East coast China predicted to consume 12.6 million tons of LNG in 2015

Natural gas demand in the eastern coastal region of China is predicted to grow at significantly high rate over the next ten years in China?s eastern cost region, where economic growth is rapid, indigenous energy resources are in short supply and energy related environmental, problems are increasing under the burden of coal use, according to a study released Tuesday.

The study titled: Natural Gas in Eastern China: The role of LNG, which was conducted jointly by Australian Bureau of Agricultural and Resource Economics (ABARE) and China?s Energy Research Institute (ERI) concluded that potential demand for natural gas would be high and liquefied natural gas (LNG) would play important role in meeting the demand as indigenous gas source will not be sufficient to meet the demand and cross-border pipeline is still considered relatively more expensive compared to LNG.

The region understudy encompasses the provinces of Jiangsu, Shanghai, Zhejiang and Fujian, which lie to the north of Guangdong where China recently signed its first LNG import contract with Australia?s North West Shelf joint venture. But Guangdong province was not included in the study.

Dr. Brian Fisher, Executive Director at ABARE said that China?s energy planners are actively promoting the use of gas in the region as a means of overcoming energy constraints. The west?east pipeline is expected to start delivering domestic gas to Shanghai in 2003?04. However, this would be unable to meet all the projected increase in demand for gas. ?Imports of LNG would provide a much needed additional source of gas that could complement China?s own resources?, Dr Fisher said.

The study predicted that natural gas consumption will grow at an average of 12 percent per year in 2000-2015 periods, and natural gas will account for 10 percent of fuel used for electricity generation in the region in 2015, a 1000 percent jump compared to 0.1 percent contribution in 2000. Electricity generation sector consumes some 75 percent of overall gas consumption.

The study also predicted with natural gas contributes 10 percent to energy sector, eastern coast will consume 37.2 billion cubic meter of natural gas in 2015, while indigenous gas source could only supply 20 billion cubic meters of gas, making LNG import requirement at 17.2 billion cubic meters, or equivalent to 12.6 million tons in that year. Under a more optimistic scenario, LNG import requirement is predicted at 14.8 million tons in 2015.

Anglo-American energy giant BP Plc. Is the first LNG producer that had penetrated the region under study by securing some 2.7 million tons per annum LNG supply contract to the province of Fujian starting 2007 from Tangguh in the province of Papua. Australia LNG had also secured 3.25 million tons per year LNG supply contract from its North West Shelf gas field.

However, the study warned that establishing a secure and stable LNG market in the region will be a complex process. Because of the high costs associated with the construction of LNG terminals and the associated regasification and distribution facilities, there are various critical issues that need to be addressed. For example, as demonstrated in Guangdong, China is likely to rely on foreign investment to fund at least part of the costs of developing an LNG market. Hence, open and supportive foreign investment policies will have a significant influence on the viability of any proposed project. Also important will be the regulatory environment for the gas industry, gas pricing mechanisms and the tax system.(alex/robert)