Private capital is accelerating its efforts to seize a strategic advantage in the future development of natural gas

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Recently, the People’s Government of Linhai City signed a letter of intent for investment in an LNG receiving station and related pipeline projects with GCL Petroleum & Natural Gas Co., Ltd. (hereinafter referred to as GCL Petrogas), marking a substantive stage in their cooperation. The planned LNG receiving station project will require an investment of nearly 10 billion yuan, including a 200,000-ton capacity terminal as well as various supporting facilities such as undersea pipelines. GCL Energy also intends to invest in Taizhou to develop projects in areas such as converting vehicles and ships from using oil to natural gas, natural gas power generation, replacing coal with natural gas for heating purposes in boilers, and integrating LNG into the provincial gas distribution network. GCL Energy & Gas is not the first private enterprise to aim at building its own LNG receiving station. Prior to this, Xinjiang Guanghui Energy’s LNG project in Qidong, Jiangsu, and SNOW Group’s LNG project in Zhoushan, Zhejiang, had already begun construction. Nowadays, an increasing number of city gas companies are also interested in pursuing the planning and construction of LNG receiving stations under their own control. What drives all this development is the gas companies’ need to secure a stable supply of gas from upstream sources. Initially, gas distribution companies such as Guanghui and XinAo relied entirely on Sinopec and CNPC for their gas supply. However, with the rapid growth of domestic market demand, the state-owned enterprises at the upstream end of the industry chain began to create obstacles for urban gas distributors downstream in terms of gas supply and pricing, and they also established their own entities to erode the market share of these distributors. As a result, many private energy companies have turned to other methods to break through. Guanghui Group acquired oil fields in Kazakhstan, built pipelines, and constructed an LNG plant in Jimunai. SNOW GROUP signed supply agreements with Total and Origin, and invested in the Santos LNG project. GCL Group obtained the rights to exploit oil and gas in an area of 117,000 square kilometers in Ethiopia, and invested in building an LNG liquefaction plant in Djibouti; the first phase of this plant is intended to have an LNG production capacity of around 3 million tons per year, with space and connections prepared for subsequent phases, so as to achieve an overall LNG production capacity of 10 million tons per year. The project is expected to be completed by 2018, in line with the progress of the LNG receiving stations located along the coast. At present, the reforms regarding natural gas prices and the opening up of the oil and gas industry to private capital have not yet seen final plans established. However, an environment that allows fair and non-discriminatory participation in the development of this industry is what many private enterprises are seeking; this is beneficial not only for these enterprises but also has far-reaching implications for the creation of a competitive market driven more by supply and demand factors.