Natural gas drives China’s green boom14th Jun '16
Continuing our Routes to Growth series on trading in Asia, Andrew Cave meets the energy chief who extols the virtues of taking the long view
Company: Green Dragon Gas Trading in: China Sector: Natural gas extraction
It is one of the great truisms of doing business in China that Western companies should take the long view. Over the past 23 years, Green Dragon Gas has done precisely that. And it’s worked.
The London-listed company was set up in 1993 to exploit China’s reserves of coal-bed methane – a natural gas extracted from coal beds – and is now the largest independent gas developer and producer in China.
It is a survivor. Chief executive Randeep Grewal recalls: “Of the first five companies to sign contracts to develop coal-bed methane in China, we’re the only one still extracting there.
“The country is wide open for technology that develops cleaner energy”
“The others were major energy companies that ran for cover because the coal-bed methane they found was significantly more complex than anyone thought.”
Now that patience may be about to pay off. Demand for green technology and cleaner alternatives to petrol and diesel for automobile fuel is catapulting the gas into the energy mainstream.
As well as being used for heating, it can be employed in gas engines and is a vital resource in coal-rich China – where 30m cars are expected to be running on coal-bed methane by 2020.
As well as being cheaper in China than petrol or diesel, the compressed natural gas produced from coal-bed methane contains 90 per cent less carbon than conventional gasoline, reducing greenhouse gas emissions. Grewal believes it is the natural fuel for heating, power and transport.
All Green Dragon's gas is sold in China and Grewal predicts that Chinese consumption will be so significant that there is no incentive to look elsewhere in south-east Asia.
The company has a licensed area of 7,600 sq km subject to contracts under which it agrees to share production with other parties. Over its history, it has drilled more than 2,000 wells, deploying $450m of capital in the investment phase.
Last year it increased gross production capacity from 8bn to 12bn cubic ft of gas at sites in south-east China and expects to reach 16bn this year.
Grewal is adamant that a long-term approach has been pivotal to Green Dragon’s success. “In Asia as a whole, there is no quick buck to be made,” he says. “You have to commit for the long-term and not come to China expecting to develop a large industrial footprint in a short time.”
He also feels the naysayers are wrong to interpret China’s slowing growth as a sign that its economic boom is over. “China has seen exponential growth,” he says, “but what a lot of people get wrong is that it’s still seeing exponential growth.
“The percentage of growth is slowing from 10 per cent to 6 per cent, but you have to look at the volume not the percentage. GDP continues to rise at a steady rate and the percentage is lower because China is now growing from a much larger base.
“We certainly don't see the trajectory slowing for gas consumption. Gas currently represents 5 per cent of the energy mix and the latest Five-Year Plan sees that rise to the mid-teens by 2020. In the longer term, we see it matching the average of about 25 per cent in the West.”
He also sees an opportunity for Britain to export its green energy technology and expertise to China, which has ambitious plans to tackle pollution: “The country is wide open for technology that facilitates the development of cleaner energy.
“The Chinese government is committed to policies that will support this investment. That virtually eliminates one of the biggest risks in going into a new country. There’s an open door for clean energy technology companies to come to China. But you need to want to come for the long term.”