Two Qatari companies announced plans to finance a $5B expansion in LNG and retail gasoline for the Chinese Shandong Dongming Petrochemical Group. Plans include the construction of a new LNG receiving terminal and the storage facility to accommodate the 3 million metric tons/year increase in capacity. The injection will also finance 1,000 new gasoline filling stations in six provinces south of Beijing. The announcement follows the Qatari sovereign wealth fund’s commitment to invest as much as $20B in Asia by 2020.
China is home to nearly 50% more shale fields than the US. Many of these shale fields lay in remote Western China and will require massive investment before they can be efficiently tapped. Foreign countries, such as Qatar, invest in these projects because China is also the world’s largest energy consumer. The proliferation of drivers in China has produced a consequent high demand for fuel and gas stations. By investing in Chinese LNG companies, fuel-exporting countries like Qatar minimize transportation costs from well-to-station and increase margins. With global natural gas prices low, LGN companies can capitalize on opportunities to expand and exploit the growing Chinese demand for gas.
Source: http://www.bloomberg.com/news/articles/2015-03-30/qatar-qatra-jv-to-build-1-000-filling-stations-in-china-ceo
This will undoubtedly strain China’s relationship with Russia. In 2013, oil and gas exports accounted for 68% of its total exports, most of which was sent to Europe. The West’s increasing sanctions on Russia coupled with China’s potential to export LNG to Europe will be problematic for Russian exporters, causing further strain on Russia’s floundering economy. It will be interesting to see how Russia deals with this problem politically.
http://www.eia.gov/todayinenergy/detail.cfm?id=17231
http://qz.com/374419
The implication of these midstream infrastructure investments seems to be the intention to exploit these prolific shale fields in the near future. I would imagine that China would choose to delay investment in upstream infrastructure until it seems clear that the global supply gut is decreasing. Further, technology used to unlock these shale reservoirs (horizontal drilling and hydraulic fracturing) has not yet reached most countries besides the US.
It’s probably best (as noted above) to view China as consisting of segmented markets. Shipping LNG to the coast is a good strategy — and probably doesn’t overlap with Russian and other sources.
Similarly, while energy is a global market, specific sources through geography and product-specific investments (refineries geared to specific types of petroleum), there’s still lots of locally high prices begging to be arbitraged away. Northeast Asia likely is one such, physically remote from LNG sources but wanting it as a cleaner fuel than coal or oil.
Generally, developing countries are much more likely to use LNG and compressed natural gas in their cars than developed countries. Because of this, it makes sense for China to build up its infrastructure to consume natural gas at high levels in the future. IF China wants to catch up to the world, it should use all the energy it can get.