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.

Norway-Asia Business Review - - S NAPSHOTS - CHEYENNE HOLLIS

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.

PHOTO: GUANG­DONG DAPENG LNG

PHOTO: SHUT­TER­STOCK

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.

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