Edward Yau – SCMP – Updated on Sep 23, 2008
Building on our long history of energy co-operation with the mainland, the memorandum of understanding (MOU) signed between the National Energy Administration (NEA) and the Hong Kong government last month provides a firm backing for an agreement that will help ease the pressure for tariff increases.
The agreement will underpin our city’s economic development in the next 20 years, and ensure that our energy comes from clean sources that are close to home, an arrangement that will keep electricity prices at a relatively low level.
Under the MOU, Hong Kong will see a net increase of at least 1 billion cubic metres of natural gas supply for clean power generation. By sealing the document with Hong Kong, the NEA – which is responsible for regulation and oversight of oil supply and distribution – has undertaken, first, to support the China Guangdong Nuclear Power Holding Co Ltd to renew its supply agreement with Hong Kong for a further 20 years at the current level.
Second, the central government also supports supplying natural gas to Hong Kong, including China National Offshore Oil Corporation’s renewal of its supply agreement with us for another 20 years, also at the current level.
In addition to renewing the two existing sources of supply, it has been agreed in principle to study the feasibility of supplying natural gas to Hong Kong via a new conduit, the Second West-East Natural Gas Pipeline, with an estimated annual supply of more than 1 billion cubic metres.
In a related commitment, the NEA also agreed in principle that Hong Kong and mainland companies could jointly build a liquefied natural gas terminal on the mainland for supplying natural gas to Hong Kong. As the proposed LNG terminal on the mainland can also receive LNG from worldwide sources, Hong Kong will enjoy a greater flexibility in gas sources.
The MOU not only replenishes the current gas supply to CLP Power, it also opens up new sources through alternative pipelines. Importantly, the MOU provides new opportunities for collaboration between energy enterprises on both sides, and is by no means a supply contract binding any firms. It opens the door for energy enterprises on both sides to pursue opportunities on a commercial basis in line with market principles.
For the 2 million CLP Power customers, a more practical concern is whether the agreement helps reduce their power bills. Before the agreement, CLP Power proposed to build an LNG terminal in Hong Kong in anticipation of the Yacheng gas supply running out. Recognising the need for more natural gas to replenish the current gas supply from Yacheng, the government has adopted a dual track approach to process the application.
While proceeding with the initial statutory planning and land processes, it has conducted a due-diligence exercise to verify the need for an LNG terminal on the environmentally sensitive South Soko Island. With an estimated cost of HK$10 billion, the project would inevitably boost CLP Power’s net fixed assets, thus entailing a return to be borne by its customers in electricity tariffs.
As a result of the MOU, CLP Power decided on September 12 to abandon its LNG terminal plan. The imminent result of this decision is the removal of an initial capital outlay of HK$10 billion and the need for cost recovery from the tariff. The building of new pipelines to transfer the gas under the MOU will incur additional capital investment, but the amount will be less than the LNG terminal proposal.
Electricity generation is a major source of pollution in Hong Kong. Natural gas is one the cleaner and more efficient forms of fossil fuel. Replacing coal with natural gas in power generation will help improve air quality.
On top of its environmental benefits, the use of natural gas will also diversify the fuel mix in power generation, thereby improving the reliability of the electricity supply.
Edward Yau Tang-wah is secretary for the environment