Newao’s $10 billion LNG project to be established in Zhoushan; domestic natural gas landscape may change

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Newao’s $10 billion LNG project to be built in Zhoushan; domestic natural gas landscape may change. Author/Source: Date: 2016-01-18 Clicks: 150 “The Zhoushan LNG project has finally started construction, with the goal of having the first shipment of LNG arrive at the port by June 2018.” Once this project is completed, New Ocean will be the first private enterprise in China to have the qualification to import LNG. ”As revealed to reporters on January 13 by a *** official from Zhoushan, Zhejiang. According to him, the initial investment for this project is 5.85 billion yuan. 　　The SNOW Zhosan LNG project was planned back in 2013, when SNOW intended to transport LNG from North America to China. On one hand, they actively approached clients in North America to purchase LNG, and on the other hand, they planned to build facilities such as LNG vessel berths in Zhosan. 　　However, due to reasons such as the National Development and Reform Commission and the Ministry of Transport, this project has never started. 　　“It’s good that the construction of this project has finally begun,” said the official from Zhoushan, Zhejiang. “Due to the sharp drop in international oil prices and the large-scale delivery of LNG from North America, once the New Ao Zhoushan LNG project is completed, LNG from North America will be able to enter the domestic market at low prices. ” 　　On the 13th, international oil prices tumbled again; the price of U.S. WTI crude oil futures dropped to a low of $29.96 per barrel during trading. International gas prices also fell, dropping below $7 per million British thermal units and moving toward $6 per million British thermal units. This creates significant opportunities for Chinese natural gas companies. Newao is merely the first private enterprise to enter the imported LNG market. 　　It is understood that recently, companies such as Chaozhou Huafeng Group Co., Ltd. (referred to as Huafeng) and Guanghui Energy plan to enter the market for imported LNG. However, no actual operations have yet begun, as approvals regarding prices and other related matters have not been granted. Moreover, PetroChina, which holds 74% of the domestic natural gas market share, is currently working on integrating its natural gas resources, which could lead to changes in the structure of the domestic natural gas market in the future. 　　The 10-billion-yuan Zhoushan LNG project: It is understood that the total investment planned for the Newao Zhoushan LNG project is 10 billion yuan. An investment amount of 1.89 billion yuan is expected to be made in 2016, with annual sales reaching around 50 billion yuan and annual tax revenues exceeding 6 billion yuan. 　　The project is implemented in three phases, with Phase 1 requiring an investment of 5.85 billion yuan. Phase 1 of the project involves the construction of 2 LNG storage tanks with a capacity of 160,000 cubic meters each, an LNG refueling process system, and associated auxiliary facilities. The port facilities include a unloading terminal capable of accommodating LNG ships with a capacity of 266,000 cubic meters, a terminal for LNG ships with a capacity of 30,000 cubic meters, and 2 berths for LNG tanker roll-on/roll-off vessels. The first phase has an annual LNG processing capacity of 3 million tons, with annual sales reaching 16 billion yuan. 　　The New Aozhou LNG project was planned back in 2013, but due to reasons related to the National Development and Reform Commission, the Ministry of Transport, and other agencies, the project has yet to start construction. Following the sharp drop in international oil prices at the end of 2014 and the large-scale transportation of LNG in North America, in August 2015, the **National Development and Reform Commission and the Ministry of Transport officially approved the construction of this project. 　　This is a very good time. 　　According to Sinopec News Network, the price of LNG delivered to Asia has now fallen below $7 per million British thermal units. The price of LNG delivered to the Asian market in January has dropped below $7 per million British thermal units, while the price of LNG destined for Asia in February is moving toward the range of $6–$7 per million British thermal units. 　　An expert from a state-owned oil company told reporters that 7 dollars per million British thermal units is approximately 1.65 yuan per cubic meter. \"If prices continue to fall, by 2018, the LNG imported by New Energy Group will enter the domestic market at low prices, thereby affecting the price of natural gas in the country.\" ” 　　3 million tons of LNG can produce approximately 4.2 billion cubic meters of natural gas after gasification. If the project can reach full production on schedule, SNOW Energy is set to reach a new level. An insider at ENN said that the company currently has nearly 120 urban gas distribution projects, all of which are in a difficult situation where their gas supply is controlled by others. With access to upstream resources, SNOW Group’s expansion will be even more robust. 　　Is there a change in the structure of the domestic natural gas market? In fact, there are many companies that wish to transport international LNG to the domestic market. 　　Huafeng is a private enterprise founded in 1998, primarily an energy company that deals in products such as liquefied petroleum gas, petrochemical products, and coal. Currently, the company has 7 secondary subsidiaries and over 30 tertiary branch companies, forming a chain operation group. 　　“The company plans to build an LNG storage and distribution station in Chaozhou with a design capacity of 1 million tons per day; construction of the LNG storage and transportation station is set to begin by the end of the year,” Chen Yunying, an analyst at Anxunsi Natural Gas, told reporters. “The source of gas supply has not yet been secured, as the company is still looking for long-term supply agreements in the international market.” However, the company has entered into a cooperation agreement with Ningxia Baota Petrochemical Group to establish a joint venture to operate the LNG storage and transportation station, with each party holding 50% of the shares. Since the source of gas for this project has not yet been determined, both parties have reserved 20% of the shares in order to find a third company to invest in the project. ” 　　Guanghui Energy announced that it has finally reached a partnership with Shell and signed a framework agreement for cooperation. At present, the company’s LNG storage and transportation project in Qidong, Jiangsu is under construction, with completion and operation expected by October 2016. 　　“However, none of these projects have yet received official approval documents from the National Development and Reform Commission or the Ministry of Transport. ”An official from the *Energy Bureau* admitted. 　　He believes that private enterprises are optimistic about China’s natural gas market because there is still a huge market for it in the future. 　　Data released by the National Development and Reform Commission at the end of the year on January 6 showed that from January to November 2015, domestic natural gas production was 119 billion cubic meters, an increase of 3.3% compared to the previous year; natural gas imports amounted to 54.4 billion cubic meters, with a growth rate of 4.7%; while natural gas consumption was 165 billion cubic meters, representing a 3.7% increase. 　　“Private enterprises hope to play a greater role in the future of natural gas – by taking advantage of low international prices, it is possible for them to impact domestic natural gas prices; this represents an opportunity for such enterprises,” said a senior executive from a private company. “However, CNPC currently holds 74% of the market share, so it will take some time before there are changes in the structure of the domestic natural gas market.” ” 　　On December 28, 2015, CNPC issued a statement on the progress of the integration between Kunlun Gas and Kunlun Energy, announcing that an equity transfer agreement had been signed whereby 100% of the shares held in Kunlun Gas were transferred to Kunlun Energy at a price of 14.8 billion yuan. 　　“In 2014, China’s natural gas production amounted to 128.3 billion cubic meters, of which PetroChina produced 95.46 billion cubic meters, accounting for 74% of the total. Therefore, in the future Kunlun Energy will become the largest natural gas company in the country. With such a large market share, CNPC also expects greater profits. ”The senior executive from that private enterprise said. 　　Wang Haohao, an analyst at Longzhong Petrochemical Network, said that New Ocean’s LNG imports will further increase the supply of LNG in the country, exacerbating the situation of resource surplus. This will lead to lower transaction prices in certain areas as a result of price competition between domestic and imported gas. However, based on the current domestic rules for pricing imported LNG, imports by private enterprises cannot bring about any significant change in the market price of LNG; to align with international LNG prices, adjustments to the existing natural gas pricing mechanism by the National Development and Reform Commission are necessary.