Chinese investment in LNG industry remains high in 2017

Chinese investment in LNG industry remains high in 2017Illustration purposes only (Image courtesy of Sinopec)

Chinese investment in liquefied natural gas (LNG) industry soared in 2016 and have carried over into 2017 which is expected to be one of the best years on record.

A wave of Chinese money has flowed into foreign liquefaction project financings, playing a key role in helping these schemes move ahead in a challenging investment climate characterized by low gas prices and plentiful supplies, according to the consultancy Poten & Partners.

Funding for liquefaction projects has primarily supported China’s attempts to source gas and diversify its supplier base.

The amount of funding supplied by Chinese lenders to the LNG sector in 2016 is a record, surpassing recent years. In 2015 around $750 million was provided by two Chinese banks, ICBC and Bank of China.

In 2014 ICBC was the sole Chinese bank providing support to this sector, loaning $85 million to Freeport LNG train 2, the consultancy notes.

While the amount of debt provided this year by Chinese companies to liquefaction projects will fall short of 2016’s record, it will still be substantial, surpassing 2015 funding.

The amount of Chinese lending for liquefaction projects this year looks set to grow, with Equatorial Guinea’s Fortuna FLNG project sponsors primed to make a final investment decision.

Poten & partners said that Chinese sale and leaseback companies are increasingly financing LNG vessels and funding for 2017 is expected to surpass levels in recent years. It had already reached $1.35 billion in the first half of this year, compared with $360 million for all of 2016 and $960 million for 2015.

Since China’s LNG demand has driven Chinese entities to provide debt and equity, its state energy policy will determine whether China will continue to fund the liquefaction sector. The National Energy Administration’s (NEA) target for natural gas in China’s fuel mix is 8.3 percent-10 percent by 2020, up from 5.9 percent in 2015.

State-owned and private companies are planning more LNG import terminal capacity. They are looking at increasing their long-term LNG supply by as much as 10 MMt/y in 2020-2025.

China’s imports are expected to reach 31 MMt/y this year and increase to 48 MMt/y by 2020, Poten & Partners said.

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