Canada: China's LNG Development Strategy Enters 12th Five-Year Plan

With exports to the U.S. declining, Canada's natural gas industry is actively exploring new markets for production, including the export of liquefied natural gas (LNG) to China. This bulletin provides a brief update on China's LNG industry, and highlights the opportunity of China's LNG market for Canadian natural gas. The article includes a discussion of China's recent dedication to significantly increasing its LNG importation capacity, the location and operatorship of China's current and planned LNG import facilities, and the potential future impact of domestic shale gas development on China's LNG importation policies.

INCREASING CHINESE DEMAND FOR IMPORTED NATURAL GAS

China has recently committed to a significant expansion of its natural gas use, highlighted by a series of interrelated state-mandated development plans and the construction of coastal LNG import and regasification facilities. This push toward greater LNG capacity will involve significant participation by China's state-owned oil and gas companies, including CNOOC (the China National Offshore Oil Corporation), Sinopec (China Petroleum & Chemical Corporation) and CNPC (China National Petroleum Corporation). Drivers include energy security as well as a desire to reduce dependence on coal and cut greenhouse gas emissions. In total, while current Chinese LNG import capacity stands at approximately 18.8 million tonnes or 26 billion m3 (BCM), by 2015 it is expected that China will possess LNG import capacity of more than 47 million tonnes or 64.8 BCM per year.

As a socialist market economy, China's economic development is in good part steered by state-mandated plans or guidelines mapping strategies and initiatives at both the national and regional levels. These are exemplified by "five-year plans" which each contain smaller, industry or sector-specific programs. The National Development and Reform Committee (NDRC) issued its 12th Five-Year (2011 to 2015) Plan for natural gas development (the Natural Gas Plan) to central and local governments in October 2012. Importantly, the Natural Gas Plan calls for a marked expansion of natural gas utilization at both the industrial and residential levels. This was followed by the issuance by the State Council in January 2013 of its 12th Five-Year Plan for Energy Development (the Energy Plan) establishing guidance, fundamental principles, development targets, key tasks, and measures and policies for China's energy development.

Pursuant to its Natural Gas Plan, the NDRC predicts that China's annual consumption of natural gas during the 12th Five-Year period will increase an average of 20 BCM per year to reach 230 BCM by 2015. However, the Energy Plan anticipates that annual Chinese domestic natural gas production will only increase from 94.8 BCM in 2010 to 156.5 BCM by 2015. Notably, this means that China will need to import at least 73.5 BCM of natural gas annually (or 32% of its annual consumption) by 2015 to meet domestic demand. Furthermore, the NDRC also predicts that China will import 93.5 BCM of natural gas annually or 40% of its estimated annual consumption of natural gas by 2015 in order to hedge against the risk of shortfalls in domestic production.

CHINA'S NATURAL GAS AND LNG IMPORTATION INFRASTRUCTURE

China has developed a strategy of importing natural gas through four main channels, being (1) the Central Asian Gas Pipeline in its northwest region which brings natural gas to China from Turkmenistan, Uzbekistan, and Kazakhstan, (2) the Sino-Russian Pipeline in its northeast region which brings natural gas to China from Russia, (3) the Sino-Myanmar Pipeline in the southwest region which brings natural gas to China from Myanmar, and (4) overseas shipments importing LNG from international markets into China.

Towards this end, the speed at which China has increased, and continues to increase, its LNG importation capacity is substantial. China only began importing overseas LNG in 2006. By the end of 2012, however, China had completed construction and commenced operation of six LNG import terminals on its eastern and southern coastlines with annual LNG receiving capacity of 18.8 million tonnes or 26 BCM. Of these six LNG import terminals, four terminals are operated by CNOOC, being (1) Dapeng LNG terminal of Guangdong province, (2) Putian LNG terminal of Fujian province, (3) Yangshan LNG terminal of Shanghai, and (4) Ningbo LNG terminal of Zhejiang province, and two terminals are operated by CNPC, namely (1) Rudong LNG terminal of Jiangsu province and (2) Dalian LNG terminal of Liaoning province.

Furthermore, China is on pace to increase its annual LNG importation capacity by an extra 28.2 million tonnes by 2015 thanks to completion of phase II of the Rudong LNG terminal as well as the construction of eight additional LNG terminals. Of these eight additional LNG terminals, three terminals will be operated by Sinopec, being (1) Tianjin LNG terminal, (2) Qindao LNG terminal of Shandong province, and (3) Beihai LNG terminal of Guangxi province, four terminals will be operated by CNOOC, namely (1) Hainan LNG terminal of Hainan province, (2) Zhuhai LNG terminal, (3) Shenzhen LNG terminal of Guangdong province, and (4) Tianjin LNG floating terminal, and one terminal, namely Caofeidian LNG terminal of Hebei province, will be operated by CNPC.

THE DEVELOPMENT OF SHALE GAS RESERVES IN CHINA

With reserves estimated at approximately 1,115 trillion cubic feet by the U.S. Energy Information Administration, in March 2012, China issued its plan for shale gas development during 2011 to 2015 (the Shale Gas Plan). The Shale Gas Plan recognized that China is falling behind North America in terms of shale gas development, and set goals for shale gas reserve assessments and the advancement of technical expertise, with a long-term goal of producing 60 to 100 BCM of shale gas by 2020. While the Shale Gas Plan may boost shale gas production in China – and as a result reduce China's demand for LNG imports from approximately 2016 and beyond – a number of challenges have given rise to a healthy skepticism regarding the economic viability of shale gas production in China without a meaningful technological breakthrough, including difficult geological formations, water scarcity, the location of shale gas reserves in highly populated areas, and a lack of key supporting infrastructure. On the other hand, should the Shale Gas Plan indeed significantly magnify shale gas production in China, a variety of different opportunities will present themselves to Canadian natural gas companies, including both producers and service providers.

CONCLUSION

The swift and significant expansion of China's LNG import infrastructure presents Canadian natural gas producers with a large new – and potentially long-term – market for their natural gas production. However, in order to position itself to satisfy this growing Chinese demand, Canada's natural gas industry must develop the requisite LNG export infrastructure and associated supply contracts in a similarly expedited manner. Given the global competition for China's LNG market and possibility of increasing Chinese domestic shale gas production, the costs of complacency could be great.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
30 Oct 2019, Other, Toronto, Canada

The materials on the Blakes Business Class website are provided for informational purposes only. Accessing this information does not create a lawyer-client relationship.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions