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Ports &TerminalsJuly2012FEEDING THE DRAGONThis article first appeared in Petroleum Review inJuly 2012 and is reproduced with their kindpermission. www.energyinst.org.uk.China has an almost insatiable demand forraw materials to feed its ambitious growth,but can supply keep up?China’s first floating LNG (FLNG) platformhas dominated the headlines of China’s portsand terminals development in recent months.But this latest venture is just part of a biggerstory - the development of China’s importinfrastructure for the energy and naturalresources it so desperately needs to feed itscontinuing rapacious appetite for growth.As the world’s top energy consumer, China’sdemand for energy and natural resourcesis phenomenal. Under its 12th Five-YearPlan (2011–2015), China aims to reduce itsdependence on coal and oil, and increaseusage of clean energy to ensure sustainablegrowth for the nation. 1 In 2011, China’s naturalgas consumption had increased by 20.6% to129bn cm. This figure will reach 260bn cmby 2015, of which 90bn cm will be imported,accounting for 35% of the country’s total gasconsumption. 2Rapidly increasing demands for natural gasand centralised planning for development ofnatural gas has led to vast investments in LNGinfrastructure along China’s coastline. Theaddition of these onshore receiving terminalsalong the coast has been a fiercely competitivebusiness and sites for further development arenow limited. Consequently, owner-operators arenow turning their attention to offshore floatingfacilities.Development to dateChina’s LNG market is dominated by CNOOC,PetroChina and Sinopec. While CNOOCcurrently leads the way, controlling half of theexisting terminals and those under construction,PetroChina and Sinopec are set to competein this market vigorously. PetroChina expectsto see another three terminals commissionedin 2013/2014. 3 Sinopec currently does nothave any terminals in operation, but has threereceiving terminals in the pipeline, in Qingdao,Guangxi and Tianjin, with the Qingdao projectclose to completion in 2014.

The Hainan LNG terminal is located atthe Yangpu Economic DevelopmentZone in Hainan Province and isjointly owned by CNOOC andthe Hainan Development HoldingCompany. The project receivedNDRC approval in July 2011. Oncecompleted, the terminal will have aregasification capacity of 2mn t/y andberth facilities capable of receivingQ-Max LNG vessels. The project isexpected to start operation by 2015,with further expansion of 1mn t/y ofregasification capacity in Phase II.Planned projectsSeveral LNG terminal projects are invarious stages of planning in China 10 :• Yancheng LNG - 2.6mn t/yFLNG terminal at Binhai Port,Yancheng City in JiangsuProvince, proposed by CNOOCand the municipal governmentof Yancheng. As of July 2011,the project had completed afeasibility study and was targetedto launch production by 2013.• Jieyang LNG - 2mn t/y, whollyowned by CNOOC, locatedin Huilai, Jieyang City inGuangdong Province. Theterminal is planned to be broughtonline by 2015.• Guangxi LNG - 3mn t/y, owned bySinopec, is located in the Beihaicity of Guangxi AutonomousRegion. The terminal aims to startproduction by the end of 2015.The main source of LNG supplywill be Sinopec’s SPAs withPapua New Guinea LNG (PNGLNG) and Australian Pacific LNG(APLNG), both of which could bediverted from Sinopec’s QingdaoLNG terminal.The challengeIs the future bright? Behind theprojects listed above is a long lineof planned LNG terminal projectswhich have stalled. The demand isthere, clearly – the issue is a lackof global supply. China has beeninvesting heavily in LNG projects,with CNOOC, PetroChina andSinopec all having taken stakes inglobal established gas projects. Forexample, Sinopec has secured a totalof 6.3mn t/y of longterm suppliesthrough agreements with APLNGand PNG LNG. 11 However, theseprojects are just not delivering atthe level China requires. In a recentreport, consulting firm Research andMarkets predicts that the ‘LNG glut’will dissipate from 2012, with Asialeddemand exceeding supply by75mn tonnes by 2020. 12 Due to thislack of progress in securing upstreamsupplies from overseas, most of theLNG terminal projects still in the earlyplanning stages have been shelved.However, in a sense the problem isnot so much lack of supply, but toomuch demand. And in this globaleconomic climate that’s surely a niceproblem to have.References1. China’s 12th Five-Year Plan:Energy. KPMG. April 2011.2. ‘PetroChina to develop CanadianLNG’. China Daily, 17 May 2012.www.china.org.cn.3. ‘LNG Terminals in Chinaand related developments’.Hydrocarbon Asia, January -March 2012. www.safan.com.4. Ibid.5. Event brief - 4th AnnualChina LNG Technology anddevelopment Summit, 13-14October 2011, Shanghai, China.www.noppen.com.cn.6. ‘Thirsty China opens huge LNGterminal’. The Guardian, 28 June2006. www.guardian.co.uk.7. ‘Shanghai LNG Project, China’.www.hydrocarbons-technology.com.8. LNG Processing and Storage.Kunlun Energy Company.9. ‘The future of natural gas,Coming soon to a terminal nearyou. Shale gas should make theworld a cleaner, safer place’. 6August 2011.www.economist.com.10. Ibid ref 3.11. Ibid ref 3.12. ‘A tale of two gas markets’. 23May 2012. www.global.comhttp://tinyurl.com/bodc3wf.For more information, please contactConnie Chen, Special Counsel, on+61 (0)2 9320 4616 orconnie.chen@hfw.com, or your usualHFW contact.Ports & Terminals 03

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