Regional LNG: Second phase of Guangdong LNG project may start one year ahead: Report

Work on the second stage of a huge liquefied natural gas terminal and associated facilities in Southern China may be advanced by one year due to robust energy demand in Guangdong province, Dow Jones reported Monday.

After the signing of a loan agreement late last month to finance the first phase of $880 million Guangdong LNG terminal "the local government and China National Offshore Oil Corp. are stepping up efforts for preparation of the second phase of the project," said Li Jianhua, director of Guangdong Energy Technology & Economic Research Center, which is involved in planning the project.

Construction of the second phase of the LNG project might start one year ahead of the scheduled 2007, Li said, in a recent interview with Dow Jones Newswires.

In addition to speeding up the project, the operators expect to import more LNG from Australia to feed the first-stage facilities than had originally been planned.

The project operators are now designing offsite facilities such as storage tanks for the second phase, he added.

The terminal is being jointly built by CNOOC, Guangdong Power Co., BP PLC (BP) and several local companies.

For the second phase, Guangdong will build a storage tank with capacity of 135,000 cubic meters, as well as building one LNG power plant and expanding another.

"As the government has restrictions on coal use due to environmental concerns, LNG is a key solution to ease the local energy supply shortage in Guangdong," Li said

From 2010 - when the second phase of the project is completed, Guangdong's LNG demand is projected to rise to 6.7 million tons/year, up 12 percent from original forecasts, he said.

By that time, Guangdong's coal use per year will be down to 15 percent from above 17 percent now of the total energy use, he said.

Li said he's not concerned about supplies of LNG to the project.

CNOOC has agreed to buy 3.25 million tons of LNG from Australia's Northwest Shelf gas project for the first phase, but the agreement will also allow CNOOC to buy 5% more of the agreed volume, he said.

"LNG demand for the first phase is already exceeding earlier planned volumes," he said, adding CNOOC will import 3.7 million metric tons of LNG from Australia annually from 2006, instead of the previously-envisaged 3.25 million tons.

While Guangdong has no oil and gas reserves, it has the highest energy consumption growth rate in China, in line with its fastest economic development.

Li said the province, which sits on the southern tip of China, is an ideal location for importing energy such as crude, oil products and LNG.

Of the total 3.7 million tons of LNG supply in the first phase, 55 percent will be used for power generation in Guangdong, 28 percent for residential use and 17 percent will be piped to Hong Kong for local household consumption and power generation.

The first phase, which is due to be completed in 2006, involves building five LNG-based power plants with a total capacity of 4,200 megawatts.

Other first-stage work includes two LNG storage tanks with a total capacity of 270,000 cubic meters, as well as an LNG terminal. (*)