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Sinopec wins big LNG project
By Xie Ye (China Daily)
Updated: 2004-05-25 08:48

China Petrochemical Corp, (Sinopec Group), the nation's second-largest oil company, has beaten out rivals China National Offshore Oil Corp (CNOOC) and China National Petroleum Corp (CNPC) to win the rights to build a liquefied national (LNG) gas terminal in East China's Shandong Province.

Sinopec's move breaks CNOOC's monopoly in building LNG projects along China's coastline.

Sinopec is preparing to build the LNG project in Qingdao, according to a local government official of Shandong Province.

The project will be able to handle up to 3 million tons of LNG annually once completed, said the official who spoke on the condition of anonymity. In the longer term, production could rise to 5 million tons a year, depending on market development.

A typical LNG project will import the liquid version for at least 25 years to supply a terminal, where it would then be turned back to natural gas and delivered to local power plants, residents and industrial users through gas trunklines.

Sinopec has submitted a preliminary feasibility study to the National Development Reform Commission and the State Council for approval, said another insider who is familiar with the deal.

The insider indicated that the construction of the project could start late next year or in 2006, should the approval procedure move ahead on schedule.

No more details have been provided. But earlier reports said the total investment is expected run up to 4.5 billion yuan (US$544.1 million).

Insiders said possible gas supplying sources to Sinopec's LNG terminal include Indonesia, Yemen, Sakhalin in Russia and Iran.

Sinopec has been talking with the National Iranian Gas Export Company (NIGEC) and the National Iranian Oil Company (NIOC) to import at least 5 million tons of LNG from Iran annually.

Sinopec will work with Shandong Shihua Natural Gas Corp and Shandong Natural Gas & Pipeline Co Ltd to develop the LNG project in Shandong.

Shandong Shihua and Shandong Natural Gas are joint ventures between Sinopec and investment companies of the local government in Shandong which will build pipelines and market the gas provincially.

China's oil companies have been jostling for the emerging LNG business to take advantage of dropping LNG prices on the international market and to cash in on governmental moves to increase natural gas consumption.

The government is planning to increase gas consumption to 6 per cent of the total energy consumption mix by 2010, from less than 3 per cent at present.

Oil companies are also aiming to buy stakes in supplying gas fields in foreign countries to raise their reserves, analysts said.

Until now, CNOOC has been dominating the domestic LNG market. The company is building China's first two LNG projects in South China's Guangdong Province and East China's Fujian Province, which will have a combined capacity of 6.3 million tons a year.

CNOOC has also taken the lead in building a third LNG terminal in East China's Zhejiang Province, and a fourth one is likely to be set up in Tianjin. But Sinopec and CNPC are making moves to catch up.

All three oil companies are lobbying local governments and the central government to build possible LNG projects in Shanghai,  Jiangsu Province and Dalian in Liaoning Province.

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