Regional LNG: CNOOC Wins LNG Project in Liaoning

China National Offshore Oil Corporation (CNOOC), the country's largest sea oil and gas producer and one of its largest three oil companies, has recently made a success

in the liquefied natural gas (LNG) market of Liaoning, Northeastern China, China's Nanfang Daily reported.

CNOOC reached a cooperation framework agreement with Liaoning Provincial Government in Beijing on October 14. Its phase I is scheduled for production by 2008 with an investment of CNY 5 billion (USD 1 = CNY 8.27). The phase I will hit a yearly LNG output of 3 million tons or about 4.1 billion cubic meters.

The move is part of CNOOC's LNG strategy in China's coastal market. It has already signed four similar agreements in four coastal provinces and city,

including Guangdong, Fujian, Zhejiang, and Shanghai. It is about to enter into two LNG agreements with two governments in coastal Tianjin and Jiangsu.

"The company plans to take 10 to 15 years to build more than 2,000 kilometers of natural gas pipelines in the coastal region in a bid to hold the market," said

Wei Liucheng, former board chairman of CNOOC. "It is eager to obtain all LNG contracts there."

As early as in 1998, the State Council, China's cabinet, determined to greatly develop the LNG market in order to ensure domestic safe energy supply and environmental protection. CNOOC has since then been responsible for the

far-reaching plan, and its executives have been trying to make it a popular LNG brand in China.

Other two oil giants, China Petrochemical Corporation (Sinopec) and China National Petroleum Corporation (CNPC), have successfully formed their own integrated industrial chains, owning oil fields and refineries. More important,

they have created their brands, Great Wall and Kunlun, but CNOOC is weak here.

Sinopec dealt a severe blow to CNOOC in Shandong in June in partnership with Royal Dutch/Shell Group, one of the world's largest oil companies.

Shandong is one of China's largest industrial provinces. Industry experts forecast that its demand for natural gas will reach 8 million to 10 million cubic meters a year by 2020. Meanwhile, it will rise to become a vast gas

market, second only to the Beijing-Tianjin region.

Since 2000, Shandong has been scanty of gas supply, and Shandong Provincial Government has considered introducing a large gas project. The province has long been a key component of Sinopec Group's home territory.

Sinopec ultimately obtained a LNG project there. It is located in Jiaonan and reaches a total investment of CNY 4.5 billion. It is scheduled for construction at the end of 2004 and for operation by 2007. Its phase I will hit an annual gas output of 3 million tons and 5 million tons next.

After experiencing a setback in Shandong, CNOOC was frustrated in Dalian, Liaoning on September 26 by CNPC. It inked a LNG project with Dalian Municipal Government in advance of CNOOC.

The project is scheduled for supply by 2008. Its phase I hits an investment of CNY 6.8 billion and a yearly gas output of 2 million tons and 4 million tons next.

"In one province, two oil giants are both ready to start LNG projects, it was seldom seen in the past," an industry analyst. "Obviously that is a compromise, and the local government does not hope to offend each of both."(*)