LNG Terminals in China – Project Development, Third Party Access and Foreign Investment Issues

Published date18 February 2020
Date18 February 2020
Subject MatterInternational Investment Law
LNG Terminals in China – Project Development, Third Party Access and Foreign Investment Issues
This article was written by
George Zhao
Michael Lawson
David Phua
and Haoqing Zhang.
As the world’s largest consumer of energy, with the recently-achieved status of the top natural gas
importer in the world, China
has seen continued growth in the demand for liquefied natural gas
(“LNG”) imports. This has been a key focus of industry participants and an important driver for
expansion of the international LNG industry.
Concurrently, China’s need to expand and optimise the utilisation of LNG receiving infrastructure
(including terminals and send out pipelines) has assumed central importance in the overall
scheme of its energy sector transformation and its tilt towards natural gas as a cleaner fuel
source. These plans raise a variety of questions about the general regulatory regime, as well as
the availability of third party access and foreign investment in the terminal sector.
In this article, we consider:
the rise of China as one of the world’s largest LNG importers, and the domestic policy
background promoting the growth of natural gas use and the development of LNG terminals;
the current status of China’s LNG terminals;
18 February 2020
LNG Terminals in China –
Project Development, Third
Party Access and Foreign
Investment Issues
the regulatory approval process for development of new LNG terminals in China;
third party access issues for LNG terminals from a regulatory perspective; and
certain key investment issues for foreign investors proposing to invest in China’s LNG
terminals in partnership with local companies.
A detailed discussion of these issues is beyond the intended scope of this article. However, we
hope it provides some useful insights into the early steps being taken to open up China’s LNG
terminals and gas pipeline network, and key issues for potential foreign (and domestic) investors
in the terminal sector.
General overview
Rise of China as one of the world’s largest LNG importers
In 2018, China became the world’s largest importer of natural gas
and second largest importer
of LNG
(overtaking Korea), with LNG accounting for almost 60% of China’s overall gas imports.
This 2018 LNG import volume represented a rise of almost 38% from the previous year.
the impressive increase in natural gas demand, some industry commentators have predicted that
China could overtake Japan as the world’s largest LNG importer as soon as 2022.
In recent years, natural gas consumption in China has indeed seen significant growth. In 2018,
China consumed 280.3 billion cubic metres (“bcm”) of gas, being an 18% increase from 2017.
China’s gas demand in 2019 was estimated to grow by 10%.
On the other hand, its domestic
gas production has not managed to keep pace with rapid demand-side growth.
In 2018, gas
imports accounted for approximately 45% of gas consumption.
Although China holds one of the
world’s largest reserves for shale natural gas and is among the top 10 holders of proven natural
gas reserves, there are various constraints relating to costs, infrastructure, and geographic and
technological issues which continue to hinder its ability to meet domestic gas demand in a
self-sustained manner.
At least in the foreseeable future, it is expected that China will continue
to rely on imports to meet a significant portion of its natural gas demand needs.
With its existing and proposed cross-border pipeline connections with gas exporting countries
(e.g. Turkmenistan, Russia and Myanmar),
a key competitor to LNG in China has been, and
conceivably will continue to be, gas imports via pipeline. While pipeline gas admittedly offers
certain advantages over LNG (not least in terms of cost competitiveness for inland regions of
China), LNG offers greater flexibility to access global supply sources and in the current pricing
environment remains potentially competitive pricing-wise for coastal demand centres. At least in
the short to medium term, it does appear that LNG will continue to play an important role in
China’s energy mix, notwithstanding the competition posed by pipeline gas (amongst other
alternative energy sources).

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