Turab Musayev Explains What It Take to Invest in an Lng Terminal in China

According to Turab Musayev, the Head of LNG of SOCAR Trading, slumps in global gas and LNG markets is forcing market participants to rethink their global strategy and re-focus from supply to demand. In fact, in any market where supply curve is more predictable than “step shaped” demand curve, long term customer positions are more valuable.

Mr. Musayev has spent more than 13 years in commodities trading, working previously for Merrill Lynch and Macquarie Bank. He notes that Chinese gas demand has been on everyone’s mind for some time. Regardless of the impact of mild weather or 2020 Coronavirus outbreak on current demand, China will remain a major “sink” for the global LNG and primary demand driver for the next decades.

The Chinese economy is undergoing a structural shift. Due to excessive air pollution in major industrial cities, China has instituted an initiative to replace coal-fired power generation with natural gas-fired power generation. At present, natural gas makes up approximately 6% of the country’s total energy mix. However, according to China’s gas-to-power plan, natural gas market share in the country’s total energy mix will increase to 10% by 2020 and to 15% by 2030.

In 2017 China became the second biggest importer of LNG (bypassing South Korea and 2nd only after Japan). Back then, Chinese annual LNG imports were 40 million tons. Very few people thought that China would import 56 million tons in 2018 and 64 million tons in 2019. By 2021 China is expected to become the biggest LNG buyer and reach a staggering 120 million tons of LNG imports by 2025.

It is not just the volume size that makes China special for LNG markets:

• Its 50BCM pipeline gas system is one of the largest in the world and has regional gas prices. Having access to this market is similar to having access to the major European gas hubs, but at higher, Asian market levels. China will become an Asian “sink” for LNG volumes.

• Independent from pipeline gas market, China has massive market for LNG as liquid product – being traded by trucks and in the future for ship bunkering purposes

For a number of players in the market, having access to a terminal and demand in China is a golden opportunity. Out of 23 LNG import facilities in China, only 3 are privately owned. What does it take for an international player to take part in the private terminal in China and secure demand in one of the largest gas markets in the world?

One should focus on the set of criteria when assessing a private LNG terminal opportunity in China. These range from technical parameters and operational constraints to structure of the transactions (debt financing / equity considerations) and pricing of the LNG contracts. Ultimately, this is a road map of assessing a number of private LNG terminals which are on the horizon and will come online in the next several years.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes