New LNG Superpower
China is working on a 35-year plan to transition from fossil fuels to gas as the country’s primary energy source with LNG-to-power a playing a key role.
This will only add fuel to the fire that is China’s ever-increasing demand for LNG. For Norwegian businesses, it will create several new opportunities.
According to Norwegian Energy Partners (NORWEP), it is only a matter of time before China becomes the largest importer of LNG. When it happens remains uncertain, but most experts believe that it will take place during the decade.
“China will be the largest importer of LNG. It is not easy to say when this will happen, but estimates assume that China will be the largest importer in a few years,” Mr Eirik Melaaen, Director for Midstream and LNG NORWEP, says. “China has a growing consumption of energy and the increased demand will be covered by a large number of coal power plants. Depending on governmental regulations and the requirement of greener solutions, coal could be replaced by powerplants utilising natural gas.”
Demand for LNG in China will come from multiple sectors. LNG-topower will be important as the country
looks for clean energy sources. However, industries such as shipping are also contributing to the increase in demand for LNG. This means production and importing of LNG will become even more important.
“The demand for LNG in China is expected to be larger than production, so it could be a challenge. But within 35 years we expect there will be a differentiated energy market consisting of several energy sources. Hydrocarbons, including gas, wind, solar, nuclear and hydrogen, will be important. Focus for the future will be low carbon solutions and emission could be captured as carbon capture storage (CCS),” Mr Melaaen states.
He continues, “Since it is easier to use different energy sources and low carbon solutions onshore, I assume shipping will prioritise LNG as fuel. But within 35 years there will be several propulsion alternatives including hybrid solutions, hydrogen, batteries and fuel cells.”
Chinese shipping and LNG
According to Mr Xu Guoyi, Director General at the Commission Office of Shanghai Combined Port, 8.4 percent of China’s emissions come from shipping while 30 percent of all emissions are generated by transportation. The Chinese government implemented a domestic emission control area (DCEA) in 2015 to help curb pollution at core ports.
The program has been seen as a success and may soon be expanded to all coastal areas of China as the government wants to further encourage LNG shipping and hybrid shipping. The latter in particular is something that could have a greater impact on this moving forward.
“Hybrid solutions will have a large impact on local pollutions in coastal area and rivers. But all types of low carbon emission solutions will influence on the total carbon footprint,” Mr Melaaen explains. “In general, the infrastructure and availability of LNG is necessary to get increased use of LNG in the shipping. This is now improving around the world and there is now demand for getting increased use of LNG in Chinese local shipping.”
However, China’s push to embrace LNG in the shipping industry has hit some choppy waters. The country has
even had to create incentives for LNG usage in order to quicken adaptation.
“The country started building up an LNG fleet in 2012, but the process has been slow. About half of LNG ships in China are new builds and the other half are retrofit. China has also built 21 LNG bunker stations but only three are operational. There are 21 LNG terminals in the country with 11 more in the planning stage,” Mr Xu explains. “The government is providing incentives for LNG and we will hopefully see more movement towards LNG in the future.”
Mr Melaaen points out that with infrastructure in place, the shipping industry in China could be closer to moving past these “chicken and egg” challenges when it comes to LNG usage.
“If the infrastructure is not in place, shipowners will keep building vessels operating on fuel. Now the infrastructure is ready with 21 bunkering stations and hopefully shipowners follow up with vessels operating on LNG,” Mr Melaaen says.
Can Norway help?
As China looks to reduce the role of fossil fuels, it will need partners that have experience with renewables and other energy sources. The fact Norway has that experience could bring the two countries close together.
“China shares a sustainable vision with Norway. The EU has targeted zero carbon emissions by 2050 and China will soon submit its own zero carbon emission strategy,” Mr Li Junfeng, the Secretary General of the China Renewable Energy Industry Association, states. “We have a lot to learn from Norway in order to reach this target. We want high-quality, sustainable growth and free ourselves from fossil fuels. We can look towards Nordic companies and see the vision they had to achieve sustainability goals. These can help Chinese companies work towards our own goals.”
This will create new opportunities for Norwegian companies in China when it comes to LNG. An example of this is the work Equinor is doing in the country.
“Norway has a lot of experience and technology when exploring for LNG. We’ve already worked with Equinor and we are now looking at ways we can explore LNG in third countries. Historically, our two countries have worked together and Equinor’s agreement with China shows what can be achieved,” Madame Li Yalan, Chairperson of Beijing Gas Group and Chairperson elect of International Gas Union, says.
With China in a strong position when it comes to the LNG business, the country can serve as a financier of new projects or a stakeholder in existing projects as well as being a potential supplier of solutions, such as vessels, according to Mr Melaaen. The country is actively looking to play a role in LNG, but also understands it needs support from other countries.
“There are no limits on foreign investment in the LNG market. We welcome greater Norwegian investment. We aren’t a major country for LNG production, but we look for further collaborations with LNG importers. One goal is to try to find ways to develop offshore LNG exploration,” Madame Li notes. “We hope to better understand best practices by collaborating with companies in the LNG sector.”
Norway has a long history and lots of experience when it comes to LNG and LNG solutions so there are several additional opportunities for businesses to explore in China. Case in point, Norwegian firms have begun installing FSRUs along China’s coastline.
“Norway has a wealth of experiences with LNG carriers, FSRUs and FLNGs,” Mr Melaaen says. “There are several restrictions on building an onshore terminal. There is the long wait time to get permission and the long construction time. FSRUs are quicker to get up and running which makes them desirable.”
Uncertainty in 2020
Mr Melaaen believes many other opportunities for Norway exist in the Chinese LNG sector. These include the development of a supply chain with environmental solutions and the implementation of optimised and digitalised LNG solutions. And while all these will certainly help in the future, they won’t impact 2020.
Currently, LNG infrastructure needs to be built up in several areas of China with parts of the country currently not connected to existing LNG pipelines. In order to fulfil demand in some of these areas, Japanese gas companies have begun shipping unsold inventories to Chinese clients. Nikkei Asia Review reports that these shipments are a fraction of the amount of traditional LNG deliveries.
A report from China National Petroleum Corp. found that LNG imports are expected to rise 9.5 percent in 2020 when compared with the previous year. However, where exactly it will all come from remains to be seen. And, in fact, even more LNG could soon be making its way to the mainland in the short term.
Phase 1 of the tentatively agreed upon trade deal between China and the USA calls for the country to buy USD50 billion more in energy supplies. Analysts told Reuters that this would have to include LNG shipments from America, which would impact both current exporters and China’s future plans for LNG development.
Above left: Guangdong Dapeng LNG terminal was the first LNG terminal in China. The country is predicted to be the largest LNG importer in the next decade. Above: LNG Tanker in operation.