The Financial Times Limited By Tom Mitchell and Robin Kwong in Hong Kong – September 1 2008
China Light and Power, Hong Kong’s largest energy company, hopes shortly to finalise a provisional natural gas contract with the UK’s BG Group worth billions of dollars in spite of a government agreement that appeared to redirect the lucrative supply arrangement to two Chinese state-controlled oil and gas companies.
In a bilateral memorandum of understanding announced last week by the Hong Kong and Chinese governments, Beijing said it would support the 20-year renewal of existing supply arrangements from China National Offshore Oil Corporation’s gas fields in the South China Sea.
The two governments also agreed to study the feasibility of supplying Hong Kong from China’s second West-East Gas Pipeline, which is being built by PetroChina. Unlike PetroChina’s domestic business, any sale of its gas to Hong Kong would not be subject to government price controls.
The surprise agreement appeared to trump a provisional supply arrangement signed in June, under which BG Group agreed to provide CLP with one million tons of LNG a year from 2013 to 2033. CLP did not reveal how much it would pay BG Group under the two companies’ 20-year “heads of agreement”, but such long-term gas contracts are typically worth billions of US dollars.
However, CLP told the Financial Times: “Even with the gas supplies cited in the MoU, significant quantities of LNG will still be needed to meet our full requirements for natural gas … We will continue working to finalise the sales and purchase agreement [with BG Group] in 2008.”
BG Group declined to comment.
CLP has long argued that it needs new gas supplies because reserves at Yacheng, a CNOOC-controlled field in the South China Sea, are running low. To import new supplies from BG Group, CLP has proposed building an LNG receiving terminal in Hong Kong. The project, which is bitterly opposed by environmental groups, has yet to receive final government approvals.
Speaking after last week’s MoU, senior Hong Kong government officials suggested that CLP would no longer need to build a receiving terminal in Hong Kong. Hong Kong’s agreement with the Chinese government instead proposes the construction of an LNG receiving terminal across the border, in nearby Shenzhen.
But the Hong Kong government did say that any new supply agreements between CLP and Chinese energy companies would have to be “worked out on commercial principles between the relevant enterprises on both sides”.
“The MoU introduces a new possible location for a LNG receiving terminal,” CLP’s spokesperson added. “We will study this alternative and consider the feasibility of using it to supply [our] power station by 2013.”
CLP’s Hong Kong-traded shares fell sharply in response to the bilateral MoU, dropping 3.57 per cent on Friday to HK$63.50, because of fears that the company would be forced to cancel its plans to build an LNG terminal in the territory.