The natural gas sector in China is second to none in offering pumped-up trade opportunities for Canadians. ExportWise met with two key industry drivers who demonstrate what it takes to succeed in China.
Eric Leung and Kirk Livingston come from different countries and different backgrounds, but they both think big and build strong relationships to get results.
Leung, a Hong Kong-born and UK-educated lawyer and former investment banker is the Deputy Managing Director and CFO of China Gas, the nation’s largest private natural gas utility in terms of concessions, and second largest by volume of gas shipped.
Livingston, a Saskatchewan-raised entrepreneur and former international financier, is the Shanghai-based Senior Vice-President, Asia Business Development, for Clean Energy Compression Corp. Dba IMW Industries of Chilliwack B.C., a natural gas equipment maker.
Today, China Gas is one of IMW’s top clients in Asia, and the relationship is set to grow exponentially. This will get a boost from a recent $250-million credit facility for China Gas from EDC, to encourage future purchases from IMW and other Canadian companies.
China’s natural gas sector was not always on such a high-octane course.
Leung says prior to 2004, natural gas use was virtually unheard of in China, where cheap and abundant coal had long been the preferred fuel for power generation and heating.
“Then the central government decided to burn more natural gas as a clean energy, and policies were formulated to support this new sector.”
To realize its goals for natural gas, China needs infrastructure and gas supplies; on both fronts it has moved aggressively.
Capable of delivering 12 billion cubic metres of gas annually, China’s first national natural gas pipeline was completed in 2004, stretching 4,200 kilometres from Xinjiang in the west to Shanghai in the east.
Since then, a second east-west line has added almost three times the annual capacity and brought gas to Southern China for the first time.
Extending from these natural gas backbones, “a myriad of major pipelines and branch pipelines bring natural gas to a widespread area,” says Leung, adding that while China continues to face natural gas shortages, much is being done to bridge the gap.
Beyond China’s three state-owned oil majors picking up exploration and production efforts, China has imported natural gas since 2005, today arriving from Australia, Indonesia, Qatar, Malaysia and other countries.
“Beyond 2016, China expects to import from Russia through two new pipelines,” says Leung.
Whether Canada participates as a natural gas supplier remains to be seen. In the meantime, the door is wide open to natural gas service providers and equipment suppliers like IMW.
Doing business in more than 26 countries, IMW has developed markets for its compressed natural gas (CNG) equipment for vehicle refueling and industrial applications.
The company’s proprietary oil-free compressors are sought for their performance, lower maintenance costs and high reliability. IMW China has also recently introduced liquefied natural gas (LNG) fueling equipment.
Livingston says IMW began eyeing China in the early 2000s, originally as a source of lower cost materials, and because research indicated “China would eventually be the largest gas market in the world.”
By 2006, he had established IMW’s beachhead in Asia, originally partnering with non-competing local manufacturers who could leverage IMW into the market through their sales and service infrastructure.
Livingston helped identify prospective clients. “We chose a strategy of building key accounts with companies traded on the Hong Kong Stock Exchange. Town Gas was first, followed by China Gas. With those two accounts in hand IMW was tied into nearly 300 cities.”
While China Gas was an upstart in 2004, it was a good bet. As of June 2013, the company has amassed concessions—30-year monopolies—in 196 cities across China.
Though its original mandate was to serve industrial, commercial and residential clients, China Gas’s prospects multiplied after China’s central government reversed a former prohibition on natural gas for transport uses and has since promoted it to the highest level, explains Leung.
“This is the first year of our major rollout—at least 150 new CNG stations. This is on top of the 175 we built in the past six years,” says Leung.
“We will also be building a lot of LNG stations serving the long distance transport sector, for example, trucks and buses, as well as barges, ferries and ships. LNG refilling stations is a new business sector, not only to China Gas, but to China.”
Are More Canadian Firms Ready?
“There have been some high-level visits by EDC officials to China Gas and talk about how they could introduce more Canadian suppliers to us,” says Leung.
