PetroChina reviews multi-billion-dollar LNG push

China's leading energy firm PetroChina is reviewing its multi-billion-dollar push to produce liquefied natural gas (LNG) to fuel trucks and ships in place of diesel, shutting two loss-making gas liquefaction plants, Reuters reported Monday citing unnamed sources.

PetroChina unit Kunlun Energy Co Ltd closed the two major plants in the past month, wrong-footed by rising costs for gas and cooled demand, two sources with knowledge of the situation said.

Seen just a year ago as a fast-growing profit engine, the firm is now reviewing investment in the niche business that chills gas into liquid form, sourcing the gas from small producing fields or from pipelines tapping large inland basins, they said.

LNG is increasingly being seen as a potential transport fuel, and can nearly treble a vehicle's driving range over rival compressed natural gas. It is cleaner and nearly one-third cheaper than diesel, China's main transport fuel.

Led by the private sector, China has built dozens of small-scale onshore gas liquefaction facilities since 2001 to tap marginal gas fields located off the national pipeline grid, filling a supply gap as demand for lower-carbon producing LNG surged.

Kunlun, a relative latecomer, emerged as a leader of the business, having spent billions of dollars on a dozen LNG plants, and building over 600 gas refueling stations. The firm separately runs two multi-billion-dollar LNG import terminals in East China.

It also helped put nearly 80,000 LNG vehicles on the road by the end of 2013 by working with automakers and truck fleet owners, said a Kunlun executive, who declined to be named.

But since the second half of 2013, Kunlun has seen utilization rates at some of its plants fall below 50 percent, he said, amid a broad economic slowdown and as the Chinese government rolled out a gas price reform that pushed up prices of feed gas.

An anti-corruption probe of top PetroChina executives, including Kunlun's former chairman Li Hualin - a protege of China's ex-security chief Zhou Yongkang who is now officially under investigation - added to uncertainty about the company's business strategy, said the Kunlun executive.

A PetroChina spokesman did not respond to Reuters' questions. Kunlun Energy's investor relation chief was not available for comment.

In July, barely a month after the start of trial production, Kunlun shut down a 1.2 million ton per year (tpy) liquefaction plant at Huanggang, Central China's Hubei Province, the sources said.

The plant, the largest of its kind in China, had aimed to supply LNG to vessels along the Yangtze River. A second plant at Ansai, Northwest China's Shaanxi Province, was closed in July. Neither plant has a clear date for a restart, the sources said.

Kunlun is now test-running a new 600,000-tpy facility in Tai'an, East China's Shandong Province, following some early technical glitches.

"For the (Tai'an) plant, the day it starts running is the day it begins incurring a loss," said an official at PetroChina parent China National Petroleum Corp (CNPC), which was involved in building all the three projects.