China's non-NOCs may outpace NOCs in building new LNG regas capacity by 2025: consultant

Singapore — China's national oil companies could be outpaced by non-NOCs in adding new LNG regasification capacity over the next five years, highlighting the pace of gas market liberalization in the country, Ming Cai, natural gas and LNG consultant at Poten & Partners said at the Gastech Virtual Summit on Sept. 10.

He said China's LNG regasification capacity is expected to grow from slightly more than 80 million mt/year in 2020 to around 145 million mt/year by 2025, of which non-NOCs have a larger share of new capacity with 10 new terminals under construction to add to six terminals currently operational.

China is currently deregulating its natural gas market, like South Korea and Thailand, and four types of companies are active -- NOCs like CNOOC, CNPC and Sinopec; state-owned utilities including power companies and local gas companies; private energy companies; and non-Chinese companies, Cai said.

"China has been making good progress in deregulation in recent years," he said, noting that more and more private companies have been given approvals to build their own LNG terminals and NOCs have also auctioned terminal slots to third-party users.

When asked if there was a cap to foreign investment in Chinese LNG terminals, Cai said there wasn't any formal documentation that restricted the share of foreign equity investment, but transactions conducted so far showed that foreign companies like BP or SK Corporation had a less than 50% share in projects.

China's natural gas demand is expected to reach 520 Bcm/year in 2030, and even exceed 600 Bcm/year by 2040, Cai said. China consumed 306.7 Bcm/year of natural gas in 2019, up 9.4% year on year, according to data from the National Development and Reform Commission.

The country's LNG imports are expected to reach 64 million mt in 2020, despite COVID-19's impact, Cai said, adding that in the long term China's LNG imports are expected to go up to 88 million mt/year in 2030, and even further up to 100 million mt/year in 2040. China's LNG imports in 2019 were 60.3 million mt, according to Chinese customs data. Regasification terminals typically operate below full capacity.

There are many opportunities in China's natural gas market for investors, including LNG imports and infrastructure investment, Cai said.

"A big gap between China's total LNG demand and contracted LNG volumes is expected to provide opportunity to different players to procure more LNG cargoes either through term contracts or the spot market," he said, adding that infrastructure investors can lease storage capacity to other companies for trading or for profit.

However, there are also risks in China's gas market, which include price risk for LNG imports, demand uncertainty, regulatory risk and risk in infrastructure investment, Cai said. "There is misalignment between international LNG prices and China's domestic natural gas prices, which exposes importers to high costs or losses," he said.

China has a complicated downstream gas pricing policy, under which city-gate prices for domestically produced natural gas and imported pipeline gas are mostly regulated by the government, while the city-gate prices for imported LNG and unconventional gas have been liberalized.

"So to work with Chinese players, finding the right partner and designing the right structure are key considerations for investing in China's gas market," he added.