The Achilles’ heel in China’s energy plan: Part One

Forget the usual suspects of geopolitical conflicts, depleting hydrocarbon reserves or even rising operational costs, China's oil and gas industries face an immediate and under-rated threat to growth from safety worries over the mix of pipelines hurriedly constructed alongside an ageing supply infrastructure.

The rapidly growing network of pipelines, pumping stations and storage terminals is crucial to the health of the Chinese economy as it is responsible for delivering growing volumes of oil and gas to the nation’s energy-guzzling cities, industrial facilities, mines, farms, commercial hubs, ports, airports and military installations.

At the G20 Summit in St Petersburg last September, Novatek upstaged Gazprom by securing Chinese financial backing to build an export-oriented LNG project in Yamal. The US$ 20 billion project would directly compete with Gazprom’s Sakhalin-2 plant in the Russian Far East, which started up in 2009.

Consultant Wood Mackenzie warns that Russian and Chinese companies will face "challenging" hurdles in negotiating the future terms of co-operation.

"Remarkable progress has been made since the ESPO spur to China was agreed in 2009, but negotiating the future terms of co-operation between Russian and Chinese companies will be challenging. If large projects are to be realised, Russia may have to allow deeper Chinese involvement, for which there is little historical precedent,” said Senior Consultant, Paul McConnell.

However, both countries have strong incentives to develop energy trade and investment ties.

CNPC builds 817 km link

CNPC will expand the capacity of its Third West-East gas pipeline when it completes an 817 km link with the capacity to carry 15 billion m³/yr of natural gas by 2015.

The company said it began building the 13.4 billion yuan pipeline linking Ji’an city in Jiangxi province and Fuzhou city in Fujian last May.

CNPC has started planning construction of the country’s fourth and fifth nationwide gas pipelines to each deliver 45 billion m³/yr of natural gas.

Myanmar pipelines starts exporting gas to China

The dream of an overland passage for the oil and gas trade as an alternative to the congested Straits of Malacca to serve East Asia since the late 18th Century partly came true last year.

With the launch of a new regional pipeline infrastructure, Myanmar has begun the overland export of natural gas to China, accomplishing what Europe’s colonial powers and Asian governments had failed in their quest to avoid the use of the Straits of Malacca. Oil exports are expected to begin sometime this year with the completion of the oil line.

The US$ 3.5 billion project include separate pipelines and storage terminals to deliver oil to western China from the Middle East and Africa as well as gas from other countries and Myanmar’s offshore Shwe gas fields in the Bay of Bengal.

South-East Asia Gas Pipeline Company, Ltd (SEAGP), a consortium comprising six Asian companies, owns and operate the pipeline and its six processing stations to deliver 12 billion m³/yr of natural gas. Led by CNPC, the consortium’s other members are Daewoo and Korea Gas Corp of South Korea, ONGC Videsh Ltd and GAIL of India, and state-owned Myanmar Oil and Gas Enterprise (MOGE).

Chinese officials said the pipeline will help meet a quarter of their country’s natural gas demand while generating US$ 1.5 billion a year in revenue for Myanmar.

Written by Ng Weng Hoong and edited by Hannah Priestley-Eaton 

Part 2 of the abridged version of this article can be accessed here. 

The full article can be found in the March issue of World Pipelines.

Read the article online at: https://www.oilfieldtechnology.com/special-reports/30042014/the-achilles_heel_in_china%E2%80%99s_energy_plan_part_one/