China Leason budgets 200m yuan to expand gas liquefaction

PUBLISHED : Monday, 21 April, 2008, 12:00am
UPDATED : Monday, 21 April, 2008, 12:00am

China Leason Investment Group, a computer supplies seller that diversified into liquefied coal-bed gas production, plans to spend more than 200 million yuan (HK$223.27 million) to double gas liquefaction capacity by next year, according to chairman Wang Zhongsheng.

The Growth Enterprise Market-listed firm would add 250,000 cubic metres of daily capacity in each of two phases of expansion, with the first due this year and the second next year, Mr Wang said. They will add to the first phase's 500,000 cubic metres of daily capacity, which is due to come on stream by the end of next month.

'Our original plan was for phase one to supply gas by March, but severe winter weather early this year had delayed the transport of materials to our work site and hence progress of the project,' Mr Wang said.

First-phase liquefaction and storage facilities are in Qinshui county, Shanxi province while the second phase is in nearby Yangcheng county. Shanxi is the nation's largest coal-producing region accounting for about 25 per cent of the nation's output.

Mr Wang expected cash flows from the first-phase development and bank loans to be sufficient to fund the second-phase expansion.

China Leason had HK$51.7 million of cash and bank deposits at the end of last year. It raised HK$53 million from a placement last month.

Coal bed gas is natural methane gas trapped between coal seams. Its extraction and use in China has been small compared to conventional natural gas that exists in tandem with crude oil, due to technical challenges and a lack of investment. Small-scale extraction meant infrastructure such as pipeline systems have not been developed.

The gas has mainly been consumed locally or liquefied and moved by trucks to coastal markets to plug gaps in the supply of conventional gas.

Once large-scale production is realised, Mr Wang expected the central government to require coal bed gas producers to sell a certain amount of their output through long-distance pipelines to help relieve gas shortages in major cities.

China Leason intends to sell its gas to ceramic producers in Zhejiang and Guangdong provinces as well as the Guangxi autonomous region this year, and to expand sales to other industrial users in northern and eastern China next year.

Coal bed gas was cheaper for its customers, compared to liquefied petroleum gas and fuel oil produced from crude oil, Mr Wang said.