PetroChina Reviews Push for Transport LNG

Posted by Joseph Keefe
Monday, August 18, 2014

China's biggest energy firm PetroChina is reviewing its multi-billion-dollar push to produce liquefied natural gas (LNG) to fuel trucks and ships in place of diesel, shutting two major gas liquefaction plants, sources said.

Seen just a year ago as a fast-growing profit engine, PetroChina unit Kunlun Energy Co Ltd is now reconsidering its investment in the niche business after being wrongfooted by rising costs and China's slower economic growth, two sources with direct knowledge of the situation said.

China, which controls energy prices to curb inflation, has announced hikes in wholesale natural gas prices totalling 33 percent since mid-2013 as part of its long-term market reforms. That has raised the cost of gas feedstock for Kunlun, which sources the fuel from small producing fields or pipelines tapping large onshore basins.

While the price reforms have been well-flagged, China's economic slowdown has been deeper than expected, eroding end-user demand for LNG as a transport fuel. The challenges faced by Kunlun show that the impact of the country's price reforms - as China transitions from a centrally planned economy to a more market-driven one - can be magnified by deteriorating economic circumstances to produce an unintended effect, analysts say.

"It's a combination effect of price reform and the slowing economy. The sales prices for LNG couldn't catch up with those of feed gas," said Diao Zhouwei, Beijing-based gas market analyst at research firm IHS Energy.

LNG is increasingly being seen as a potential transport fuel, and can nearly treble a vehicle's driving range over rival compressed natural gas (CNG). Royal Dutch Shell last year agreed to run LNG fuelling lanes at up to 100 major truck stops along U.S. interstate highways.

LNG is cleaner and nearly a third cheaper than diesel, China's main transport fuel. Oil firms had an ambitious goal back in 2011 to replace 10 percent of automotive diesel consumption with gas by 2015, industry officials have said.

Led by the private sector, China has built dozens of small-scale onshore gas liquefaction facilities since 2001 to tap marginal gas fields located off the national pipeline grid, filling a supply gap as demand for lower-carbon producing LNG surged.

Kunlun, a relative latecomer, emerged as a leader of the business, having spent billions of dollars on a dozen LNG plants, mainly in the country's west and north, and building over 600 gas refuelling stations. The company separately operates two multi-billion-dollar LNG import terminals on China's east coast.

It also helped put nearly 80,000 LNG vehicles on the road by the end of 2013 by working with auto makers and truck fleet owners, said a Kunlun executive, who declined to be named as he was not authorised to talk to the media.

But since the second half of 2013, Kunlun has seen utilization rates at some of its plants fall below 50 percent, he said, amid a broad economic slowdown and as Beijing rolled out a gas price reform that pushed up prices of feed gas.

An anti-corruption probe of top PetroChina executives, including Kunlun's former chairman Li Hualin - a protege of China's ex-security chief Zhou Yongkang who is now officially under investigation - added to uncertainty about the company's business strategy, said the Kunlun executive.

A PetroChina spokesman did not respond to Reuters questions. Kunlun Energy's investor relation chief was not available for comment.

PLANT SHUTDOWNS

In July, barely a month after the start of trial production, Kunlun shut down a 1.2 million tonne per year (tpy) liquefaction plant at Huanggang in the central province of Hubei, the sources said.

The plant, the largest of its kind in China, had aimed to supply LNG to vessels along the Yangtze, China's longest river.

A second plant at Ansai in northern Shaanxi province was closed a month ago. Neither plant has a clear date for a restart, the sources said.

Kunlun is now test-running a new 600,000-tpy facility in Tai'an, in the eastern province of Shandong, following some early technical glitches.

"For the (Tai'an) plant, the day it starts running is the day it begins incurring a loss," said an official at PetroChina parent China National Petroleum Corp (CNPC), who was involved in building all the three projects, which had a combined cost of about $1.3 billion.

Beijing introduced a new pricing scheme in July 2013 aimed at converging its domestic natural gas prices with the cost of imported gas by end-2015, to encourage domestic production and more imports by ship and pipeline.

Wholesale gas prices were raised by 15 percent last July, and the government earlier this week announced a fresh hike of about 18 percent to take effect from September.

The changes have pushed up the price of the gas feedstock for LNG, but the slower economy has meant producers have been unable to pass on the increased costs to consumers.

Kunlun's plants that started after mid-2013 are paying the so-called "incremental" gas prices that are linked to the cost of imported fuels, although some smaller LNG facilities are still paying lower "existing volume" prices, due to agreements with local governments, the sources said.

A slowdown in construction, coal mining and transportation sectors is also taking away the incentive for trucks to switch to gas as it involves an upfront additional cost that normally takes some eight months to pay back.

The CNPC official said PetroChina has temporarily put a ban on expanding its onshore LNG business while it studies the economics of its existing plants.


By Chen Aizhu

Maritime Reporter August 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Contracts

Impact of CITGO Oil Refineries Sale: Analysis

A sale of Venezuelan state oil company PDVSA’s Citgo refining assets could dramatically change crude oil flows: Poten & Partners consider the outcomes in their latest 'Tanker Opinion'.

