China's ENN opens Zhoushan LNG terminal for third party access for first time

Singapore — China's largest private LNG terminal operator ENN Energy Holdings has opened its Zhoushan LNG terminal to third party access for the first time, allowing the provincial government-owned Zhejiang Energy to receive its LNG cargo at the facility.

The move underscores efforts towards gas market liberalization in China's downstream market, and the expansion of market reforms at the provincial level. Zhoushan LNG is also unique because in this case a private terminal operator has given third-party access to a state-owned company, instead of the other way round.

Under the terminal access, ENN's 3 million mt/year Zhoushan LNG terminal in eastern China received Zhejiang Energy's first 70,000 mt LNG cargo Oct. 25, ENN said on its official WeChat platform Oct. 27.

The third-party access comes after ENN, which is also China's largest private city gas distributor, opened an 81 km-long subsea natural gas pipeline in August linking the Zhoushan LNG terminal to Zhejiang Energy's provincial natural gas distribution network. Its supply was previously restricted to LNG trucking.

The pipeline access has helped ENN exceed 2 million mt/year of LNG imports at the Zhoushan terminal this year, compared with just 732,000 mt in 2019, when the terminal was operating at much below capacity, market sources noted.

This has emerged as a win-win situation for both ENN and Zhejiang Energy, as the former overcame a transportation bottleneck in market access while the latter was able to import low-priced LNG spot cargoes directly at the LNG terminal, market sources in China said.

PROVINCIAL MARKET REFORMS

Zhejiang Energy, which previously had a monopoly in the local gas distribution market, benefited from the third-party access as it was in dire need to diversify its gas sources when local market reforms began to erode its market share.

The Zhejiang provincial government had issued a notice requiring the provincial gas pipeline network, controlled by Zhejiang Energy, to be opened to third-party access, to allow pipeline gas to be traded directly between upstream suppliers and downstream buyers, S&P Global Platts reported earlier.

This eroded Zhejiang Energy's control in the local gas market because it allowed ENN to trade directly with downstream buyers. Apart from the big three state-owned gas players -- CNOOC, PetroChina and Sinopec -- ENN is also defined as a major upstream gas supplier by the province, market sources said.

Natural gas supply from ENN was more competitive than Zhejiang Energy as the private company could import low-priced LNG spot cargoes directly from the international market while Zhejiang had to buy from first tier gas suppliers, such as PetroChina, CNOOC and Sinopec, the sources said.

The Asian LNG spot price dropped to a historical low in late April, which triggered Zhejiang Energy's interest in importing spot LNG, market sources said. Since it did not have an LNG terminal, and ENN needed physical access to Zhejiang Energy's pipeline network, it led to them working together.

Still, negotiations between the two companies took some time, partly complicated by Zhejiang Energy's plans to build its own LNG terminals in neighboring cities, market sources said.

Zhejiang Energy, jointly with state-owned Sinopec and a Wenzhou-based company, started construction of a 3 million mt/year LNG receiving terminal at Xiaomen Island in Wenzhou city in Zhejiang, in September 2018, expected to start by end-2021.

It also has a framework agreement with Shenzhen Energy and Liuheng city, to develop an LNG terminal on Liuheng island in Zhejiang, but the project timeline is not known yet.