Hong Kong’s Castle Peak Power Company and Hong Kong Electric Co said on Friday they have signed a supply deal for the nation’s first import of liquefied natural gas (LNG) and for the lease of an import vessel.

Hong Kong is undertaking a massive shift to use more natural gas to fuel its electric power generation from coal, potentially creating a steady and lucrative demand source in the Asian LNG market.

Both Hong Kong-based power companies said they have signed an agreement with Shell Eastern Trading – a subsidiary of Royal Dutch Shell – for a long-term LNG supply for the Hong Kong Offshore LNG terminal.

Shell will supply LNG to both companies from its global LNG portfolio once the project has been completed.

They did not specify the supply deal details, but Reuters had first reported the impending deal in March last year citing sources familiar with the matter as saying the supply deal is for 1.2 million tonnes per annum (mtpa) for 10 years starting after 2020.

Castle Peak Power Company and Hong Kong Electric Co said in a separate statement that their joint venture has signed an agreement with Mitsui O.S.K. Lines Ltd (MOL) for the hire of a floating storage and regasification unit (FSRU) on a time-charter basis for the LNG project.

They added that the FSRU vessel will be used for receiving, storing, and regasifying LNG for the supply of natural gas to CAPCO and HK Electric for power generation through two separate subsea gas pipelines.

MOL will also be responsible for providing operations and maintenance services for the FSRU vessel and offshore LNG terminal.

Castle Peak Power Company Ltd (CAPCO) is a joint venture of utility CLP Power Hong Kong Limited and China Southern Power Grid International (HK) Co, which is a wholly owned subsidiary of China Southern Power Grid Co Ltd.

CAPCO owns three power stations – Castle Peak Power Station, Black Point Power Station and Penny’s Bay Power Station – which are operated by CLP Power.

As part of its commitment to the Paris Climate Change Agreement, Hong Kong is keen to spike the use of natural gas in its total fuel mix for power generation to about 50% by 2020 from 22%, as of 2012.

“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,” HK Electric Managing Director Mr Wan Chi-tin said in the statement.

“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.”

Hong Kong currently produces power using imported fuel in domestic power plants or from imported natural gas from the mainland. The country’s coal-fired plants will reach the end of their useful life in the next decade.

Source: Reuters (Reporting by Jessica Jaganathan; Editing by Rashmi Aich and Sherry Jacob-Phillips)