Search for LNG overseas heats up

Chinese fuel developer going abroad to secure more natural gas sources

Responding to soaring natural gas demand and the government's increasing focus on environmental protection, China's top energy players are stepping up exploration overseas.

CNOOC Ltd, the country's largest offshore oil and gas developer, announced on Wednesday that its wholly owned subsidiary, Nexen Energy Inc, has entered into an exclusive agreement with British Columbia, Canada, to examine the viability of constructing a liquefied natural gas plant and export terminal.

It's the latest move by Chinese companies to get access to overseas natural gas resources, pressured by severe domestic shortages.

"From a long-term perspective, CNOOC's LNG project will give [China] a bigger voice in LNG prices," said Wang Xiaokun, an analyst at commodity consultancy Sublime China Information Co.

East Asian LNG importers have long paid high prices. At peak seasons, LNG import prices in the region can reach $20 per million British thermal units, compared with $3 to $4 in the United States, said Wang.

"If we establish LNG plants and export terminals overseas and deliver the fuel directly back to China, prices will fall to a reasonable level," she said.

The proposed project will be located near Prince Rupert, BC.

"LNG exports are the most attractive option for maximizing the value of our Canadian shale gas business," said Li Fanrong, chief executive officer of CNOOC.

The project has good potential to supply resources at a relatively lower cost.

"We have a long process ahead that includes a site viability review, a comprehensive environmental impact assessment and stakeholder consultation," said Kevin Reinhart, chief executive officer of Nexen.

The decision to proceed with LNG development is subject to several internal and external approvals.

This isn't the first time that CNOOC has set its sights on overseas LNG projects.

On May 6, the company announced that it had signed an agreement to buy BG Group Plc's LNG project in Australia, a deal valued at $1.93 billion.

On Monday, BG announced the completion of the transaction. CNOOC acquired a 40 percent equity interest in the Queensland Curtis LNG project, increasing its equity stake from 10 percent to 50 percent.

In a separate deal, BG will supply CNOOC with an additional 5 million tons of LNG annually.

LNG projects usually involve long periods and huge investments. But these factors aren't diminishing Chinese companies' interest in the sector.

Asia's biggest oil producer, PetroChina Co Ltd, announced last December that it would buy BHP Billiton Ltd's share in an LNG project in Australia for $1.63 billion.

China's natural gas consumption has soared in recent years as the government strives to increase the fuel's share in the nation's energy mix.

Last month, the National Development and Reform Commission, the country's top economic planner, said it expects China to face an even more severe natural gas shortage over the coming winter and spring, compared with previous seasons. It put the shortfall at more than 20 billion cubic meters.

The major reasons for the shortfall are the government's stricter policy on industrial emissions and its subsidies for vehicles using natural gas as a fuel.

"Energy companies started natural gas supply restrictions about half a month earlier compared with previous years, to ensure adequate supply for residential heating this winter," said Wang.

PetroChina is suspending gas supplies to Cangzhou Dahua Group Co Ltd, a fertilizer manufacturer in Hebei province, the fertilizer company said on Wednesday.

Industry sources said that supplies have also been suspended for manufacturers in other provinces, such as Shaanxi and Henan.

"Many local governments have carried out policies to raise natural gas consumption in the industrial and manufacturing sectors to cope with air pollution, which resulted in an increase in companies utilizing natural gas as a fuel instead of coal," said Wang.