Oil company planning new LNG project in Zhejiang Province
By Xie Ye (China Daily)
Updated: 2004-03-12 14:03

China National Offshore Oil Corporation (CNOOC), China's third-largest oil and gas company, will build the country's third liquefied natural gas (LNG) project in energy-starved East China's Zhejiang Province, the company announced yesterday.

The US$1.7 billion LNG project is expected to help ease the energy shortage in Zhejiang and consolidate CNOOC's leading position in China's LNG market as well.

Under an agreement signed on Tuesday, CNOOC will join hands with local partners in Zhejiang to construct the project which includes a LNG receiving terminal, a gas trunk line and a gas fired power plant. The terminal will convert 3 million tons of imported LNG back to natural gas annually. Most of the gas will feed into a planned 2,800-megawatt gas-fired power plant composed of eight 350 megawatt generators.

The terminal and the power plant are likely to be built in Ningbo, according to a Zhejiang government official.

CNOOC is expected to take a 51 per cent interest in the terminal, while local partners take the rest.

Local partners will hold the controlling 71 per cent in the plant, while CNOOC takes 29 per cent.

The company did not say where it will source the LNG to feed the terminal. But analysts tipped Australia's huge Gorgon gas project as an option.

CNOOC signed a framework agreement last year to take up to 100 million tons of LNG from the Gorgon project to China over 25 years. The deal, with an estimated value of US$21 billion, could be the largest LNG deal in the industry.

Experts said the Zhejiang LNG project would be lucrative since the sizzling economy in the region is looking towards clean energy sources.

"Zhejiang's economic growth is amazing, but it lacks enough energy to fuel the growth," said Zhou Dadi, director of the Energy Research Institute under the National Development Reform Commission. "It is more than ready to pay for the expensive but clean fuel."

Zhejiang was the most severely hit area in China during the power shortage last year. Economic growth in the province was hindered by chronic blackouts that forced many factories to shut down frequently.

Zhou said although China would still rely on coal in the long term, it would be reasonable to increase the consumption of natural gas in coastal regions where coal is not available locally.

To reduce the pollution caused by burning coal, China has committed to increasing the consumption of natural gas in the energy consumption mix from the current less than 3 per cent to 6 per cent by 2010.

Chinese oil and gas companies are eying the embryonic LNG markets as their new cash cow to boost the business.

Rival companies PetroChina and Sinopec - the nation's two largest oil companies - are lobbying the central government to build similar LNG projects in coastal provinces.

With the Zhejiang terminal, CNOOC, however, is leading the way. The company is now the sole LNG supplier in China. It is now constructing two similar LNG projects in South China's Guangdong Province and East China's Fujian Province, using LNG imported from Western Australia and Indonesia.