Floating LNG processing plant will enhance gas supply security and cut costs, CLP says

Offshore plant for regasifying imported LNG would occupy less than a hectare of sea area

PUBLISHED : Thursday, 05 May, 2016, 8:01pm
UPDATED : Thursday, 05 May, 2016, 8:01pm

CLP Holdings’ proposed floating gas processing plant off Lantau – its second proposal in 10 years to import liquefied natural gas (LNG) – will cost less and result in “much less” environmental impact than its proposed US$10 billion onshore plant rejected by the Hong Kong government in 2008, the company’s chief executive, Richard Lancaster, said on Thursday.

Speaking after the annual shareholders’ meeting of the sole power supplier for Kowloon, the New Territories and Lantau Island, Lancaster said the plant would give CLP direct access to overseas supply of natural gas, which was cleaner-burning than coal.

We think this is a very good solution for Hong Kong
Richard Lancaster, CLP

“The floating liquefied natural gas terminal has much less environmental impact, [costs] much less, and will not need to take up land ... we think this is a very good solution for Hong Kong,” he said, adding the technology was mature, with more than 20 floating plants in operation around the world.

CLP Power Hong Kong vice-chairman Betty Yuen So Siu-mai said the project might bring consumers savings on fuel costs – the biggest source of power generation costs – given currently depressed oil and gas prices.

Planning for the proposed plant was at an early stage, and CLP had yet to conduct an environmental impact assessment, Lancaster said.

Diversifying its gas sources is part of CLP’s strategy to reduce supply risk and enhance its bargaining position with suppliers.

A temporary gas supply suspension caused by a massive landslide in Shenzhen last year has highlighted the need for such diversification.

The offshore plant for regasifying imported LNG will occupy less than a hectare of sea area, a much smaller footprint than the previously proposed onshore plant.

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CLP aims to start building a 600 megawatt gas-fired power generator in Tuen Mun later this year so that it can be commissioned in 2020 and help meet more stringent emissions requirements.

Asked if the plant’s construction would result in higher power tariffs since CLP’s regulated profit was linked to the size of its assets, Lancaster said the impact would be “very minimal” as the construction costs would be amortised over a long period of time, adding its greater operating efficiency compared to its existing generators would result in lower fuel costs in the long run.

The government wants half of Hong Kong’s electricity to be generated from natural gas by the end of 2020, while CLP aims to cut the carbon emission intensity of its power plants by 75 per cent by 2050, meaning it has a long-term need to procure more natural gas.

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Last year, it almost doubled the amount of natural gas used to generate power. While gas is more expensive than coal, the pressure on its fuel bill was offset by sharply lower coal costs.

CLP first proposed in 2005 to build an onshore LNG terminal on South Soko Island off Lantau Island, which would occupy 37 hectares of land. An environmental permit was obtained for the plant.

But the project was later rejected, with the Hong Kong government signing a memorandum of understanding with the central government in 2008 under which new fuel sources for electricity generation would be sourced from the mainland.

They include the second west-to-east gas pipeline, importing gas from Central Asia, built by state-backed oil and gas titan PetroChina, a new LNG terminal in Shenzhen and new gas supplies from the South China Sea.

CLP not being reasonable in its view about reasonable returns

The pipeline started supplying gas to CLP in 2013. As part of its agreement with PetroChina, CLP also agreed to take a 24.5 per cent stake in an LNG terminal in western Shenzhen proposed by PetroChina, which would supplement supply to the pipeline.

But the proposed terminal was not built due to opposition from interest groups, including port operators and environmentalists. A revised proposal to move the project to eastern Shenzhen is still pending approval, according to mainland media reports.

PetroChina rival China National Offshore Oil has built two LNG terminals in eastern Shenzhen, and is developing gas fields in the South China Sea.