China takes first step to join LNG mart

China takes first step to join LNG mart

SINGAPORE (Reuters): China has taken the first step to meeting expectations that it will become one of Asia's biggest importers of liquefied natural gas (LNG).

The State Council -- the country's highest authority -- has given the go ahead for China's first LNG plant, a US$600 million project in Shenzen, opposite Hong Kong, Chinese industry sources said.

The project is expected to come on stream in 2005 for the import of three-million-tons per year of LNG, presenting Asia's beleaguered gas suppliers with a much needed customer.

Asia has developed a gas surplus in the past few years following the discovery of several gas fields, including in Australia and Indonesia.

Projects to develop gas fields and LNG export terminals have been slowed or delayed.

Asia's only importers are Japan, South Korea and Taiwan, accounting for 75 percent of the world's imports.

India is expected to start LNG imports from around 2002 but the supply of gas is developing at a faster rate than the development of a market to take the gas.

China is expected to start inviting bids in February for international gas players to form a joint venture with the key China partner China National Offshore Oil Corp. (CNOOC).

The project is expected to attract the likes of Royal/Dutch Shell, Exxon Mobil, BP Amoco, Gas de France and Enron.

The China LNG project is being set up to feed the residential and industrial sectors in Guangdong and to act as a more environmentally friendly replacement for fuel oil and diesel.

If successful, the project could be repeated along China's east coast mostly likely in Shanghai, Chinese industry officials said.

Analysts said China could eventually import eight million tons of LNG.

China has vaulted gas development, both piped and through LNG, to a much higher priority in its energy policy to meet increasing environmental demands and reduce reliance on foreign oil.

Natural gas is expected to account for 6 percent of China's energy consumption mix in 2010 and 10 percent in 2020, from the current 2.3 percent.

The country is aggressively promoting a program to pipe domestic gas from the gas-rich basins in China's west to consumers in the east.

However, industry researchers forecast a supply shortage of close to 20 billion cubic meters per year by 2010, which could be partly met by LNG imports.