Chinese independent Poly GCL has signed a contract to supply liquefied natural gas to an import terminal planned to be built at Yantai in east China’s Shandong province.

The contract signed with Yantai LNG represents a vote of confidence that Poly GCL can push ahead with its integrated Calub-Hilala gas project onshore Ethiopia.

This scheme is due on stream in three years' time and will require construction of both onshore and offshore facilities with gas to be exported as LNG from a plant set to be built in Djibouti in 2022.

Sources attending an LNG conference in Beijing last week said that Poly GCL has committed to supply 700,000 tonnes per annum of LNG to Yantai over a period of 10 years starting in 2022.

In the meantime, the company has signed a number of heads of agreements with Chinese end users to supply LNG, although no plans have been firmed up to turn these HoAs into binding commercial contracts.

The Calub-Hilala gas project covers the development of two fields in the politically sensitive and restive Ogaden region of Ethiopia, with the pipeline to terminate at a floating LNG plant in Djibouti.

The two fields are understood to hold about 4.7 trillion cubic feet of gas as well as 13.6 million barrels of liquids.

The export plant will be based on Sembcorp Marine’s modularised GraviFloat FLNG concept.

Development is planned in multiple phases.

First exports are due to start in 2022 at an initial rate of 3 million tpa of LNG, expanding to 6 million tpa in the second phase and 10 million tpa in the third stage.

Under these plans, Poly-GCL would sell 70% of the initial 3 million tpa of LNG from the project to China, while exporting the rest to the international market.

According to sources, the agreement with Yantai LNG came just ahead of the expected approval of the Yantai LNG terminal by China's National Development & Reform Committee next month.

This terminal will incorporate two jetties, the larger of which will be able to handle LNG vessels up to 266,000 cubic metres in size, five LNG tanks each with capacity of 200,000 cubic metres, two of which are for peak shaving purpose during the winter season.

When completed, the terminal will be able to handle 5 million tpa of LNG imports, expandable to 10 million tpa in a second phase. This project — along with the gas distribution pipelines linking the terminal and end users in Yantai, Jinan, Binzhou, Weifang, Zibo and Dongying cities — will cost $2.3 billion to build.

Of the total investment, $1.2 billion will go to building 530 kilometres of pipelines.

The total gas demand in the six cities is expected to reach 23 billion cubic metres by 2025.

Shandong now relies on coal to meet the bulk of its energy needs, with coal-fired power demand reaching 540 billion kilowatt hours, accounting for about 96% of the province's total power consumption.

With no gas-fuelled power plants in existence, Shandong now consumes 200 million tpa of coal.

The provincial authorities have endorsed plans to build 12 gas-fired power plants each with a capacity of 1000 MW, to replace coal-fired plants.

When these new power stations are built, local gas demand is due to increase by 1 Bcm per annum. Another domestic plan involving an overhaul of China's energy mix calls for reducing coal use and increasing gas use.

By the end of next year, coal use in Shandong will be reduced by 55 million tpa, down by 25% from this year. In contrast, gas demand will rise to 50 Bcm per annum by 2030, which will account for 13% of the province's total energy demand.

Weekly

LNG deal boost for Calub-Hilala