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    Competition thrives in China [NGW Magazine]


China’s provinces are competing with each other to grab market share and LNG as the main weapon in their armouries, in the latest example of capitalism with Chinese characteristics. [NGW Magazine Volume 5, Issue 10]

by: Shi Weijun

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Natural Gas & LNG News, Asia/Oceania, Liquefied Natural Gas (LNG), Top Stories, Asia/Oceania, Insights, Premium, NGW Magazine Articles, Volume 5, Issue 10, China

Competition thrives in China [NGW Magazine]

China’s eastern province of Jiangsu is advancing plans to develop a local port where one of its regasification terminals is located. It wants to develop it into an LNG supply base, as it vies with a neighbouring province to develop infrastructure that could open up inland gas markets.

But the plan will depend for its success on beating a rival plan that has more weighty state machinery behind it, being an expansion of an existing major energy hub that the central government has aspirations to turn into a complex to rival Singapore.

Jiangsu is developing a so-called ‘energy island’ concept at Yangkou Port in Rudong county, home to PetroChina’s 6.5mn mt/yr Rudong terminal. The idea is to develop the port – close to where Asia’s longest river, the Yangtze, flows into the Yellow Sea – into a hub for unloading, storing, supplying, and selling LNG.

The idea has appeared in policy documents since at least 2018 but there was a big step in this direction at the start of the year when Yangkou formally launched an LNG logistics distribution centre after two years of construction. This officially kicked off the development of the energy island.

The centre is intended to improve the ‘soft’ infrastructure of LNG trade at Yangkou by providing various services for transactions, settlement and delivery to trading enterprises.

The centre will also consolidate oversight of tanker trucks transporting LNG and other hazardous chemicals. Regasification terminals in China sell a portion of their imported cargoes as LNG, as the fuel can fetch higher prices on the deregulated domestic LNG market than it does when regasified and piped into the local network.

A major component of the concept would be breakbulk of large LNG cargoes for transshipment up the Yangtze River. Yangkou’s location near the estuary of the Yangtze puts it in a good position to be the main channel for shipping LNG upriver to inland cities along the middle stretches of the waterway.

One of the biggest potential markets would be the central city of Wuhan, an industrial hub that is home to China’s steel industry but now better known for its association with Covid-19. Besides iron and steel, major industries in Wuhan include optical-electronics and car manufacturing.

Fast-growing provincial capitals such as Wuhan, Changsha, Chengdu and Chongqing are looking to use more clean energy to keep pollution in check while their economies expand, but they cannot access imported LNG because they are not near coastal terminals.

Building Yangkou into a distribution hub could help facilitate shipments of LNG up the Yangtze River into inner China, allowing PetroChina and other importers to access new markets for their imports.

So far, two inland LNG terminals, one at Wuhu in Anhui province and Yueyang in Hunan province, have won approval from local authorities. Both projects are small-scale and would be used to store and transship deliveries from coastal ports to inland cities as well as supply peak-shaving gas to local and neighbouring markets.


Energy island ambitions

In the 2018 policy document that outlined the concept, Jiangsu said the Yangkou energy island would have seven to nine berths capable of handling 100,000 metric ton (mt) LNG tankers.

There would also eventually be three berths for 70,000-mt carriers and four berths for small, 10,000-mt tankers, intended for reloading breakbulk shipments onto river-going LNG carriers for delivery to second- and third-tier markets.

The energy island would have final receiving capacity of 35-50mn mt/yr, which suggests more regasification terminals will be built at Yangkou to complement PetroChina’s existing facility.

Other Chinese companies are known to be planning terminals at Yangkou. Chinese clean energy conglomerate Golden Concord Holdings Limited (GCL) submitted an investment plan for an import facility at the port to the National Development and Reform Commission, China’s economic planning body, in December 2019.

The project will have an initial capacity of 2.7mn mt/yr, rising to 10mn mt/yr when it is fully complete

An oil and gas subsidiary of GCL signed a framework agreement with Anglo-Dutch major Shell in April to explore the creation of a joint venture for marketing and trading LNG in eastern China.

Jiangsu Guoxin Investment Group is also planning an LNG peak-shaving terminal at Yangkou with capacity of 3.5mn mt/yr.

PetroChina, meanwhile, is developing the third phase of its Rudong terminal with the addition of two 200,000 m³ storage tanks that will expand capacity to 10mn mt/yr when they enter operation in June 2021.

The terminal received 5.57mn mt of LNG and supplied 7.71bn m³ of natural gas in 2019, according to PetroChina. This was down from 6.53mn mt and 9.2bn m³ in 2018, which was the first year the facility operated beyond its nameplate capacity – making it the busiest of China’s 19 regasification terminals at the time.

Anther terminal near Yangkou is also expanding. Private player Guanghui Energy operates a 1.15mn mt/yr facility at the port of Qidong and is aiming to more than double capacity to 3.0mn mt/yr by the end of next year.

Jiangsu is China’s biggest provincial gas market with consumption growing by 6.3% in 2019 to 28.7bn m³, according to the provincial branch of the National Energy Administration.

Demand had been targeted to reach 32bn m3 this year, according to a 2018-2020 provincial infrastructure development plan released in March 2019, although this looks ambitious as it would require demand to surge by 22% this year at a time when China’s economy is facing major headwinds.


Competition from Zhoushan

Jiangsu, Shanghai, and Zhejiang province comprise the Yangtze River Delta, one of China’s most economically vibrant regions. Gas demand across the three regions reached a combined 53.5bn m³ in 2019, accounting for around a sixth of national consumption last year.

But Jiangsu faces competition in its efforts to establish a foothold in distributing imported LNG inland. The neighbouring province of Zhejiang issued a plan in September 2019 that identified Zhoushan, a group of nearly 1,400 islands, as a prime location for developing a large-scale LNG receiving and distribution hub to serve the Yangtze River delta and beyond.


Zhoushan was previously governed by Xi Jinping in the 2000s before he ascended to the nation’s presidency in 2013. The archipelago is already home to part of China’s Strategic Petroleum Reserve and a 400,000 barrels/day refinery and petrochemical complex that entered operations a year ago.

Like Jiangsu’s plans for Yangkou Port, the Zhejiang government wants to turn Zhoushan into an ‘LNG gateway’ that would see imports shipped to large-scale terminals and then reloaded on to smaller vessels for distribution upriver.

The plan calls for three terminals with a combined capacity of 14.0mn mt/yr to be up and running in Zhoushan by 2025, including ENN Group’s existing project on the main island of Zhoushan that went online in August 2018.

Construction of the ENN terminal’s second phase is under way and will increase capacity from 3.0mn mt/yr to 5.0mn mt/yr when completed in 2021. A third and final phase could raise capacity to 10.0mn mt/yr.

The two new terminals will be located on Liuheng island and Qushan on the northern side of Daishan island, and will have 6.0mn mt/yr and 3.0mn mt/yr of capacity respectively by the end of 2025.

Provincial government-backed Zhejiang Energy Group and southern city gas distributor Shenzhen Gas Group are co-developing the terminal at Liuheng terminal at an estimated cost of RMB 16 ($2.2)bn. The island already boasts three of the world’s top 10 shipbuilding companies and 12 shipyards.

The final capacity of the three terminals is expected to be 25-30mn mt/yr by the end of China’s 16th Five-Year Plan period in 2035.

The ambitious plan represented a statement of intent from Zhoushan, which China aspires to develop into a major regional energy hub rivalling Singapore. Key to that ambition will be turning the archipelago into a large-scale LNG receiving and distribution hub to serve the Yangtze River delta and beyond.