On June 20th, China National Offshore Oil Corporation (hereinafter referred as CNOOC) Energy Technology & Services Limited announced to buy part of stakes of 5 LNG (liquefied natural gas) ships. CNOOC has stridden into LNG marine transport industry, and realized the full engagement in LNG industry. CNOOC became the first energy enterprise involved in LNG marine transport in China.

The focus of Industry players 
“The safety of LNG industry chain only can be guaranteed by the establishment of our own LNG fleet.” One specialist in this industry stated.

The most distinctive feature of LNG industry is the linkage among upstream, midstream and downstream. Specifically, the upstream is made up of natural gas exploration and development; the midstream refers to liquefaction and transportation; the downstream includes receiving and distributing. Herein, transportation plays an important role in industrial chain, served as a bridge between the resource from upstream and users of downstream and a strategic step in LNG industry.

There are two ways for LNG long-distance transport: pipeline transport and shipping transport. Compared with point to point pipeline transport, LNG vessels, known as floating pipeline, are more flexible and adaptable to market. Experience shows that LNG shipping is more competitive when sea distance is over 1,500 kilometers and land distance over 3,000 kilometers. As LNG transactions involve cross-sea parties, marine shipping is prevailing. Both resource suppliers from upstream and users of downstream are struggling for the control of LNG transport and devoting manpower and funds to participate in the building and operating of LNG vessels.

LNG industry in China has witnessed a rapid development in spite of a late beginning. After the first LNG ship was imported in 2006, the import volume doubled in 2007. China will be the largest importer and consumer of LNG vessel in Asia. It is urgent to build a LNG fleet to adapt to the industry development.

A number of gaps are urgent to be filled.
In China, it is not easy to build and independently operate both large and medium or small LNG vessels. The ship builders need to conquer technical obstruction; the Chinese government should issue related policies, laws and regulations; the industry players should have a correct awareness.

Chinese LNG ship builders have to confront the technological monopoly from foreign enterprises. In China, only Hudong-Zhonghua Shipbuilding (Group) Co., LTD. has the practical experience of building LNG. As the core technology is controlled by foreign companies and solo investment bears a high risk, joint investors cooperate to build and run the vessel. Such practice combines shipping vessel project with LNG import contract. The resource-provider, importer and the shipping party take stakes together. As for small LNG vessel, CCS (China Classification Society) should formulate specific ship building specification and inspection guides. A number of gaps in China’s maritime laws and supervision policies need to be filled to protect and standardize the operation of fleet

The international LNG transportation business (including second leg carriage) has been developed for 40 years, and relatively mature operation system and regulations have been formed. However, LNG marine shipping in China is just emerging with backward laws and regulations. At present, the operation of five large LNG vessels is still considered as trial projects and there is no written term in China’s second leg carriage regulations. In order to promote the development of LNG transport, CNOOC LNG ship project sets up a team for policy-making. The team collects and sorts out operation regulations of LNG vessels in Japan and Europe and appeals to related Chinese government department for policy studies, so as to contribute to the enactment of corresponding regulations.

Talents cultivation is another problem in the way to realize independent operation. “Currently there is no recognized regulation for the qualification of LNG crews in China. And the cultivation of crews is a long process. It requires at least 8 years cultivating one LNG captain of our own.”

Source: website of State-owned Assets Supervision and Administration Commission (SASAC)