qatar’s entire annual production capacity of 77 mta. For its part, PetroChina is China’s largest gas supplier, meeting 66% of China’s demand in 2017 through a combination of LNG imports, pipeline gas imports and domestic gas production.
Under the 22-year agreement, which extends to 2040, Qatargas will supply LNG from the Qatargas 2 project, a joint venture between Qatar Petroleum, ExxonMobil and Total. Shipments from Qatar’s Ras Laffan terminal are directed to the three PetroChina LNG receiving terminals at Dalian, Tangshan and Rudong. The three facilities have an aggregate capacity of 13 mta.
Last July, Russian independent gas producer Novatek made history by delivering the first LNG from the Yamal LNG to China via the Arctic’s Northern Sea Route. Yamal LNG is a joint venture between Novatek (60%), France-based Total (20%) and China-based China National Petroleum Corporation (20%).
The Arc7 icebreaking LNGC Eduard Toll on gas trials
The LNG was carried on the icebreaking Arc7 LNG tankers Vladimir Rusanov and Eduard Toll, each with a capacity of 172,000 m3, to the port of Jiangsu Rudong. The Vladimir Rusanov is jointly owned by Mitsui OSK Lines (MOL) and China COSCO Shipping and managed by MOL. The Eduard Toll is jointly owned by Bermuda-based Teekay LNG Partners LP and China LNG Shipping. Equipped with an icebreaking bow, the Arc7 LNG carriers have an overall length of 299 m, beam of 50 m and draught of 12 m. The ships will be built by South Korea’s Daewoo Shipbuilding & Marine Engineering.
The voyage from the port of Sabetta through the Northern Sea Route to Jiangsu Rudong was completed in 19 days, as compared to 35 days for the traditional eastern route via the Suez Canal and the Strait of Malacca.
At the time, Novatek chairman Leonid Mickhelson said the Northern Sea Route would cut transportation time and lower costs, playing “a key role in developing our hydrocarbon fields on the Yamal and Gydan peninsulas.”
Trade war hinders US LNG
Driven by its abundance of shale gas, the US would appear to be the perfect dance partner for an LNG-thirsty China, but the ongoing trade war between the two countries has struck a sour note. Over the last half of 2018, only six ships transported US LNG to China. This was after the US had exported 103,410M ft3 of LNG to China in 2017 — a 500% increase over 2016, according to the US Energy Information Administration (EIA). EIA totals were not available for 2018, but as of the end of November, US exports of LNG to China stood at 90,052M ft3.
On 9 February 2018, the leading exporter of US LNG, Houston-based Cheniere Energy, Inc announced it had entered into two LNG sale and purchase agreements with China National Petroleum Corporation for the supply of 1.2 mta of LNG from 2018 to 2043.
If it drags on, the US-China trade war could well impact FIDs on the 12 new LNG export projects in the US. While the US can still export its LNG to South Korea, Japan, Mexico, India and Europe, without an energy-eager China the financial picture for the new export terminals looks far less attractive.
China also has other options to fill its energy needs, such as British Columbia on Canada’s west coast. The LNG Canada export terminal in Kitimat, British Columbia, has plans to be operational in 2021 with annual LNG exports of 1,357.8Bn ft3.
One of the five joint venture (JV) partners in LNG Canada is PetroChina Company Limited. It owns a 15% stake in the JV through its subsidiary PetroChina Canada Limited, along with: Royal Dutch Shell plc, through its affiliate Shell Canada Energy (40%); Petronas, through its wholly-owned entity North Montney LNG Limited Partnership (25%); Mitsubishi Corporation, through its subsidiary Diamond LNG Canada Ltd (15%); and Korea Gas Corporation, through its wholly-owned subsidiary Kogas Canada LNG (5%).