Chinese EPC Considering Investment and Involvement in Australian LNG Project

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Researched by Industrial Info Resources Australia (Perth, Australia)--Huanqiu Contracting & Engineering Corporation (HQCEC) (Beijing) has become a major shareholder in a branch of Liquefied Natural Gas Limited (ASX:LNG) (LNG Limited), and is likely to invest in the Australian company's Fisherman's Landing project.

Civil construction on the project began in June 2010 and had ceased completely by August 2010, when Arrow Energy pulled out of the project. In February 2010, Arrow had made a deal with LNG Limited to purchase Gladstone LNG Pty Limited, which is a wholly owned subsidiary of LNG Limited. The deal would give Arrow the rights to develop the project using LNG Limited's optimized single mixed refrigerant (OSMR) process technology, which Arrow had paid an additional licensing fee of $5 million to utilize. When Shell bought Arrow on August 23, 2010, it was decided that Arrow Energy would no longer invest in Gladstone LNG Pty Limited or provide natural gas for the Fisherman's Landing project; legal loopholes allowed for the company to withdraw its interests entirely. LNG Limited was left with a site clearing, a lack of funds to go ahead with construction, and no gas to supply to the LNG production plant that was to supply LNG by third-quarter 2012.

As part of the terms of the share-placement term sheet signed by HQCEC and LNG Limited on January 27 this year, HQCEC has agreed to consider investment in Gladstone LNG Pty Limited. HQCEC is a consultation and engineering, procurement and construction (EPC) contracting company and an affiliate of China's largest oil & gas producer, China National Petroleum Corporation (CNPC) (Beijing). One of its terms in conjunction with investment in development of the Fisherman's Landing LNG project is that HQCEC and CNPC, or an affiliate of CNPC, be granted the EPC contract.

The Chinese gas industry is beginning to gather international media interest, as it is set to be one of the next regions to produce an exponential growth in the development of natural gas processing, LNG, and industrial gas projects. Chinese enterprise requires human capital and process technology to assist in eventually accommodating project development that is primarily performed by Chinese companies, as opposed to requiring assistance by foreign specialists. Accessing LNG Limited's OSMR process technology would therefore be a major advantage to CNPC and HQCEC, as well as a great achievement for LNG Limited in strengthening its brand.

The OSMR process technology has several advantages over other LNG process technologies: a lower carbon footprint; improved efficiency; low capital and operating costs; and a faster construction schedule. The plant would take two years to construct, so there is still a slim chance that the Fisherman's Landing LNG plant could reach LNG commercialization around the same time as the QCLNG and GLNG projects and prior to the Arrow Energy LNG and APLNG projects, all under way in the Gladstone area.

LNG Limited is in talks with a number of coal seam gas exploration companies that are based in Queensland and New South Wales to reach a natural gas supply agreement. Coal seam gas is abundant in the Bowen and Surat basins of Queensland, and in pockets of New South Wales. LNG Limited has been granted environmental approval to construct a 21-kilometer pipeline to connect the Fisherman's Landing site with the Callide Infrastructure corridor, which is a gas hub for South East Queensland. A pre-FEED agreement has been signed with gas transmission and distribution company Jemena, which is a wholly owned subsidiary of Singapore Power, for an expansion of its Queensland Gas Pipeline (QGP), extending the gas transmission to reach the Callide Infrastructure Corridor.

HQCEC's investment in LNG Limited, along with the advancement of potential gas supply, signals a much-needed advancement in the project since Arrow's withdrawal last year. HQCEC is subscribing to a total of 53,250,000 shares, which represents an approximately 19.9% ownership in LNG Limited. It is highly likely that an agreement will be made between the parties to advance the 3 million-metric-ton-per-year Fisherman's Landing LNG plant.

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