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Q&A | Gas in China: A Snapshot Based on the Recently Published Natural Gas Development Report
Q&A by Shangyou Nie • September 07, 2022
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Q&A | Gas in China: A Snapshot Based on the Recently Published Natural Gas Development Report
Q&A by Shangyou Nie • September 07, 2022
On August 19th, 2022, China’s National Energy Administration (NEA) and two sister government agencies issued the seventh annual Natural Gas Development Report (hereafter, the NEA report),[1] which provides official data on China’s gas use for 2021 and indicates its gas-development plans for the near future. This Q&A by Dr. Shangyou Nie, a Non-Resident Fellow at CGEP, analyzes the report to provide a snapshot of the current status of natural gas in China, the world’s largest importer of natural gas and a critical participant in the global gas market, especially since the start of the gas crisis in Europe.
What was China’s gas supply and demand picture for 2021?
China continued to expand its use of natural gas as a proportion of its energy mix. The country sees gas as a transitional fuel that can help it to reduce domestic coal consumption and address the dual challenges of climate change and air quality.[2]
According to the NEA report, China consumed a total of 369 billion cubic meters (bcm) of gas in 2021, up 41 bcm from last year or 12.5 percent year-over-year (yoy), making it the world’s third-largest natural gas consumer after the United States (827 bcm) and Russia (475 bcm).[3] Natural gas now represents 8.9 percent of China’s primary energy consumption, up 0.5 percent yoy.[4]
Table 1: Chinese gas supply and demand, 2021
As Table 1 shows, China’s total gas supply in 2021 was 375.6 bcm, or 6.6 bcm more than consumption, with the balance mainly comprised of storage, the available amount of which is not specified in the NEA report. The report does indicate, however, that China increased its storage capacity by 15.8 percent in 2021 and doubled it over the past three years.
China’s domestic gas production in 2021 was 207.6 bcm, up 7.8 percent yoy, which represents 55 percent of total supply. This marks the fifth year in a row that domestic production grew by 10 bcm/year or more.
China imported 168 bcm of gas in 2021, up 19.9 percent yoy, including 108.9 bcm (65 percent) of LNG and 59.1 bcm (35 percent) of international pipeline gas. Meanwhile, the foreign import dependency rate (对外依存度) for supply reached 45 percent—a figure China would like to lower through increased domestic production.[5]
Can you say more about China’s domestic gas exploration and production and its gas demand growth in 2021?
In response to President Xi’s call “to firmly hold the energy rice bowl in our own hands,”[6] Chinese companies continued to increase investment in domestic exploration and production. Newly added “geological resources” (地质储量, a Chinese term equivalent to “gas in place”) in 2021 amounted to 1.6 trillion cubic meters (tcm), including 805 bcm of conventional gas, 745 bcm of shale gas, and 78 bcm of coal-bed methane. China produced a total of 207.6 bcm of gas in 2021, up 7.8 percent yoy, making it the world’s fourth-largest gas producer after the United States (934 bcm), Russia (702 bcm), and Iran (257 bcm).[7] All of this production is consumed domestically in China.
At the province level, Guangdong joined Jiangsu as a top gas consumer, both at above 30 bcm per year. They were followed by Sichuan, Shangdong, and Hebei, each of which consumed more than 20 bcm in 2021.
The top two gas consumers by sector were industrial (40 percent) and city gas (32 percent), followed by power generation (18 percent) and chemical and fertilizer production (10 percent), as outlined in Table 2. Aside from the latter sector, all experienced double-digit growth in 2021.[8]
Table 2: China gas utilization by sector in 2021
How does US LNG feature in China’s gas import picture?
In 2021, the United States replaced Qatar as China’s second-largest LNG supplier, with US LNG exports to China reaching 12.4 bcm or 9.1 million tons (mt), up 191 percent yoy. China’s largest LNG supplier remained Australia, with 43 bcm or 31.6 mt, up 7.7 percent yoy. Australia provided 39 percent of China’s LNG imports in 2021.
China started importing LNG in 2006[9] at the modest level of 0.8 mt. Over the last 15 years, its LNG demand grew at the breathtaking pace of 36 percent annually, reaching 80 mt in 2021. As shown in Figure 1, in that same year China overtook Japan as the world’s largest LNG importer, with its Asian neighbor on a seven-year decline from a peak of 90 mtpa in 2014 to 74 mt in 2021.[10]
Figure 1: China overtakes Japan as world’s top LNG Importer in 2021
Overall, Australia, Turkmenistan, Russia, the United States, Qatar, and Malaysia were China’s top six gas-supplying countries, providing 129 bcm or 77 percent of its 168 bcm of total imported gas.
According to the NEA Report, in 2021 China bypassed Mexico (58.7 bcm[11]) to become the world’s largest pipeline gas importer (59.1 bcm). Turkmenistan and Russia were the top two pipeline exporters to China, followed by Kazakhstan, Uzbekistan, and Myanmar, though the NEA Report does not provide country-specific pipeline import numbers.[12]
What are the main differences between the 2021 and 2022 NEA reports?
