China's imported gas supplies from Myanmar are expected to be cheaper than some existing sources in the local domestic markets in southwestern Yunnan and Guangxi provinces, despite being relatively more expensive than overall domestic Chinese gas, sources said Friday.
This is because Yunnan and parts of Guangxi now use more expensive onshore LNG, which has to be liquefied from other domestic fields and trucked to end-users.
China Gas Holdings, an independent gas distributor, believes that once more pipeline gas starts to come into southwestern China, gas prices will likely be much cheaper than onshore LNG, a spokeswoman said Friday
As an example, she said customers' gas prices fell significantly when Guangxi province was connected to CNPC's Second West-East Pipeline earlier this year.
"The gas will actually be cheaper from the pipeline and we could start to make money in China's southwest region," the spokeswoman said. "Previously the liquefaction and transport costs for LNG were quite high."
ENN Energy, one of China's largest independent gas distributors, is now in talks with state-owned China National Petroleum Corp., which is in charge of the Myanmar gas imports, to conclude a gas sales contract to secure Myanmar gas supplies for its customers in Yunnan province, said spokeswoman Shirley Kwok.
ENN currently serves a population of about 300,000 in Yunnan -- 250,000 people in Wenshan, a city in the southeast of the province, and the remainder in the capital Kunming.
"We hope to be able to start supplying our customers with gas from Myanmar by the end of this year or next year," Kwok said, adding that more work needs to be done to build connecting pipelines and gas processing stations.
ENN currently procures its gas for Yunnan customers by transporting LNG from other surrounding provinces by road to Yunnan, she said.
If demand picks up in the southwest, however, ENN could still need to rely on trucked LNG as supply from the Myanmar pipeline will be limited.
Myanmar gas enters China at the border town of Ruixi in Yunnan, and from next month will also be sent to Guangxi province, east of Yunnan. Some 400,000 Mcf/day is contracted to be sold to CNPC for 30 years from the deepwater Shwe project offshore western Myanmar. First gas was achieved in mid-July.
On August 1, CNPC said consumers in Yuxi city in Yunnan will be the first customers to use the gas from Myanmar, which will be transported via a spur from Lufeng county.
Local media in Kunming reported Thursday that Yuxi could start receiving Myanmar gas next week, citing an official with CNPC.
The report also said Yuxi gas prices for residential users are now around Yuan 4.98 (81 cents)/cubic meter ($22.50/MMBtu) and are expected to fall to Yuan 3.50/cu m when they switch to Myanmar gas.
CNPC expects gas penetration in Yunnan to rise sharply with the arrival of Myanmar supplies, even though the delivered cost is expected to be as high as imports from Turkmenistan, on which it has been making losses since 2010.
The wellhead price of Shwe gas at the first onshore gas processing station in western Myanmar is $8.60/MMBtu, Platts reported previously. This excludes an onshore tariff for the pipeline, which stretches nearly 800 kilometers across Myanmar before reaching the Chinese border.
When contacted Friday, an official with CNPC's own gas distributor Kunlun Energy in Beijing said the company has recently set up a branch in Kunming to look at gas opportunities in the province, including establishing gas filling stations for the transport sector.
The central government raised citygate prices by more than 15% across China on July 10. The maximum citygate price -- or wholesale gas price sold by producers to gas distributors -- for Yunnan is now at Yuan 1.97/cu m for existing supply, while incremental supplies for non-residential users has been set at Yuan 2.85/ cu m.