Variable risks surge for CNOOC’s coal-to-natural gas project

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Rising Uncertainties Surround CNOOC’s Coal-to-Natural Gas Project Author/Source: Date: 2016-08-03 Clicks: 5 On July 28, CNOOC issued a profit warning, stating that it had incurred a net loss of around 8 billion yuan in the first half of the year, shifting from a profit to a loss on a year-on-year basis. In the same period last year, CNOOC posted a profit of 14.733 billion yuan. It has been noted that this is the first time CNOOC has incurred losses since its listing in 2001. In March 2016, the CNPC Shanxi Datong low-metamorphic bituminous coal clean utilization demonstration project received approval for its environmental impact assessment from the Ministry of Environmental Protection. In August 2015, the environmental impact assessment documents for CNOOC’s Ordos coal-to-natural gas project with an output of 4 billion cubic meters per year were officially submitted to the Ministry of Environmental Protection for review. However, CNOOC’s attitude at this moment is the complete opposite of the urgent desire it had in the past to see projects approved; this approval might be untimely. Due to concerns about the project’s prospects, insiders at CNOOC have privately expressed a desire for the approval of this project to be delayed. Some industry insiders even admit that even after the project passes the environmental impact assessment, more than 2,000 additional approvals are still required before it can be finalized. The preliminary procedures can still be carried out step by step. There is also ample time for careful consideration regarding whether to continue with the coal-to-natural gas strategy. One could even consider selling the project. The Shanxi coal-to-gas project was officially launched in 2009. It is a coal-based clean energy project carried out through a partnership between CNOOC Corporation, Datong City in Shanxi Province, and the Datong Coal Mining Group. The project includes two coal mines with an annual production capacity of 10 million tons each, as well as a coal-to-natural gas facility with an annual production capacity of 4 billion cubic meters. As agreed, the two coal mines are controlled by Tongmei Group with CNOOC holding a stake, while the coal-to-gas project is controlled by CNOOC with Tongmei Group holding a stake. Looking back at CNOOC’s corporate strategy, there are two reasons why coal-to-gas became a key business area for the company: first, it aligned with CNOOC’s plans to expand its operations overseas at that time; second, it was in line with CNOOC’s natural gas strategic planning at that period.