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November 20, 2012 5:34 pm

China’s inland LNG capacity expansion presents major export opportunities for foreign technology providers

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The China National Offshore Oil Corporation (CNOOC) is planning to dramatically expand its inland liquefied natural gas (LNG) capacity, and will need to import foreign technology, said Chen Ruiquan, general manager of the company’s LNG carrier projects.

While sometimes perceived as a threat to foreign nations, China’s infrastructure development initiatives are often the source of major opportunities for foreign exporters. China has relied heavily on imported technology, equipment, and expertise in order to develop its energy sector, and will likely continue to in the future.

Foreign companies with advance knowledge of China’s infrastructure expansion plans, and the specific demands they will create, stand to take advantage.

CNOOC’s Gas and Power subsidiary plans to build a large-scale LNG terminal on the Yangtze River, and is currently evaluating potential sites in Hubei Province, near Wuhan. The terminal will serve as a hub for the distribution of imported LNG as well as gas from the state-owned energy giant’s offshore operations, and will also be used as a fueling station for commercial vessels transporting goods along the river.

The project is part of a government initiative to promote consumer and industrial usage of natural gas in inland China. Achieving these goals, however, will require extensive and long-term investment, according to Chen.

“We need to upgrade our infrastructure,” he said. “We want to have a better distribution network of the natural gas.”

Chen added that much of the advanced technology used in the project will be imported from abroad, which will likely result in lucrative contracts for foreign companies able to provide cutting-edge equipment related to LNG processing, transport, and distribution.

The Carriers

CNOOC is now commissioning new LNG carriers, which will be used to transport natural gas from the company’s offshore drilling platforms and coastal terminals to the inland terminal in Hubei. This will include four carriers with a capacity of 30,000 cubic meters and at least ten carriers with a capacity of 10,000 cubic meters, according to company spokesperson Zhang Rong.

The 30,000-cubic-meter capacity vessels will each cost roughly USD 79m (CNY 500m) to build, and will ferry gas from CNOOC’s deep sea drilling platforms to satellite stations near the mouth of the Yangtze, as well as coastal terminals that the company operates in Shanghai and Zhejiang, Fujian, and Guangdong Provinces.

The 10,000-cubic-meter capacity carriers will each cost roughly USD 48m (CNY 300m) to build, and will transport fuel down the Yangtze to the Hubei terminal.

CNOOC currently owns six 147,000-cubic-meter capacity LNG carriers, which are used for marine transport. In May, the company commissioned the China State Shipbuilding Corp. to design its first small-scale LNG carrier, according to Interfax China.

AVIC Dingheng Shipbuilding Co. is planning to enter the tenders for the 10,000-cubic-meter capacity vessels, said Tian Zhengjun, AVIC Dingheng’s technical director. Jiangyin Zhongnan Heavy Industries, Sinopacific Shipbuilding Group and several other domestic competitors are expected to bid for the contracts as well, according to Tian.

AVIC Dingheng will likely not compete in the larger LNG carrier tenders because the size of those ships is beyond the company’s focus, Tian said, adding that he believes Jiangyin Zhongnan to be the front-runner for those contracts.

Chen Ruiquan, CNOOC’s LNG carrier projects general manager, stated that the company will need to import dual-fuel engines, which use both diesel and natural gas, for the LNG carriers.

“No Chinese companies produce the dual-fuel engine, so we are looking to do some technology exchange with international players,” Chen said.

However, Zhang Rong, the CNOOC spokesman, declined to disclose the names of the engine providers that the company is considering, noting that the tenders will not begin until the end of the year.

Manufacturers most likely to supply the dual-fuel engines include Germany-based MAN SE, Finland-based Wartsila, and UK-based Rolls-Royce, according to Tom Campbell, an energy analyst with the Houston, Texas-based research firm Zeus Development Corporation.

Tian Zhengjun, from AVIC-Dingheng, stated that he has imported dual-fuel engines from Wartsila for smaller-scale LNG carrier projects.

The River Initiative

CNOOC is now encouraging boats that travel up and down the Yangtze to convert to using natural gas. It plans to establish a fueling capacity able to serve at least 80,000 river vessels, according to a company source.

The CNOOC source mentioned that aside from the 30,000 and 10,000-cubic-meter capacity LNG carriers, the state-owned enterprise will also commission a special carrier to serve as a “mobile fueling station,” which will enable barges and other vessels to pull up beside it, latch on, and fuel up.

The company is now reaching out to owners and operators of sand transport ships, as these types of vessels tend to have higher fuel costs than other boats, according to the CNOOC source.

“Each ship owner I talked to owns at least ten ships. This group will be our initial target,” the source said, referring to the sand transport ship owners.

CNOOC will not directly invest in the conversions; at the moment, the company is just beginning to promote LNG usage, and is expecting that more ships will convert as capacity and demand for natural gas increase.

The total cost of converting a river vessel to run on LNG is roughly USD 316,000 (CNY 2m), which is currently a bit steep for many boat owners; however, once sufficient LNG capacity is established, it will eventually become economical for the boats to convert, according to the source.

He added that at the moment he was unaware of any government subsidies for the ship owners. However, as a state-owned enterprise, the company’s plans will likely be part of a government-sponsored incentive to encourage the conversions.

Mark Henley, the managing director of UK-based Bestobell Valves, a producer of cryogenic LNG valves that have been used in CNOOC’s marine projects, said that the initiative presents a major opportunity for him. He is hoping to score gas valve contracts potentially worth USD 10,000-20,000 (CNY 63,000-126,000) per boat.

Other foreign LNG equipment manufacturers have also been making moves in the Chinese market, in anticipation of the country’s vast natural and shale gas reserves being developed. The US-based dual-fuel engine components maker Altronic GTI, a subsidiary of Germany’s Hoerbiger Group, has been selling products to Shengli Oilfield Shengli Power Machinery Group Company and Jinan Diesel Engine, according to a company source. Canadian natural gas engine maker Westport Innovations has also been forging partnerships in China, most notably with heavy duty engine manufacturer Weichai Power Co.


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