Investing in China's LNG Vehicle Sector

Brian Hicks

Written By Brian Hicks

Posted November 12, 2013

It’s a shame the Department of Energy is not approving enough exporting facilities for U.S. liquefied natural gas, since new markets are opening up around the globe.

Hong Kong is one such market.

LNG FuelingIn collaboration with Hong Kong LNG Co., China National Offshore Oil Corp. (NYSE: CEO) seeks to introduce LNG fueling stations around the region, using the fuel as an alternative energy source for buses and construction vehicles. This is all in effort to reduce Hong Kong’s pollution problem, and it is in conjunction with mainland China’s campaign to reduce smog emissions in major cities.

And that’s not all. British energy giant BG Group (LSE: BG) has sold its LNG assets in Australia to CNOOC, and BG will supply LNG to mainland China for the next 20 years starting in 2015, UPI reports.

This will be a milestone for Hong Kong, since there are virtually no LNG fueling stations or facilities in the area.

Initial tests will be with the supply of LNG to buses before large-scale projects ensue. But it will be an enormous benefit to the city.

LNG is 20 percent cheaper than other alternative fuel sources, and it will help fuel Hong Kong and China’s manufacturing industry.

But there are a few barriers that stand in the way.

LNG Setbacks

Even though CNOOC is involved in LNG collaboration, the mainland government is skeptical of LNG in Hong Kong. However, this skepticism is unwarned, since China is halting the construction of new coal plants and planning to increase natural gas usage by 8 percent by 2015.

Aside from convincing the mainland government, there will also need to be a mass education campaign in getting citizens and workers acclimated to LNG.

There will also need to be more investment in getting the necessary infrastructure underway. An LNG transport terminal was set to be constructed in 2008, but it was canceled in favor of a natural gas facility.

Where to construct the stations will be an issue within itself, since Hong Kong property is highly competitive. There is also the issue of where to construct them in the event of a typhoon. Fueling stations would have to conform to strict fire regulations, and there will need to be assurances that these stations will not pose a danger to the public.

Alternative proposals have suggested building stations away from populated areas or constructing the fueling centers underground.

There is also the issue of room. Because of Hong Kong’s limited space, introducing LNG on a massive scale could be a problem. Most likely, its use would be restricted to small fleet operations, according to Dr. Hung Wing-tat of Hong Kong Polytechnic University.

But despite the setbacks, there is a strong effort to introduce natural gas across China, and LNG is one such commodity that has been popular on the Asian market.

Chinese LNG

You can count on LNG imports becoming big business in the next decade as China and India have raised domestic LNG prices. This will ensure more incoming LNG in the long-term as demand increases due to growth in manufacturing and China’s desire to introduce cleaner burning fuel into the energy economy.

Not only would this foster more domestic development for LNG, but it will open a new market for whichever nation is able to export to the Middle Kingdom on a wider scale. Domestic production has been slow, and greater imports will be needed in the future.

LNG facilities may be just starting in Hong Kong, but construction of such terminals has been occurring on the mainland. Since 2010, China has seen massive growth in the amount of LNG facilities being constructed. And the nation has decided to construct a floating terminal that will make it easier to take in imports.

The good news is that China is beginning to open its doors to foreign companies for business. This is greater news for whichever nation will be able to increase imports in the future.

Australia is one exporting nation to keep an eye on, along with Russia. The U.S. would be in a great position to export its LNG to China in the future, but we’ll have to see if the DOE will be more accommodating in approving exports in the future.

In the meantime, Chinese LNG is going to be an investment haven in the near future and in the next few decades.


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