Shanghai-based Denis L’Heureux, EDC Chief Representative, Greater China, adds that EDC presented China Gas with a list of more than 60 qualified Canadian suppliers.
Once China Gas shortlists companies it believes could be suitable suppliers, Leung says a due diligence process will ensue, spanning technology evaluation and plant visits in Canada, as well as detailed analysis of product specifications and how they match China Gas needs.
“Then, we would invite these companies to China to see whether it is possible for them to establish a supply base here.”
While he admires Canadian enterprises, Leung cautions: “I haven’t seen many that have spent the time to understand the business environment in China; many still see a lot of risks involved in investing in China and stop right there.”
He believes gauging China’s risks—and its opportunities—is an important step. “The second thing is to be willing to put capital and people in China, as IMW did.”
South-South Of China
Livingston also sees big opportunities to sell into nearby emerging markets directly from IMW’s China base—a strategy known as south-south trade.
He cites Vietnam, Indonesia, the Philippines, Russia, Uzbekistan and Kazakhstan as high-growth markets for natural gas.
Livingston would like to see EDC leverage its contacts and expertise in Clean Development Mechanisms or CDM (emission-reduction projects in developing countries) to help IMW capitalize on regional infrastructure building opportunities and offer leasing products.
“We are seeing robust infrastructure development across the region,” says Livingston. “IMW brings all of the applications, services and products necessary to meet our customers’ demands,” he adds.
Adapting To Business In China:
Tips from IMW’s Kirk Livingston
- Live here: You don’t get accepted as part of the business community until you engage with people intimately on business.
- Learn the language and culture: To be part of the social fabric and build relationships, you need to understand the language and culture of China.
- Build “Guang xi” (relationships): This means your friends and business colleagues expect you to let them know when there is an opportunity, and to come to them when you need help. You’ve got each other’s backs and you help make each other successful.
- Check your management style at the door: Integrate North American and Chinese management styles and work ethics.
- Micromanage: Establish processes, know the details. “If you don’t stay on it, it will go sideways.”
- Move fast: In China, speed to market is a must. Everybody else is trying to get to the target faster than you.
- Central Government Five-Year Plans: Know them inside and out.
How China Gas & IMW Clicked
When considering foreign equipment suppliers, Leung says, “The technology has to be better than we (China Gas) can get in China.”
The availability and provision of spare parts and services are also key, he adds, including accessibility to technicians for maintenance, repair and training.
In its early days with IMW, China Gas encountered a familiar drawback with foreign suppliers: a lack of support personnel in market.
“In those days, when a compressor broke down IMW had an authorized agent in Shanghai mandated to provide services, but it was not satisfactory,” says Leung.
Then, in 2008, while promoting Canadian capabilities, EDC’s former Shanghai representative introduced IMW and China Gas directly, providing a chance for Leung to voice his concerns and for IMW to respond.
“It was through EDC that I came to know (IMW’s) Kirk Livingston. Then, I went to Vancouver and visited the facility there and met (IMW President) Brad Miller. That was how it all really started,” says Leung.
In 2009, IMW and China Gas signed a strategic agreement. “That was the first major cooperation in a high-level manner between China Gas and IMW with the help of EDC,” says Leung.
With that, and a seven-figure credit facility, EDC started financing China Gas purchases of IMW equipment.
In 2010, IMW opened its Shanghai plant. “Setting up our manufacturing and production here was an essential step,” says Livingston.
It enabled the company to offer quicker delivery, service and parts support for its customers, and open up new supply chain opportunities that have benefitted IMW globally.
IMW now supplies turn-key refueling solutions for China Gas stations along with engineering, regional technical services and parts supply.
Leung is also pleased. “IMW has made big improvements since they started their factory in Shanghai. Now they have their people on the ground.
“IMW will have to increase capacity even further because of the new CNG initiatives they are rolling out. We will be buying a lot more from them.”