China: Fortune Oil Inks Deal to Build Xinyang LNG Plant

Fortune Oil announced two significant developments relating to the Company’s expanding natural gas business:

Development of a Major Liquefied Natural Gas Business

On 15th December 2011 Fortune Oil signed an agreement with the Xinyang City Government to build a liquefied natural gas (LNG) production plant in Xinyang. The plant will liquefy natural gas (300,000 cubic meters per day) supplied from the Xinyang Fortune Gas Co. Ltd gas pipeline and will be delivered to end-user storage tanks via specialised road tankers. This solution will enable natural gas to be supplied to end users that are not otherwise accessible by pipeline.

Fortune Oil will hold 100% equity interest in the plant and the total investment will be RMB 200 million (c.£20 million). The plant is expected to take two years to construct following the finalisation of regulatory approvals.

For Fortune Oil, this development represents a significant step forward in developing a fully integrated LNG business in China, broadening the Company’s unique technical expertise in linking upstream gas resources to downstream end-users. Fortune Oil has now developed a fully integrated LNG supply chain, linking LNG production to our downstream LNG bus and LNG ship refuelling businesses and ensuring maximum value is captured.

Yangtze River Ship LNG Refuelling Project

An agreement has been reached with Fortune Oil’s project partner, the China Chanjiang National Shipping Group, to install refuelling stations within their existing dock yards to refuel the first fleet of eighty ships which are currently under construction. Installation of refuelling facilities at our partners dock yards will enable Fortune Oil to optimise the refuelling station size in line with fuel demand and reduce refuelling station investment costs, since there will be minimal land costs associated with these stations.

The China Chanjiang National Shipping Group is one of the largest Shipping companies in the world with more than two thousand ships operating along the Yangtze River committed to converting some of its bigger ships into LNG dual fuel technology.

Fortune Oil has developed proprietary dual fuel LNG technology and hence has first mover advantage in the introduction of a fleet of LNG dual fuel ships and LNG refuelling stations along the Yangtze River. LNG fuelled ships provide significant local air quality benefits due to the significant reduction in emissions (NOx, SOx and particulate matter) compared to diesel or heavy fuel oil fuelled ships. Ship operators benefit from significant fuel cost savings as a result of converting ships to use LNG as it is a significantly cheaper fuel source than the conventional marine fuels such as diesel or heavy fuel oil. Each of the 5000DWt ships currently under construction will consume up to 30 tonnes of LNG per month.

This dual fuel LNG technology provides Fortune Oil the platform to partner with China not only along the Yangtze River but throughout China in its efforts to significantly reduce carbon dioxide emissions from the shipping sector. The company’s initial partnership with China Changjiang National Shipping Group provides first mover advantage in this strategically very important LNG downstream market and the company’s efforts to deploy “clean fuel technology”.

Mr. Tee Kiam Poon, Chief Executive of Fortune Oil, commented:

“We are extremely pleased with the progress we have made in 2011 as we continue to expand across all of our core businesses, oil and natural gas. We have secured commercially attractive investment opportunities in line with the rapid expansion of China’s energy market. The Xinyang LNG production facility is a major step for Fortune Oil strategy of developing an integrated LNG business and we continue to lead in the development of LNG as a fuel for the transportation sector. Together with our shipping partner we are making rapid progress in introducing one of the largest LNG fuelled shipping fleets in the world and the associated LNG refuelling infrastructure.”

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LNG World News Staff, December 16, 2011