Production Starts at China''s First Deep-Water Natural Gas Field

China's first deep-water natural gas field has started producing gas, marking a milestone in China's efforts both to exploit energy reserves deep under the South China Sea and to increase use of the cleaner-burning fuel.

The US$6.5 billion Liwan-3 project, operated and 49% owned by Canada-listed Husky Energy Inc., is in undisputed Chinese waters about 325 kilometers southeast of Hong Kong. Beijing wants to increase gas use to around 10% of China's energy mix by 2020 from less than 5% now as part of a push to wean the country off coal, which supplies around two-thirds of its fuel and produces huge amounts of pollution and greenhouse gases.

"Liwan is Husky's largest project to date and places us inside the door of one of the fastest-growing energy markets in the world," said Chief Executive Asim Ghosh, in a news release issued here Monday to mark the first gas flow. "It was a massive undertaking and is a great achievement for deep-water gas production in the Asia-Pacific Region."

Initial natural gas sales from the field, majority owned by China's Cnooc Ltd. 0883.HK +0.69% , are expected to be approximately 250 million cubic feet a day, increasing to approximately 300 mmcf a day in the second half of 2014, Husky said. Husky is controlled by Hong Kong billionaire Li Ka-shing. 

Sales of condensates and natural gas liquids are expected to be approximately 10,000 to 14,000 barrels of oil equivalent a day, it said.

The gas comes from wells drilled into the seabed beneath 1,450 meters of water, which is piped ashore to a terminal west of Hong Kong owned by Cnooc, from where it will be delivered to customers in Southern China. Additional gas, from the nearby Liuhua 34-2 field will start flowing ashore in the second half of 2014. At peak, the Liwan pipeline will handle up to 500 mmcf a day of gas, Husky said.

China also is trying to meet ballooning demand using overland pipelines and tankers. Last year, China National Petroleum Corp. started piping gas offshore Myanmar into southwestern China, and the company is trying to clinch a deal with Russia to build a gas pipeline from eastern Siberia to the north of the country.

The country's seaborne liquefied natural gas imports, mostly from Qatar and Australia, rose 22% last year. Chinese companies also have long-range plans to import LNG from Russia, North America and Mozambique.

(wsj.com Edited by Topco)