China is pushing forward towards its clean energy agenda of using gas to satisfy 10% of the country’s energy needs by the year 2020, from 5.9% in 2015, through the government’s efforts to promote gas and encourage competition.
This shift to gas is now creating new opportunities for independent energy companies at the expense of state-owned giants.
Energy independents in the country are building a string of LNG import facilities as having their own import and distribution infrastructure is essential if they want to take full advantage of current market prices, according to one Sanford C. Bernstein analyst.
What the gas independents are doing is follow in the footsteps of the independent oil refiners.
There are already three LNG import terminals, developed by Jovo Energy, Guanghui Energy, and ENN Group—one of China’s biggest energy independents. Three more terminals are either being planned or are already under construction. According to ENN Group, this new capacity will boost energy consumption in China as it will bring down gas prices, and consequently, the price of electricity.
The three state energy majors own and operate 12 gas import facilities, but they buy their gas under long-term contracts. Independents are nimbler and very open to the spot market, taking full advantage of the current global LNG glut that has brought prices considerably down. Spot market costs, according to analysts, could be as much as 50% lower than the average costs under term contracts used by state companies.
The energy independents are likely to continue enjoying strong support from the government: the country’s National Development and Reform Commission said last month that China’s LNG import capacity could well reach 100 million tons by 2025, from 43.8 million tons in 2015. Independents will likely account for a solid portion of the increase.
Earlier this year, a senior PetroChina official said that gas demand in China could jump by 30 billion cubic meters this year thanks to the new government policies for the energy sector. This would constitute a 14.6% annual increase from last year’s 205.8 billion cu m in apparent consumption and an all-time high.
LNG demand in particular could rise by 5-6 million tons annually over the medium term, according to Energy Aspects analyst Michal Meidan. Already, in the first six months of this year LNG imports surged by 38.3% on an annual basis, to 15.89 million tons.
China got most of its LNG imports during the first half of the year from Australia and Qatar, the world’s top two exporters. But the rush to expand the import capacity is definitely good news for other exporters, notably the US.