Chen Aizhu Beijing

CHINA’S biggest energy firm, PetroChina, was reviewing its multibillion-dollar push to produce liquefied natural gas (LNG) to fuel trucks and ships in place of diesel, shutting two loss-making gas liquefaction plants, sources have said.

PetroChina unit Kunlun Energy had closed the two major plants in the past month, wrong-footed by rising costs for gas and China’s slower growth rate that had cooled demand, two sources with direct knowledge of the situation said.

Seen just a year ago as a fast-growing profit engine, the firm was now reviewing investment in the niche business that chilled gas into liquid form, sourcing the gas from small producing fields or from pipelines tapping large inland basins, they said.

LNG is increasingly being seen as a potential transport fuel, and can nearly treble a vehicle’s driving range over rival compressed natural gas. Royal Dutch Shell agreed last year to run LNG fuelling lanes at up to 100 major truck stops along US interstate highways.

LNG is cleaner and nearly a third cheaper than diesel, China’s main transport fuel. Oil firms had an ambitious goal back in 2011 to replace 10 percent of automotive diesel consumption with gas by next year, industry officials said.

Led by the private sector, China has built dozens of small-scale onshore gas liquefaction facilities since 2001 to tap marginal gas fields located off the national pipeline grid, filling a supply gap as demand surged for LNG, which produces less carbon dioxide.

Kunlun, a relative late-comer, emerged as a leader of the business, having spent billions of dollars on a dozen LNG plants, mainly in the country’s west and north, and building over 600 gas refuelling stations. The company separately operates two multibillion-dollar LNG import terminals on China’s east coast.

It also helped put nearly 80 000 LNG vehicles on the road by the end of last year by working with car makers and truck fleet owners, said a Kunlun executive, who declined to be named as he was not authorised to talk to the media.

But since the second half of last year, Kunlun had seen utilisation rates at some of its plants fall below 50 percent, he said, amid a broad economic slowdown and as Beijing rolled out a gas price reform that pushed up prices of feed gas.

An anti-corruption probe of top PetroChina executives, including former Kunlun chairman Li Hualin – a protege of China’s former security chief Zhou Yongkang who is now officially under investigation – added to uncertainty about the company’s business strategy, the Kunlun executive said.

A PetroChina spokesman and Kunlun’s investor relations chief were unavailable for comment.

Last month, barely a month after the start of trial production, Kunlun shut down a 1.2 million-ton-a-year liquefaction plant at Huanggang in the central province of Hubei, the sources said. The largest plant of its kind in China had aimed to supply LNG to vessels along the Yangtze River.

A second plant at Ansai in northern Shaanxi province was closed a month ago. – Reuters