Hong Kong is continuing its push to become a liquified natural gas (LNG) importer, with the latest deal inked with a unit of No. 1 buyer and seller Royal Dutch Shell plc.

Last Friday Hong Kong Electric Co. (HK Electric) and Castle Peak Power Co. Ltd. (CAPCO) said their joint venture (JV) signed a long-term deal with Shell Eastern Trading to procure LNG for the Hong Kong Offshore LNG Terminal (HKOLNG), which is to be sited in the southern waters of Hong Kong and to the east of the Soko Islands.

Supply details were not provided, but the transaction reportedly may provide up to 1.2 million metric tons/year (mmty) for 10 years after the onset of deliveries in 2020. Shell, the world’s largest LNG buyer and seller, would supply the gas from its worldwide portfolio.

HK Electric generates, transmits and distributes electricity on Hong Kong Island and adjacent Lamma Island. The company operates oil-fired power stations, coal-fired units, gas-fired combined-cycle units, a wind turbine and a solar power system in the Lamma Power Station with an installed capacity of 3,737 MW.

CAPCO is a 70/30 JV of CLP Power Hong Kong Ltd. and China Southern Power Grid International (HK) Co. CAPCO owns and operates three coal-fired power stations, Castle Peak Power Station with a total capacity of 4,108 MW, Black Point Power Station with a total capacity of 2,500 MW, and Penny’s Bay Power Station with a total capacity of 300 MW.

The LNG supply deals comes as Hong Kong follows mainland China’s lead to use more gas for both residential end-users as well as industry to lower carbon emissions from coal-fired power plants. China has earmarked that gas account for at least 10% of its energy mix by 2020, with further earmarks set for 2030.

Currently, Hong Kong imports the oil, coal and gas it needs for power production from sources in mainland China.

Hong Kong’s LNG project is in support of the Hong Kong Special Administrative Regional government’s initiative to generate about half of the city-state’s electricity from natural gas by 2020 as a means of improving air quality and general environmental conditions.

“HK Electric is taking steps to substantially increase the use of natural gas for power generation, from currently over 30% of total output to around 70% by 2023,” said Managing Director Wan Chi-tin. The plan, he said, would support the government’s policy and targets to combat climate change and improve air quality while transforming Hong Kong into a low-carbon city.

Separately, the HK Electric-CAPCO consortium also has entered into an agreement with Tokyo-based Mitsui OSK Lines (MOL) to hire a floating storage and regasification unit (FSRU) vessel on a time charter basis for the LNG project. The FSRU vessel would be used for receiving, storing and regasifying LNG to supply gas for power generation through two separate subsea gas pipelines.

MOL, one of the world’s largest shipping operators, also would be responsible for providing operations and maintenance services for the FSRU vessel and the offshore LNG terminal.

MOL already has established itself in the LNG shipping sector and manages one of the biggest fleets of LNG vessels in the industry. It has been involved in numerous offshore LNG terminal projects worldwide since 2009, and last week entered into an agreement with India’s state-run gas company GAIL (India) Ltd. for a short-term charter of an LNG carrier.

MOL initially entered into a preliminary agreement for the HKOLNG project last year, which includes use of a vessel built in 2017 with a storage capacity of 263,000 cubic meters, which is the largest FSRU in the world. The FSRU is expected to enter into service at the HKOLNG Terminal by the end of 2020, after delivery and completion of commissioning.

CLP Power Managing Director T.K. Chiang said the FSRU would enable the company “to receive natural gas from different markets across the globe at competitive prices and enhance the security of our natural gas supply in the long-run to the benefit of our customers and all of Hong Kong.”

Added Chi-tin, “the FSRU vessel, together with the jetty and submarine pipelines, will enable us to have access to diverse gas sources for cost-competitive LNG supplies. In addition, the new LNG terminal project will provide HK Electric with greater flexibility and a new channel for Lamma Power Station to obtain natural gas, easing the pressing need to enhance the security of gas supply.”

FSRU are helping to underpin the expansion of the global LNG sector. These floating units, despite limitations in capacity, online loading and technical hurdles, as well as weather challenges, are typically less expensive to build than onshore counterparts and can be built and put in place more quickly.

FSRUs have been instrumental so fair in helping several countries, including Pakistan, Egypt, Colombia, Bangladesh and India, ramp up their regasification capacity to meet chronic gas shortages by allowing LNG imports. According to a Market Research Future report issued in January, the global FSRU market is expected to grow at a compound annual growth rate of 13.88% over the forecast period of 2018-2023.