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Third-party access to Asian LNG import terminals making slow but sure headway

Wed 11 Apr 2018 by Mike Corkhill

Third-party access to Asian LNG import terminals making slow but sure headway

Third-party access to Asian LNG receiving facilities holds the promise of a more efficient use of available infrastructure, but there are challenges to its implementation

A number of Asian LNG import terminals are currently being opened up for third-party access (TPA) as part of drives towards gas market liberalisation in the region’s leading gas-buying nations and optimising use of the gas processing and distribution infrastructure currently in place. 

Globally, however, Asia is behind the TPA curve, as operators of US and European terminals began opening up to third-party users in the 1990s. Yet the delay in the uptake of TPA is understandable when the unique nature of the Asian market is taken into account.

While lacking significant gas reserves, most Asian nations have large populations and a rapidly rising demand for this clean-burning fuel. Pipeline imports are not practicable in the majority of cases so Asia has turned to LNG purchases and the region’s utilities and gas distribution companies have made major investments in the required receiving terminal infrastructure for their own internal use.  

European and US leads

The European Union has passed three Gas Directives, in 1998, 2003 and 2009, which include provisions governing TPA at EU LNG import terminals. The regime effectively requires all such facilities to be open to third-party users but there are exemptions. 

For example, to encourage investment, the primary capacity of LNG terminals built in countries where no new terminal infrastructure has been added in over 20 years is not subject to mandatory TPA. However, the secondary capacity at such facilities should remain open. 

In the US, a 1992 ruling by the Federal Energy Regulatory Commission effectively mandated that capacity at the country’s LNG receiving terminals be made available to third-party users. There was some backtracking from this liberal approach a decade later when Dynergy was exempted from the need to implement the TPA regulations for a terminal it was seeking to build.

Divergence in the US regulatory regime quickly became a moot point, however, as LNG imports ground to a halt in the face of the country’s shale gas revolution over the past decade. Most US receiving terminals are now being given a bi-directional capability with the addition of liquefaction trains, and the emphasis at these facilities is now on exports.           

China in the mix

China has been reforming its gas industry over the past five years, but the process has been a drawn-out affair due to a desire not to upset existing players and destabilise the market.

The over-arching aim of the reform measures has been to boost the economy’s demand for natural gas, not least to encourage the replacement of coal with gas to curtail the severe air pollution afflicting parts of the country. To achieve this goal, the government has been seeking to liberalise access to the country’s gas infrastructure to ensure efficient use of the investments that have been made and to encourage competition in the domestic gas market.

The 14 worldscale Chinese LNG import terminals now in service are controlled by one or the other of the country’s three state-owned energy majors – CNOOC, PetroChina and Sinopec. There has been some reluctance on the part of these companies, having invested heavily to bring the facilities onstream, to grant terminal TPA to private gas distributors and power generators who would then be competing with them for downstream business.   

Back in 2013 China’s regulatory regime prohibited private companies from importing LNG directly on their own. Then, in September that year, a relaxation of these controls enabled the privately controlled Jovo company to commence importing LNG at its own newly opened small-scale terminal at Dongguan in the Pearl River Delta.

China’s National Development and Reform Commission (NDRC) went a step further early in 2014, issuing guidelines on allowing TPA to existing state-owned terminals. The guidelines also encouraged private companies to enter and invest in the domestic LNG market.

Another landmark was achieved in December 2014 when Hebei-based ENN Energy became the first Chinese company not run by the government to take delivery of an LNG cargo at a state-owned major’s import terminal. The facility in question was PetroChina’s Rudong installation in the northern province of Jiangsu.

As yet, PetroChina has been alone among the three majors in opening its terminals to TPA on a fee-paying basis. Guanghui Energy has also received cargoes at Rudong as well as at Dalian, another PetroChina terminal.

Like Jovo, ENN and Guanghui have also embraced the government’s encouragement to make further commitments to the domestic LNG market. Both have invested in their own terminals. Guanghui’s small-scale terminal in Qidong was opened in June 2017 while the new ENN terminal in Zhoushan, constructed as a worldscale facility, is set for commissioning later in 2018. The masterplan for the Qidong terminal, which is a joint venture with Shell, calls for its future development into a worldscale installation, should the market warrant it.

There are indications that CNOOC could follow PetroChina’s lead and open up to third-party access later in 2018, at one of its terminals at least. The company has been in negotiation with Guangzhou Gas and Shenzhen Gas about receiving their LNG cargoes at Dapeng LNG, China’s largest LNG terminal and one of eight operated by CNOOC.

At the end of the day, the NRDC’s 2014 ruling on TPA has the status of guidance. There is no sign, as yet, of mandatory regulations. 

Japan one year in

Japan’s LNG terminal TPA regime was introduced in April 2017 in tandem with a full-scale liberalisation of the country’s city gas retail sales. The measures were implemented as part of an initiative that encourages new entrants to participate in the country’s wholesale gas market.

As the new TPA regime covers all receiving terminals with 200,000 m3 and above of storage capacity, facilities operated by both city gas and electric power utility companies are governed by its provisions. Facilities with lesser storage capacities are urged to voluntarily open their terminal to third-party use.

Potential third-party users of primary terminal facilities in Japan face challenges, not least securing enough potential customers from what is already a mature and well-served client base. A typical 60,000-tonne LNGC cargo, for example, provides enough gas to supply 200,000 homes for a year. Can a third-party newcomer guarantee such levels of sales in a regional market already developed by the terminal operator?

Elsewhere, Malaysia has introduced the concept of TPA for its import terminals through its Gas Supply (Amendment) Act 2016 which entered into force in January 2017. The TPA licensing system inherent in the new legislation is not yet fully formed, however, as the relevant fee structure is yet to be agreed and finalised. Thailand, too, has recently developed a set of TPA regulations but implementation of the regime is likely to be delayed until proposed new import terminal projects are completed in the early 2020s.

India is another country making an initial appearance on the TPA radar, in this case through draft regulations issued by the country’s Petroleum and Natural Gas Regulatory Board in April 2018. The proposed rules stipulate that any company wishing to establish an LNG import terminal will have to offer 20% of its short-term regasification capacity or 0.5 mta, whichever is larger, as ‘common carrier’, or TPA,  capacity. The proposed legislation is currently open for comment.      

Flexibility is the key

Potential third parties seeking access to LNG import terminals undoubtedly face challenges in meeting the stringent conditions laid down in their applications to reach the wider LNG community. But there have been TPA successes to date and the number is likely to rise as advantage is taken of new legislation and the global LNG market itself grows and diversifies, with a constantly increasing number of players and more flexible sales and purchase agreements.

Finally, in the push for the optimisation of existing LNG infrastructure, TPA is not the only tool available. The growing ranks of industry players are also able to arrange to swap capacity slots and cargoes already on the water, as opportunities arise.

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