Hongkong Electric

Gas deal 'could cut cost of power'

CNOOC 'may be willing' to give Hongkong Electric better LNG price, leading to lower electricity bills in city centre and on Lamma

PUBLISHED : Monday, 25 November, 2013, 4:54am
UPDATED : Monday, 25 November, 2013, 5:34pm

Power bills on Hong Kong Island and Lamma could be cut if hopes Hongkong Electric can secure a bargain deal to buy gas come to fruition.

The company and its gas supplier are negotiating to renew a short-term contract for the supply of natural gas from Shenzhen, which will expire next year.

A source familiar with the negotiations said the supplier, China National Offshore Oil Corporation (CNOOC) was ready to "substantially" reduce the price of gas to keep the contract, a source familiar with ongoing negotiations said.

But a source close to the power firm said it was more likely the pricing mechanism would be "maintained".

A spokeswoman for Hongkong Electric said negotiations were ongoing.

"Apart from fuel costs, the electricity tariff would depend on various influencing factors. Nevertheless, we are always trying our best to lower our fuel cost and purchase our fuel at a market-competitive price," she said.

CNOOC is said to be forecasting increases in the price of gas over the next two to three years, but expects prices to drop after that as global gas supplies increase, thanks in part to shale gas extracted by a controversial process known as "fracking".

But the first source would not reveal how dramatic any reduction would be, or whether the price would eventually drop below the level agreed in 2009 for the five-year deal that expires next year.

The gas contract provides Hongkong Electric with gas from the Dapeng LNG terminal in Shenzhen. The gas is thought to be imported from Qatar.

Hongkong Electric has a separate, 25-year contract with CNOOC to use LNG from Australia for its first LNG-fuelled generating unit at the Lamma power station.

Power tariffs on Hong Kong Island and Lamma are one-third higher than those for residents of Kowloon and the New Territories, which are supplied by rival generator CLP Power.

Hongkong Electric, controlled by tycoon Li Ka-shing through his Cheung Kong empire, sells one kilowatt of electricity for about HK$1.34, while CLP charges just over HK$1.

Tso Che-wah, a professor at City University's school of energy and the environment, was doubtful Hongkong Electric could seal a better deal.

"It basically has no bargaining power as the terminal is its only source of gas. Whatever price they set, they have to take."

Tso also believed there was little scope for a significant reduction in global LNG prices.

Hongkong Electric has touted LNG, which does not produce sulphur dioxide, as a way to reduce its environmental impact.




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