Iran Economy NewsChina's LNG work has eyes on Iran, and beyond

China’s LNG work has eyes on Iran, and beyond


Reuters: China may have the technical capability to build a natural gas liquefaction plant within five years, potentially opening the door to vast reserves in Iran where sanctions have kept away western firms.

By Chen Aizhu

BEIJING (Reuters) – China may have the technical capability to build a natural gas liquefaction plant within five years, potentially opening the door to vast reserves in Iran where sanctions have kept away western firms.

A breakthrough for Chinese firms would allow them to tap Iran’s vast gas reserves, the largest in the world outside Russia, as long as they are prepared to brave sanctions that have scared off Western oil majors.

Developing the expertise to super-chill gas for shipment in tankers would also help Chinese firms secure more big ticket international engineering contracts, similar to the $6 billion Cuban refinery expansion and LNG terminal deal scooped by China National Petroleum Corp late last year.

Firms in China, the world’s top energy consumer, already have stakes in major natural gas projects from Curtis Island in Australia to South Texas in the United States where they could deploy home-grown technology.

Two of the country’s trio of oil majors — CNPC and CNOOC — are deploying resources to hone liquefaction technology for commercial scale plants, industry sources close to the firms said.

“We’re aiming for 2 million tonne-per-year scale, all using domestic equipment. That may take 3 to 5 years,” said an executive with Huanqiu Contracting & Engineering Corporation (HQCEC), an engineering unit of top energy group CNPC.

Two-million-tpy is mid-size for the global gas market, which now has the largest single train of nearly 8 million tpy, but is currently beyond the reach of Chinese firms.

“That means opening up opportunities in Iran’s Pars projects. And maybe, Australia’s Arrow project and others,” said the official, referring to the $3.1 billion deal PetroChina, CNPC’s listed arm, entered into last year with Royal Dutch Shell to buy Australian coal seam gas firm Arrow Energy.


Firms like France’s Total and Germany’s Linde Group have walked away from Iran’s giant gas projects, fearful of a backlash against their U.S. operations under UN and unilateral U.S. sanctions, industry sources said.

China’s energy firms have also since around the middle of last year slowed down work on oil projects in Iran as their ties grew with U.S. energy firms.

But the lure of Iranian gas to feed China’s insatiable energy demand while holding down its carbon footprint — 70 percent of the country’s energy needs come from dirty coal — may be enough to make state-run firms risk Western opprobrium.

“It’s in China’s strategic interest to develop the technology,” said London-based energy consultant Mehdi Varzi.

“But to think that immediately China can transfer the technology to Iran and run it successfully and bring it online very quickly, it’s being over optimistic,” he said.

“We could be 10 years away from China being able to apply its technology to Iran and complete a major project.”

China is a newcomer in the global gas business. Its first LNG receiving terminal opened in 2006 in southern China’s Guangdong province, shipping in Australian gas.

Its exposure to gas liquefaction is even more recent.

Big state oil firms CNPC and CNOOC ventured into the liquefaction business after 2006, as repeated gas shortages spurred a domestic building boom of mini-scale LNG plants, facilities that liquefy marginal onshore gas reserves into LNG that gets trucked around to users out of reach of pipelines.

CNPC’s HQCEC, previously a chemical design firm, took on the role as the country’s leading LNG engineering and construction company.

It’s now building a 600,000-tpy facility in Ansai, in northern Shaanxi province, the country’s largest, which the company is working to build up to a 2 million-tpy train.


Third-largest oil and gas firm CNOOC is using its only liquefaction facility, a tiny 120,000-tpy plant started up two years ago in Guangdong, as a research base to give it the know how to tackle Iran’s massive North Pars project, industry officials said.

CNOOC signed in 2006 a preliminary $16 billion deal with National Iranian Oil Company to develop North Pars and produce LNG. CNPC clinched a $4.7 billion deal in early 2010 to develop phase-11 of South Pars.

“The test would come this year when HQCEC completes the Ansai plant…Its success means the rise of Huanqiu as a competitor to us,” said Michael Gai, oil and gas business manager with U.S. engineering firm Black & Veatch, a firm active in Chinas mini-LNG business

It may take much longer or at a much larger cost before HQCEC or CNOOC can snatch engineering contracts from global specialists like France’s Technip and American firm Air Products.

But Beijing is keen to see its energy firms grow into engineering giants, and has a history of building up major industries into world beaters.

It took less than three years for China to build its first ultra-high voltage power line that started operation in early 2009 — technology little used elsewhere in the world. This year, China is going to apply its UHV expertise to Brazil as part of a $1 billion acquisition deal last December of seven transmission companies in the Latin American nation.

Less than five years after China started its first 1-gigawatt nuclear power plant using Russian technology, it is now eyeing the export of similar-sized stations using home-grown technology to Pakistan.

“If the government is keen to nurture home-grown liquefaction technology, big guys like Huanqiu will most likely get the first chance,” said Bruce Ge, owner of a local developer of small-scale LNG facilities.

In the Australian Arrow venture, Huanqiu last month was invited to do front-end engineering and design for the liquefaction project in a consortia comprised of established global peers such as Foster Wheeler and Technip.

Huanqiu’s experience as a builder of gas receiving terminals, gained as a sub-contractor in China’s first such project in Dapeng, won it the refinery and gas terminal deal in Cuba, which would be the largest-ever engineering contract a Chinese firm has ever landed abroad.

(Editing by Michael Urquhart)

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