Top economic officials have backed PetroChina's bid to enter the lucrative liquefied natural gas (LNG) business by allowing it to build a huge LNG project in east China's Jiangsu Province, according to the nation's largest oil company.

Su Shulin, PetroChina's senior vice-president, said the National Development and Reform Commission had "agreed" to let the firm build the US$2 billion project, which would allow it to join its rivals, Sinopec and the China National Offshore Oil Corporation (CNOOC), in deploying several LNG terminals in coastal provinces.

A typical LNG project imports LNG to supply a terminal where the LNG will be converted back into natural gas and then delivered to local customers.

Su said the LNG project will provide a back-up source of gas to the west-east gas pipeline project which is delivering natural gas from the Xinjiang Uygur Autonomous Region to Shanghai and neighboring areas.

Su did not elaborate on the LNG project.

China Daily learned that PetroChina plans to build a terminal in Rudong, Jiangsu Province, to annually receive between 3 million and 3.5 million tons of imported LNG.

The gas will mainly supply a 2,400-megawatt gas-fired power plant through a 70-kilometre pipeline.

The pipeline will be linked to the 4,000-kilometre west-east gas pipeline.

Total investment in the LNG project is 20 billion yuan (US$2.4 billion).

The investment may further increase when the project raises its annual capacity to 6 million tons.

But PetroChina is facing competition in Jiangsu from rivals Sinopec and China National Offshore Oil Corp (CNOOC), the second-and third-largest oil companies.

Sinopec plans a similar project in Lianyungang, and CNOOC in Binhai, both in Jiangsu.

CNOOC signed a non-binding co-operation framework with the Jiangsu provincial government last September.

Local government officials said they have not yet been informed which one has been decided upon.

But the officials admitted the central government prefers PetroChina because Jiangsu LNG may serve as a back-up source of gas for the west-east pipeline project that is also run by PetroChina.

Officials have pointed out that having the west-east pipeline and LNG projects run by the same company could facilitate the coordination of gas supplies.

Xinjiang is currently Jiangsu's only source of gas, with the eastern province receiving almost half of the total gas production of the west-east pipeline.

This poses potential risks to the province's energy supply, especially since the west-east gas pipeline has to wind through numerous deserts, mountains and rivers.

An official from the Rudong Habour Development Zone said PetroChina may form a joint venture with Singapore-based RGM International and local companies to build and operate the terminal.

RGM International, which is involved in the development of gas fields in Indonesia, may also invest in the gas-fired power plant, said the official.

The Jiangsu LNG project was put forward 10 years ago, and PetroChina signed a non-binding agreement with Jiangsu Province in 2001.

But competition between the firms has yet to come to an end.

A CNOOC official said they are still working on the LNG project in Jiangsu.

An official from the Jiangsu Development and Reform Commission said it is still too early to name a final winner, and all the three potential projects are undergoing preparation work.

The official said the final LNG project depends on the negotiations between oil companies and the local government.

"One of the key factors is whether the harbors have the ability to accommodate the LNG imports," said the official.

The official did not rule out the possibility of all the three LNG projects being built in the future given the province's surging gas demand.

Jiangsu Province, one of the country's economic hubs, is facing a mounting energy shortage. About 80 percent of its energy consumption has to be sourced from outside the province.

The provincial government hopes the LNG project could help ease demand for energy as well as improve the environment by replacing some coal consumption with gas.

China's three oil companies have been competing to build a number of LNG projects in Shanghai, east China's Jiangsu and Shandong provinces, and Dalian in northeast China's Liaoning Province.

CNOOC is building the first three import terminals in Guangdong, Fujian and Zhejiang provinces.

Late last month, CNOOC formed a joint venture with Shanghai Shenergy Group to build and operate its fourth LNG terminal in Shanghai.

The first phase will have an annual processing capacity of 3 million tons of LNG. The project, with a total investment of 4.7 billion yuan (US$568.3 million), is expected to commence operations by the first half of 2008.

More LNG projects are expected to be constructed along the nation's booming coastline in the coming years to satisfy the demand from its soaring economies.

Analysts, however, warn the construction of LNG projects comes at a high cost.

LNG prices have been rising since the second half of last year, with more LNG projects being built in Asia and the United States.

(China Daily January 11, 2005)