Regional LNG: CNOOC delays plans for LNG terminals on lack of supply

China National Offshore Oil Corp's (CNOOC) has delayed plans for the construction of two of its planned liquefied natural gas (LNG) terminals and scaled back plans for another as it struggles to obtain sufficient supplies, industry analysts said as quoted by AFX.

News of the delays has emerged shortly after an announcement that CNOOC's plan to take a stake in the Gorgon natural gas project off the coast of Western Australia had fallen through.

Construction on an LNG terminal on the southern island of Hainan has been delayed and completion is now expected in 2015 against an originally planned 2009, said Zhou Tianqi of the energy research institute under the National Development and Reform Commission.

Plans for a terminal in Zhejiang in the east have been moved back to 2010 from 2008 while state-run CNOOC's terminal in Shanghai is still on track for completion in 2009, but the size had been reduced, he said.

Construction on these terminals has not begun yet.

"The NDRC has approved the construction of 10 terminals in all for China's oil companies. But it also issued a directive asking the companies to carry out the projects according to their supplies," Zhou said.

Five of the 10 terminals are for CNOOC, which controls Hong Kong-listed CNOOC Ltd but is keeping the LNG projects at the parent level.

CNOOC had no immediate comment though other industry officials said they were aware of the delays and project size reductions.

Another industry observer, who asked not to be named, said that further delays or outright project cancellations are expected.

Chevron this week announced that CNOOC's planned purchase of a 12.5 pct stake in the Gorgon project in Australia had been scrapped, raising concerns about CNOOC's ability to supply its future terminals.

Zhou said the plan to delay construction of the two terminals was decided before the failure of the Gorgon deal amid surging international gas prices and an increasingly competitive market.

But other analyts noted that the supply situation had been tightening.

In 2002, CNOOC contracted advantageous take-or-pay long term contracts with the North West Shelf gas field in Australia for its terminal in Guangdong in south China, and from the Tangguh gas field in Indonesia for its Fujian terminal, also in south China.

But since then the price of gas has gone up by three to four times and the Japanese and South Koreans have entered the market with more willingness to pay a higher price for LNG.

A Chevron official said yesterday the two companies had been unable to agree on pricing. Two supply deals including potential stake purchases by Tokyo Gas and Chubu Electic have already been signed by Gorgon.

In its aim to rely less on oil imports, China has set an initial target of boosting gas-fired power generating capacity to 10 pct from the current 2.8 pct by 2010.

And it is currently estimated that China will need to rely on imports of 30 mln tons of LNG annually by 2010 and 50 mln tons between 2015 and 2020 as it has limited domestic production of gas.

Some industry analysts said that as few as three are likely to be built, including the one in Shanghai for CNOOC, one in Hebei province in the north for China National Petroleum Corp (CNPC) and one in Shandong in the east for China Petroleum & Chemical Corp, or Sinopec.

CNPC is in the strongest position as it can rely on its own gas supplies, they said.(*)