Husky Energy Inc’s Liwan natural gas project opens doors to China

 Husky Energy Inc’s Liwan natural gas project opens doors to China

 
Claudia Cattaneo | March 31, 2014 
For most of the Canadian oil and gas industry, shipping energy to China remains a work in progress.

For Calgary-based Husky Energy Inc., it started Monday, when natural gas started flowing from its massive Liwan project in the South China Sea — the largest investment by a Canadian company in China.

“Everybody is talking about access to the world’s largest growing energy market,” president and CEO Asim Ghosh said in an interview.

“Here is a Canadian company with Canadian capital, with Canadian know-how, that is now part of that market.”

With a price tag of $6.5-billion, Liwan is 75-year-old Husky’s largest project to date. Husky owns 49% of Liwan, and its joint venture partner, China’s CNOOC Ltd., owns 51%.

Husky found the gas field seven years ago and deployed knowledge from its Canadian East Coast offshore operations to build and operate Liwan’s deep-water production facilities.

CNOOC operates shallow-water facilities and an onshore gas terminal.

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The two companies worked well together and built the project on time and on budget, Mr. Ghosh said.

The facilities were largely engineered and fabricated in China.

This is a very advanced engineering society with tremendous project execution skills

“It is very, very impressive,” Mr. Ghosh said. “Anybody who today thinks of China as a low-end manufacturer of goods simply doesn’t understand today’s China. This is a very advanced engineering society with tremendous project execution skills.”

Liwan is located about 300 kilometres southeast of Hong Kong and is China’s first deep-water gas development.

Three offshore fields use shared infrastructure to produce the gas and get it to market.

The Liwan 3-1 field is now in production and initial natural gas sales are expected to be reach 250 million cubic feet per day, increasing to approximately 300 mmcf/day in the second half of 2014. Initial sales of condensates and natural gas liquids are expected to be 10,000 to 14,000 barrels of oil equivalent per day.

The Liuhua 34-2 field is expected to be tied into Liwan infrastructure in the second half of 2014. Production from Liwan 3-1 field is scheduled to go offline for about six to eight weeks to provide for the tie-in of the second field. Combined gas sales are expected to increase to about 340 mmcf/d.

The planned tie-in of the Liuhua 29-1 field is expected around 2016-2017 and increase total gas sales to 400 to 500 mmcf/d.

Natural gas from the first two fields will be processed at an onshore gas terminal and sold to the mainland China market.

Initial gas production has been sold at prices of US$11 to US$13 per thousand cubic feet for the first five years — more than twice Alberta’s prices.

Mr. Ghosh expects prices to remain elevated in Asia.

“The world is consuming gas at faster rate than new fields are being discovered, the new fields are mostly being converted to international transport through LNG, and energy project costs are going up,” he said.

The start up of Liwan is big news for China. The project is expected to meet 4% of China’s natural gas needs and fits with its goal of moving away from more polluting fuels such as coal.

The deep waters of the South China Sea are seen as a new frontier and there is optimism for more discoveries.

Husky has a unique strategic advantage in Asia and at one point contemplated spinning off its Asian business, which includes shallow-water gas developments offshore Indonesia and exploration prospects offshore Taiwan. The plan was later rejected.

Its largest shareholder, Li Ka-Shing, is based in Hong Kong; it has a large team in China made up of locals, CNOOC staff seconded to Liwan and expats; and Mr. Ghosh comes from India. The combination means Husky feels at home in Asia and “we can cross those bridges very easily,” he said.

But the company sees itself as Canadian and decisions are made in Canada, he said. Cash generated by Liwan will be redeployed across Husky’s portfolio. Husky’s Sunrise oil sand project is close to first oil. The company has a large heavy oil business, has liquids rich resource plays and is charting significant growth in the East Coast after making a 600-million barrel discovery with its partner Statoil ASA at Bay du Nord last year.