Shell prepares to supply Hong Kong with LNG in 2020

Monday, 06 January 2020
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Shell Eastern Trading will be the first supplier of LNG cargoes to Hong Kong for use in the 2.5 Gigawatt Black Point and 3.7 GW Lamma Island Power Stations. Under a 10-year supply deal commencing in late 2020, Shell will ship up to 1.2 million tons per annum (mtpa) of LNG to Hong Kong Electric and CAPCO. Supplies are set to come from Shell’s global portfolio which includes major LNG export projects in Australia and probably some spot cargoes from the U.S.

The cargoes with super-chilled natural gas, supplied by Shell, will berth at Hong Kong’s first floating storage and regas unit (FSRU). Named ‘Challenger’, the FSRU will be deployed by Mitsui O.S.K. Lines (MOL) and moored at the southern waters of Hong Kong and to the east of the Soko Islands.

‘Challenger’ has a storage capacity of 263,000 cubic meters and is said to be “the largest FSRU in the world.” It is currently deployed as an import facility offshore Turkey but will be shipped to Hong Kong in the next months where it is due to enter service around the end of 2020, or early 2021.

“The FSRU vessel, together with the jetty and submarine pipelines, will enable us to have access to diverse gas sources for cost-competitive LNG supplies,” said HK Electric managing director, Wan Chi-tin.

Preferring LNG over pipeline gas from China

Supply of imported and regasified LNG is meant to commence from mid-2021, replacing pipeline gas supply from southern China.

Turning to flexible LNG import, rather than long-term purchase of pipeline gas, is a relatively new move for state-owned CLP Power which used to rely almost entirely on supply of pipeline gas from China. Back in 2008, CLP scrapped plans for a $1-billion LNG import plant after China offered an attractive deal to renew a gas supply contract for another 20 years. But things started to change when LNG prices in Asia started to fall with the growing influx of supply from Australia, Qatar and flexible cargoes from the United States.

Observers note there is much upside for US LNG imports to Hong Kong, both for economic and political reasons. Much of the city’s coal-fired power plants are reaching the end of their lifetime before 2030, hence Hong Kong is embarking on a massive shift to gas-fired power. Utilities start to embrace attractively priced spot LNG, delivered on a flexible basis.

HK Electric and CAPCO, the operators of the massive Black Point and Lamma Power Stations, are keen to fully utilize the FSRU for receiving cost-competitive LNG cargoes as a stable source of gas supply.

CAPCO is jointly owned by China Southern Power Grid and CLP Power, which operates three large power generators – Castle Peak Power Station, Black Point Power Station and Penny’s Bay Power Station. Black Point is a 2,500 MW combined-cycle gas power station, while Lamma Island has a nameplate capacity of 3,736 MW consisting of eight coal- and seven gas-fired units. 

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