Regional LNG: China LNG provides opportunities for foreign services: Report

China's ambitious plans to increase its use of liquefied natural gas will provide some of the only opportunities for foreign financial-services firms to participate in the country's infrastructure boom, Dow Jones reported Thursday quoting an energy-project expert.

A recent report by the World Bank and other development agencies estimated that China will need to spend about US$132 billion on infrastructure - more than half of which will go to the electricity sector - over the next five years.

But with huge amounts of ready funding available from domestic banks and the government, there is little need for China to seek foreign investment for those projects.

"The whole environment has changed," said John Yeap, a lawyer with DLA Piper Rudnick Gray Cary. "Ten years ago, Asian economies were short of capital and foreign investment was highly prized. Now the need to do projects in that way just isn't there."

LNG is, at least in part, an exception. With almost all of China's power plants fired by highly polluting coal, the government has been pushing to develop more clean-burning natural gas plants, and has committed to buy the fuel - shipped by tankers in liquid form - from overseas suppliers.

Not only does the use of LNG require expensive infrastructure, in the form of receiving terminals and pipelines to serve the associated power plants, the greater foreign involvement creates more opportunities.

"LNG requires an interface with the international market," said Yeap, who was previously an executive with Hong Kong electric utility CLP Holdings Ltd. "On the advisory side, there's quite a significant amount of activity for banks and law firms. There's a demand for international-standard advice."

The likely template for those LNG projects was set last year, when China National Offshore Oil Corp., better known as CNOOC after its listed unit, CNOOC Ltd, and BP PLC completed the financing for China's first LNG terminal in the southern province of Guangdong. The gas for that project is being supplied from Australia.

While the CNY7.3 billion (US$880 million) cost of the first phase of the project was entirely covered by loans from Chinese domestic banks, foreign firms helped structure the deal. ABN Amro, the Dutch bank, served as financial adviser, while New York-based White & Case LLP provided legal advice.

CNOOC's next LNG terminal will be built in the eastern coastal province of Fujian as a joint venture with the provincial government. The state-owned company received central government approval in January to go ahead with the first phase of the project, and has signed up gas fields in Indonesia to supply it.

Construction of that terminal and pipeline is expected to cost about CNY5.55 billion (US$670 million), and is likely to be financed domestically as well.

But as with the Guangdong LNG terminal, foreign firms will supply some expertise: HSBC has been appointed financial adviser, according to two people familiar with the project.

CNOOC also plans to build three more LNG terminals on China's eastern coast, in Shanghai, Tianjin and Zhejiang, and has proposed several others. And though CNOOC started the LNG ball rolling, China's two other state-controlled oil and gas firms are now also planning their own LNG terminals in coastal provinces.

In total, at least 12 LNG-receiving terminals have been planned or are already being constructed around China's coasts by state-owned entities - though some analysts doubt whether all of those will actually be built in the end.

Yeap said his firm isn't currently involved in any of the Chinese LNG projects, though it has worked on similar deals elsewhere. The global legal services group was formed in recent months through the merger of two U.S.-based law firms with the London-based firm DLA.

"LNG is definitely a buzz topic," he said. "There's a quantum shift in the amount of gas required to be brought on stream." (*)