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China's truckers scramble to meet LNG demand

CAOFEIDIAN, China (Reuters) — Li Ruipeng's phone has been ringing off the hook with factories and hotels looking to get their hands on prompt supplies of gas.

"Orders started to shoot up from September. Some are asking for deliveries the very next day," said Li, a manager with privately run Huapu Gas, which delivers super-chilled gas by truck to customers within a 310-mi radius of its base in Tangshan, east of Beijing.

Huapu is one of a fast-growing band of trucking companies that are transforming China's once-sleepy domestic spot market for gas into a unique and bustling business as Beijing pushes to wean the country off coal.

Hotels, hospitals and factories have been forced to swap their coal-fired boilers for gas ones this year, creating thousands of new standalone gas customers thirsty for the clean fuel.

But with inadequate pipelines and storage tanks, users in the world's second-largest LNG importer are scrambling for supplies of imported and locally produced gas from dealers like Li.

He's currently dispatching nearly 40 trailers a day, each carrying 20 mt of LNG. That's double the number 6 mos ago, with customers lured by quick delivery and the chance to bypass higher government-set prices for pipeline gas.

"Inflexible pricing for pipeline gas, insufficient grid network and lack of storage facilities ... make trucked LNG a unique business in China," said Chen Zhu, managing director of consultancy SIA Energy.

TRAILER BREAK

The trend is a major break from the global industry norm, where buyers and sellers are locked into long-term contracts—some as long as 20 yr—and rely on pipeline grids to deliver the fuel.

China's first gas trailer hit the road in 2003 as trucks run by companies like Guanghui Energy travelled for over a week to ship gas from remote northwestern onshore fields to factories 3,000 mi to the south.

Now, Li and his peers are expected to play a critical role in keeping the world's most populous nation fueled this winter as it embarks on an experiment to heat homes in nearly 30 northern cities with gas.

The additional demand has boosted spot gas prices over the past month and industrial users have struggled to get their hands-on supplies.

Gas hauled by trailers could make up a tenth of China's total gas consumption of around 240 Bcm in 2017, compared with 5.6% in 2014, said Chen.

And China aims to lift gas to supply 15% of its total energy demand by 2030, more than double the current 6 percent.

CHILLED AND LOADED

Much of the fast-paced dealmaking for spot LNG is unique to China, with Li closing deals on the phone based on prices published by industry monitors on the popular Wechat messaging platform.

A specialist in delivering imported gas, his company secures gas under an annual contract with a nearby CNOOC-operated LNG terminal in Tianjin and also spot cargoes from Caofeidian, supplying customers by trailers loaded with 13-m long tanks storing the chilled gas.

Gas distributors like the country's largest player ENN Energy Holdings and niche dealers like Huapu have spent heavily this year expanding their fleet of trailers, each costing nearly $150,300.

Zhangjiagang-based cryogenic equipment maker Santum, controlled by CIMC Enric, the country's top producer of LNG trailers, sold 600 vehicles in the first nine months of this year, up from 410 in all of 2016.

"We've got yet another 580 trailers ordered for the rest of the year, but realistically we could only deliver those by next March," said a marketing manager with Santum, who estimated some 9,000 trailers now roam the country's highways.

IMPORTS SOAR

Surging spot LNG prices amid concerns about winter demand have drawn in rare shipments from as far as Norway and the United States.

During a recent visit to PetroChina's gas import terminal at Caofeidian, a district of Tangshan, trailers lined up in a sprawling car park hours before an LNG vessel from Australia docked at the jetty.

A key receiving point for imported gas, trucked LNG sales from Caofeidian soared to 480 MMcm by mid-October, already up sixfold from all of 2016, according to PetroChina Jintang LNG Co Ltd which operates the terminal.

"We had to double our staffing for the pump stations and work shifts to fill the trucks," said Gu Wenwen, office manager for PetroChina Jingtang LNG.

Li, whose company plans to double its fleet of trailers, says business will only become more frenzied.

"I am talking so frequently on my phone of the transactions even my five-year daughter knows about LNG prices!" he said.

Reporting by Chen Aizhu; Additional reporting by Meng Meng, Xu Muyu and Beijing newsroom; editing by Josephine Mason and Richard Pullin


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FEATURED COLUMNS

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The ongoing development of shale gas resources in the US has spurred infrastructure construction for both natural gas processing capacity and LNG export terminals.
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Russian natural gas monopoly Gazprom is strengthening its presence in the gas market of the Middle East through the planned construction of an 11-metric-MMtpy–12-metric-MMtpy LNG plant in Iran.


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