Naming of M/V “SITC SHANDONG” at CSBC Shipyard

The Naming Ceremony of M/V “SITC SHANDONG” was held yesterday in Keelung Factory of CSBC Corporation, Taiwan, by SITC International Holdings Co., Ltd. (SITC International) and CSBC Corporation,

MSC Award Two Time-Charter Contract Modifications

The US Department of Defense informs that Offshore Service Vessels, Inc., and Sealift, Inc., have each been awarded time charter option extensions by the US Navy's

Tanker Trends

Impact of CITGO Oil Refineries Sale: Analysis

A sale of Venezuelan state oil company PDVSA’s Citgo refining assets could dramatically change crude oil flows: Poten & Partners consider the outcomes in their latest 'Tanker Opinion'.

Navios Charters Out Newbuild MR2 Product Tanker

Navios Maritime Acquisition Corporation (Navios Acquisition), an owner and operator of tanker vessels, announced that the Nave Luminosity, a newbuilding MR2 product tanker of 49,

Ingram Barge Order 20 Tank Barges for 2015

Ingram Barge Company say they will be building 20 tank barges in 2015 to meet growing demand for chemical shipments. While most of the company’s recent tank barges have come through acquisitions,

Finance

Impact of CITGO Oil Refineries Sale: Analysis

A sale of Venezuelan state oil company PDVSA’s Citgo refining assets could dramatically change crude oil flows: Poten & Partners consider the outcomes in their latest 'Tanker Opinion'.

Dun & Bradstreet Partners Oracle to Reach for Cloud Solutions

Oracle and Dun & Bradstree, the world's leading source of commercial information and insight on businesses, today announced they have partnered to extend Oracle's

Chariot Oil & Gas 1H 2014 Interim Results

Chariot Oil & Gas Announce Interim Results for 1H 2014 Chariot Oil & Gas Limited, the Atlantic margins focused oil and gas exploration company, today announces

Environmental

Naming of M/V “SITC SHANDONG” at CSBC Shipyard

The Naming Ceremony of M/V “SITC SHANDONG” was held yesterday in Keelung Factory of CSBC Corporation, Taiwan, by SITC International Holdings Co., Ltd. (SITC International) and CSBC Corporation,

TOTE, Saltchuk Secure Financing for Marlin Class Vessels

Maritime Administration to Provide Title XI Loan Guarantee for World’s First LNG Containerships Today, the U.S. Maritime Administration (MARAD) announced a $324.

Maersk CEO Appointed to UN Advisory

Morten Engelstoft, CEO of Services and Other Shipping, said CO2 issues will be on his agenda as a newly appointed member of a UN High-level Advisory Group for Sustainable Transport.

Energy

Chariot Oil & Gas 1H 2014 Interim Results

Chariot Oil & Gas Announce Interim Results for 1H 2014 Chariot Oil & Gas Limited, the Atlantic margins focused oil and gas exploration company, today announces

Salamander to Start Drilling in G4/50, Gulf of Thailand

Salamander announces that its Environmental Impact Assessment (“EIA”) for exploration drilling in the G4/50 licence, Greater Bualuang area, Gulf of Thailand, has been granted conditional approval.

Inchcape Shipping Celebrates 25th Anniversary of ISS Greece

Inchcape Shipping Services (ISS), the world’s leading maritime services provider, has this month celebrated the 25th anniversary of its operations in Greece

Fuels & Lubes

San Francisco Bay Fuel Spill Under Investigation

The U.S. Coast Guard and California Department of Fish and Wildlife personnel continue to respond to a fuel spill that occurred near Pier 45 at Fishman's Wharf in the San Francisco Bay Saturday.

Statoil: New Compressor Means Heightened Production

The new compressor in operation on the Kvitebjørn field in the North Sea from 17 September will increase production there by 220 million barrels of oil equivalent

Short-Term Perils of Lower Oil Prices: DW Monday

At present we are seeing lower oil prices as a function of softer demand growth in both Europe and China combined with recent output increases from OPEC, particularly Libya,

LNG

Sir Frank Chapman Appointed Golar's Chairman

Golar LNG Limited announced that with effect from September 19, 2014, Sir Frank Joseph Chapman has been appointed to the Board of Directors of the Company and will act as the Company's Chairman.

TOTE, Saltchuk Secure Financing for Marlin Class Vessels

Maritime Administration to Provide Title XI Loan Guarantee for World’s First LNG Containerships Today, the U.S. Maritime Administration (MARAD) announced a $324.

TOTE Receives $324.6m Title XI Loan Guarantee

New vessels will create jobs, increase amount of cargo moved between Florida and Puerto Rico U.S. Transportation Secretary Anthony Foxx today announced the approval of a $324.

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Naval Architecture Navigation Pod Propulsion Ship Electronics Ship Repair Ship Simulators Sonar
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.0465 sec (22 req/sec)