Opportunities emerge for private firms to enter China's LNG market

There were no half measures when China embarked just over a decade ago on a policy of putting liquefied natural gas at the heart of the country's push to diversify its energy sources.

The clean-burning fuel, created by cooling natural gas to minus 160 degrees Celsius, was championed as an alternative to a decades-long reliance on the use of coal and petroleum that brought choking smog to the mainland's cities. But with a liquefication or regasification facility costing tens of billion dollars to build, the development of the industry became the exclusive turf of the state-owned energy giants.

Beijing added LNG to the national energy strategy with a clear aim to control the supply chain - unlike the case with crude oil imports. That quest started in 2002 when China National Offshore Oil Corp (CNOOC) struck long-term contracts for gas supplies from Australia's North West Shelf project and from the Tangguh field in Indonesia.

China has since paid hundreds of billions of dollars for long-term supply contracts and equity stakes in foreign gas fields, as well as undertakings to build regasification facilities at home and to set up and operate a national fleet of LNG carriers with help from partnerships with energy leaders such as ExxonMobil and BP and Japanese shipping operator Mitsui OSK Lines.

Such high cost barriers were not the main hurdle for private companies seeking a share of the market. With the state majors handed the job of building the LNG supply chain over the past decade, there was no room for new entrants. Now that this task has been completed, opportunities have emerged.

"As China was diversifying its energy mix and supply chain, any attempt for the smaller companies to come into the space was essentially blocked," said Andrew Bridson, business development manager at energy and transport consulting firm BMT Asia Pacific.