Sinopec Begins Construction of First Liquefied Natural Gas Terminal

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Researched by Industrial Info Resources (Sugar Land, Texas)--In September, China Petroleum and Chemical Company (NYSE:SNP) (Sinopec) (Beijing, China), China's third-largest petroleum company, announced that it had begun construction on Phase I of its first liquefied natural gas (LNG) terminal in the Qingdao Industrial Zone, in Shandong province.

Construction originally was supposed to begin toward the end of the year, but was expedited to be ready for LNG imports from Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas). Phase II is scheduled for construction beginning in 2016. When fully commissioned in 2019, the $1.2 billion Qingdao LNG terminal will handle the regasification of 5 million metric tons per year of LNG. Sinopec also has announced plans to construct its second terminal in Zhuhai and hinted at constructing several more in Guangdong province.

Sinopec recently made its first LNG deal, signing a contract last December with ExxonMobil to buy 2 million metric tons per year of LNG from the company's Papua New Guinea project over a period of 20 years. ExxonMobil, largest of the six oil "super producers," decided earlier in the year to move ahead with the Papua New Guinea project that is anticipated to produce about 6 million metric tons per year. LNG deliveries are expected to begin in 2014.

Last year, China experienced extremely heavy snows and was forced to divert natural gas from industrial to residential consumers, to ensure that ample supplies would be available through difficult times. This highlighted serious natural-gas shortage issues that China has been trying to fix for some time. China is the largest producer and consumer of coal, and electricity in the country is primarily produced via coal-fired power stations; however, China is seeking to increase the use of natural gas in electricity generation.

LNG was first imported in 2006, and China has been struggling to meet demand by building regasification terminals. Most terminals are operated by China National Offshore Oil Corporation (Beijing) and PetroChina Company Limited (NYSE:PTR) (Beijing), though Sinopec is catching up quickly.

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