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The Challenge Of Ensuring Hong Kong’s Energy Supply

Andrew Brandler, Oct 10, 2008 – SCMP

Chief Executive Donald Tsang Yam-kuen’s recent energy deal with Beijing, securing gas and nuclear power supplies for Hong Kong for the next 20 years, is a landmark in the development of the city’s energy policy.

We at CLP Power had been consistently advised for many years that Hong Kong would need to look after its own energy needs as Beijing wrestled with the very real challenge of securing reliable power for the fast-growing mainland cities and provinces. So this deal represents a new, critical development in Hong Kong’s energy policy. This was immediately followed by the Hong Kong government’s statement that the liquefied natural gas terminal project that CLP Power had proposed would not be approved.

CLP Power welcomes Beijing’s support for long-term energy supply. The task ahead is to turn good news into good results and complete the deal on behalf of the Hong Kong people – to secure sufficient gas at the best possible price, and in time for us to replace our declining supplies from the Yacheng gas field in the South China Sea.

It is a measure of Beijing’s good faith in this deal that we have immediately been able to begin detailed discussions with counterparts at the National Development and Reform Commission. But even with this fast start, we are going to face an acute time challenge to make adequate quantities of gas available by 2013.

Hong Kong needs new gas supplies in place then if our Black Point Power Station is to continue providing a significant portion of our power supply, reduce our reliance on coal and enable us to meet lower environmental emissions targets.

As the Yacheng supplies deplete, the deal opens the way to draw gas from three sources: from new gas fields planned to be developed in the South China Sea; from the second east-west gas pipeline bringing gas from Turkmenistan; and, from an LNG terminal to be located on the mainland.

None of these three sources is in place today. However, let us be very clear: Hong Kong’s needs are so substantial that we will need not one or two of these sources to be brought on stream, but all three.

Black Point will be using about 3.4 billion cubic metres of natural gas a year by 2013. In the following decade, as demand for electricity steadily rises and as Hong Kong progressively tightens caps on emissions from local sources, consumption will potentially rise to as high as 6 billion cubic metres by around 2023.

To meet this need, we have been advised that 2 billion cubic metres was planned to come from several new, but smaller, gas fields in the South China Sea to replace Yacheng. If the second west-east gas pipeline can be extended to Hong Kong, we would be able to draw 1 billion cubic metres from this source. With the planned volumes of gas from these two sources, a significant amount of gas will almost certainly need to be sourced from the new LNG terminal in the Pearl River Delta.

Our government’s decision to reject our proposal to build an LNG terminal on South Soko Island means we lose a four-year head start, and face a challenging timetable, as an appropriate mainland site needs to be found and approved, which will involve a rigorous Environmental Impact Assessment.

If we are to meet our targets to ensure power supply reliability over the coming decade, I can’t overemphasise the critical importance of government support and, where necessary, leadership, all the way to completion.

The Memorandum of Understanding is a starting point for meaningful cross-border collaboration in the power sector.

Its implementation and a successful outcome for Hong Kong will depend on the effective collaboration by mainland enterprises with CLP Power, encouraged, enabled and stewarded by our government and the mainland authorities. CLP Power will play its full part.

Andrew Brandler is CEO of CLP Holdings (SEHK: 0002) Limited

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