According to a report released on March 24 by the U.S. Energy Information Administration (EIA), China's net imports of liquid fuels was higher than the United States, "making it the largest net importer of crude oil and other liquids in the world."
China was the net gas exporter until 2007, at which time it became net importer for the first time. Natural gas imports met 29% of demand in 2012 according to the EIA, and it is becoming an increasingly used form of energy for China. This is especially true in urban coastal regions suffering from toxic air quality readings. According to the EIA:
To meet this demand, China is expected to continue importing natural gas in the form of LNG and from a number of new and proposed import pipelines from neighboring countries. It will also have to tap into its expanding domestic reserves and establish a wider domestic natural gas network and storage capacity.
When cooled to -256 degrees Fahrenheit natural gas becomes a liquid. In its liquid state, natural gas has 1/600 the volume of its gaseous form; this makes it ideal for export to China in the form of LNG. When needed, regasification units are used to turn the liquid back to its gaseous state.
According to the EIA, "CNOOC is the pioneer of developing LNG regasification terminals and remains a key LNG player in China." The company completed the first floating storage and regasification unit (FSRU) in Tianjin at the end of 2013 and is building two additional regasification terminals in the south.
The EIA also makes an interesting comment about the type of natural gas China is interested in:
In addition to purchasing supply, Chinese companies are investing in significant equity stakes in Australia's liquefaction projects, particularly ones involving coalbed methane.
It's called "sweet gas" because it lacks hydrogen sulphide. More importantly, the methane is stored in a near liquid state containing very little hydrocarbons such as propane, butane, or natural gas condensate. In other words, this LNG doesn't need to be cleaned.
Most coalbed methane (CBM) reserves are found in the Surat and Bowen basins in Queensland on the eastern side of Australia. Gladstone and Brisbane are primary locations.
The International Energy Agency predicts production from these sources will account for more than 50% of total gas production by 2020.
A major player in the coalbed methane or coal seam gas (CSG) market is Halliburton (NYSE:HAL). The company provides consulting services for tapping reserves in four primary areas: the San Juan Basin, Uinta Basin, Appalachian Basin, and Australia.
In terms of equity, one of the largest projects is referred to as Gladstone LNG, which is involved in the development of the Fairview, Arcadia, Roma, and Scotia fields located in the Bowen and Surat plays. The project involves the drilling of thousands of wells and will come online in 2015. Total SA (NYSE:TOT) has a 27.5% interest in this project, while Santos (ASX:STO), Petronas, and Kogas have 30%, 27.5%, and 15%, respectively.
Royal Dutch Shell (NYSE:RDS-B) holds a 50% interest in Arrow Energy, a joint venture that is developing CSG in Queensland. Based in Brisbane, it has 65,000 sq km of acreage under exploration in the Surat and Bowen basins. The project is one of the causalities of Shell's attempt to rein in spending. Reportedly, half the workforce was cut in January due to a glut of construction on the Gladstone LNG project. There's even talk of the two ventures merging.
The International Energy Agency predicts that the production of CSG will account for more than 50% of total gas production by 2020, and there are several ways to invest in this coming trend. Halliburton provides consultation services for several CSG plays, Royal Dutch Shell has a 50% stake in Arrow Energy, and Total SA has a 27.5% stake in the Gladstone Project. As these trends continue to materialize, the value of CSG plays will increase and so will the shares of those companies with a stake in them.
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