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China is the world’s third-largest gas market, consuming 364.6 billion cubic meters (bcm) of gas in 2022—a decline of 1.2 percent (4.4 bcm) from 2021—behind only the United States (881 bcm) and Russia (408 bcm).[1]The Chinese government’s goal is to continue to supply more than half of China’s gas needs with domestic production. The China Natural Gas Development Report 2023, released in July, provides a window into how leading Chinese government agencies view Chinese and global gas markets.[2] Contributors to this report—China’s eighth annual—include the National Energy Administration (NEA), China National Petroleum Corporation, the State Council, and the Ministry of Natural Resources. In this Q&A, the authors discuss key insights from the report.
What were the main developments related to gas development and production in China in 2022?
China’s focus on domestic gas production continued in 2022. Total domestic upstream investment reached a new record of US $51.2 billion (RMB 370 billion) (Table 1), a year-on-year increase of 19 percent. China’s exact investment in domestic gas is not known; the figures released in the report are for both oil and gas sectors.
For six years in a row, China has increased domestic gas production by more than 10 bcm. In 2022, China produced 220.1 bcm of gas, an increase of 6 percent over 2021, which fulfilled 59 percent of its domestic demand and helped to reduce import dependence from 45 percent to 41 percent (Table 2).
China also advanced the construction of its “national network” of gas infrastructure, increasing the total length of long-distance natural gas pipelines by more than 3,000 kilometers and gas storage capacity by approximately 5 bcm. The country made progress on several large liquefied natural gas (LNG) projects, including putting the Binhai LNG terminal into operation and building the Beijing Gas and Caofeidian LNG terminals.[3]
Was China the world’s largest LNG importer in 2022?
China, the world’s top LNG importer in 2021, fell behind Japan in 2022, but replaced Japan as the top importer again in the first half of 2023 (H1 23).[4]
In 2022, China’s LNG imports declined (Figure 1) by 19.5 percent, to 87.6 bcm or 63.5 million tons, which still amounted to more than half (58.3 percent) of total natural gas imports. It was the biggest year-on-year drop since China began importing LNG in 2006 (Figure 1), likely caused by slower economic growth, COVID-19 restrictions, and high LNG spot prices.
In contrast, China’s pipeline imports grew by 7.8 percent year-on-year to 62.7 bcm (41.7 percent of total natural gas imports) in 2022.[5] The 54 percent jump in imports from Russia—from 10.4 bcm to 16 bcm— was one driver of this growth,[6] as Russia continues to increase deliveries to China through the Power of Siberia pipeline, which is expected by Moscow to reach its capacity of 38 bcm by 2025.[7]
In H1 23, with the end of zero-COVID restrictions and a decline in Asian spot prices,[8] these trends reversed and China’s LNG imports increased by 7.2 percent while pipeline imports dropped 6.4 percent to 31.2 bcm (from 33.2 bcm in H1 22).
What were the government’s energy policies related to gas in 2022?
The 2023 report discusses the following gas-related policies:
The “14th Five-Year Plan” for a modern energy system proposes that, by 2025, annual production of natural gas will reach more than 230 bcm and national storage capacity will reach 55 to 60 bcm.[9] This plan focuses on ensuring supply chain security through domestic energy generation, while simultaneously promoting the green energy transition. It calls for developing new technologies for energy storage and achieving the goal of advanced industrial chain modernization.
The “Opinions on Improving Institutional Mechanisms and Policy Measures for Green and Low-Carbon Energy Transition” aims to promote a green transition, prioritize a market-based energy system, ensure greater supply chain security, and further develop CCUS technologies.[10]
The “Guiding Opinions on Improving the Pricing Mechanism for Gasification Services of LNG Terminals” standardizes pricing methods, allowing a government-guided price to be set and permitting province-mandated maximum prices at terminals. The aim is to unify pricing items and key parameters, such as permitted rate of return and actual quantity of gasification.[11]
The “Action Plan for Accelerating the Integration and Development of Oil and Gas Exploration and New Energy (2023-2025)” calls for using wind and solar resources in place of gas to power oil and gas production. It also calls for creating “low” and “zero-carbon” gas fields,[12] while forming a complementary power supply model for offshore wind power and oil and gas fields.[13]
The “Opinions on Accelerating the Development of Energy Digitization and Intelligence” aims to use digital intelligence to achieve low-carbon development and utilization of oil and gas pipelines, storage facilities, and technological explorations.[14] To this end, Beijing develops a geological “one map” system, which includes early warning systems for underground water, soil, and geologic disasters.[15]
What are some differences between the annual reports in 2022 and 2023?
The 2023 report highlights geopolitical disruptions from the Russia-Ukraine war and a redistribution of global gas supply and demand, partly due to sanctions imposed on Russia, resulting in a net consumption decrease in 2022. In contrast, 2022’s report emphasized economic recovery and resurgent demand growth in 2021 and the high-price environment after the COVID-19 pandemic.
In both years, the reports have emphasized the importance of domestic production and long-term gas contracts (pipeline and LNG), but the 2023 report articulates—for the first time—China’s determination to continue to supply more than 50 percent of its demand with domestic supplies. And while the 2022 report emphasized the role of state-owned enterprises in price and supply stability, the latest report stresses the role of China’s domestic market in ensuring supply chain security and flexibility. Whether this emphasis on market forces leads to more private and/or international investment into the Chinese natural gas sector is worth monitoring.
A major difference between the two reports is that the 2023 report projects higher gas demand growth (5.5–7 percent) than the 2022 report (1–3 percent). The projection for 2022 was not met; gas consumption actually declined by 1.2 percent in China compared to 2021.[16]
Globally, gas consumption declined by 3.1 percent year-on-year in 2022 (Table 3) largely because of regional gas shortages and higher gas prices due to the Russia-Ukraine war. Slow economic recovery following COVID-19, a resurgence of coal utilization, and growth in renewable energy also were factors.
What is China’s global gas market outlook for 2023?
The 2023 report sees the world gas market becoming more stable in 2023, barring an exceptionally cold winter in the northern hemisphere in H2 23. In H1 23, spot and mid-to-long term prices have largely returned to pre–Ukraine crisis levels.
It projects China’s demand setting a new record of 385–390 bcm. In H1 23, China consumed 194.1 bcm, an increase of 5.6 percent over H1 22. Demand growth was met by domestic production of 115.5 bcm (up 5.4 percent) and gas imports of 79.4 bcm (up 5.8 percent; 58 percent LNG, 42 percent pipeline imports). But the relatively high cost of imported gas, particularly LNG, might suppress China’s demand growth. China will continue to use domestic production and pipeline imports as base supply and adjust level of spot LNG imports depending on global gas prices.
[2] Institute of Economics and Research of China National Petroleum Company, China Natural Gas Development Report, July 2023, Petroleum Industry Press. Three supervising national agencies are National Bureau of Energy, Development Research Center of State Council, and Ministry of Natural Resources. http://www.nea.gov.cn/2023-07/21/c_1310733569.htm.
[6]Natural Gas Development Report (2023), 5–6; and General Administration of Customs of the People’s Republic of China, “Customs Statistics,” http://stats.customs.gov.cn/indexEn.
[7] “Russia to Supply 22 Bln Cubic Meters of Gas to China over Power of Siberia – Novak,” TASS, March 23, 2023, https://tass.com/economy/1593629.
[12] “Low” and “zero-carbon” gas fields indicate environmentally friendly, energy-saving, and low- to zero-emission gas fields powered with renewable energy.
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