There are three main differences between the two reports:
- The 2022 report focuses on supply security for the global gas market and volatility risk stemming from the Russia-Ukraine crisis. The 2021 report places greater emphasis on climate change and natural gas as a low-carbon source that can help China reach two carbon targets: emissions peak by 2030 and net zero by 2060.
- The 2022 report highlights the current gas price environment, with high average annual prices for all three main gas markets: $15.9/mmbtu for Europe’s benchmark (TTF), up 398 percent yoy; $14.5/mmbtu for Northeast Asia, up 279 percent yoy; and $3.9/mmbtu for US Henry Hub, up 93 percent yoy. The 2021 report highlights the over-supply situation of the global gas market, with an annual average price of $3.07/mmbtu for Europe (TTF) in 2020, down 23.5 percent yoy. In Northeast Asia, the JKM index fell to an all-time low of $1.94/mmbtu in April 2020. Meanwhile, the average annual Henry Hub price for 2020 fell by 20.7 percent yoy to reach $1.99/mmbtu.
- The 2022 report emphasizes the interconnectivity of global gas markets, as cross-region arbitrage trading increased between Europe and Asia in 2021. The 2021 report stresses regional segmentation as a key feature of the global gas market amid the slow recovery from the onset of the 2020 COVID-19 pandemic.[13]
What is China’s gas market outlook for 2022?
During the first six months of 2022, China’s domestic gas production was at 112 bcm, up 7.9 percent yoy; its gas imports were at 74.1 bcm, down 8.9 percent yoy; its pipeline imports were at 31.2 bcm, up 10 percent yoy; and its LNG imports were at 42.8 bcm, down 19 percent yoy.
The NEA report forecasts that gas consumption in China will likely reach 375-380 bcm, or a growth rate of 1 to 3 percent, in 2022,[14] significantly lower than the 10.9 percent average annual growth rate over the past decade.[15] The last year when China’s annual gas consumption growth was below 3 percent was 1996.[16] The report states that two key factors will impact gas consumption levels in China during 2022: winter weather and gas prices.[17]
China’s 2022 domestic production is forecasted to be around 220 bcm. Gas imports will likely remain at a similar level to 2021, potentially with a slight decrease. LNG imports might show a decline for the first time since 2015, as very high gas spot prices are squeezing out some marginal gas users.
City gas will be the main driver of gas demand growth in 2022, whereas demand for gas used for power generation will decelerate due to China’s slowing need growth for power broadly coupled with its increased power generation from hydrogen, solar, and wind.
The NEA report calls for close collaboration between the different value chain components of production, supply, storage, and marketing in order to ensure gas supply security and to stabilize gas prices.[18]
What does the report say about the potential impact of the Russia-Ukraine crisis on global gas markets?
The report makes clear that the Russia-Ukraine crisis and other geopolitical factors are affecting the stability of the energy market, with countries around the world prioritizing the imperative of ensuring energy supply. As Europe tries to reduce its dependency on Russia and increase its LNG imports, middle- to long-term energy supply security is facing increasing uncertainty, despite the accelerating development of renewable energy. The interplay amongst the three main gas markets—Europe, North America, and Asia—is also intensifying, meaning regional supply disruptions can have a substantial impact on global gas markets. China’s gas industry is facing the question of how to establish a risk mitigation mechanism to ensure supply security and stabilize energy prices.[19]
In closing, the main takeaways of the 2022 NEA report are as follows:
- China’s gas demand has been growing and will continue to grow in 2022, though at a slower pace.
- China’s domestic gas production has been growing and will continue to grow by more than 10 bcm/year in the near future.
- The global gas market has transformed from a buyer’s market in 2020 to a seller’s market in 2021-22. The Russia-Ukraine crisis and other factors are likely to cause the gas supply market to be tight, and high gas prices are likely to stay for the foreseeable future.
Notes
The author would like to thank Anne-Sophie Corbeau, David Sandalow, and Erica Downs for their helpful input on this piece.
[1] The Oil and Gas Department of the National Energy Administration, the Institute for Resources and Environmental Policies at the Development Research Center of the State Council, and the Center for Oil and Gas Resource Strategies at the Ministry of Natural Resources in China, Natural Gas Development Report (Beijing: Petroleum Industry Press, August 19, 2022).
[2] The Oil and Gas Department of the National Energy Administration, the Institute for Resources and Environmental Policies at the Development Research Center of the State Council, and the Center for Oil and Gas Resource Strategies at the Ministry of Natural Resources in China, Natural Gas Development Report (Beijing: Petroleum Industry Press, August 2021).
[3] Ibid.
[4] bp, Statistical Review of World Energy, 71st edition (July 2022).
[5] The National Energy Administration, Natural Gas Development Report (2022).
[7] bp, Statistical Review of World Energy.
[8] The National Energy Administration, Natural Gas Development Report (2022).
[9] bp, Statistical Review of World Energy.
[10] Ibid.
[11] Ibid.
[12] The National Energy Administration, Natural Gas Development Report (2022).
[13] The National Energy Administration, Natural Gas Development Report (2021) and Natural Gas Development Report (2022).
[14] The National Energy Administration, Natural Gas Development Report (2022).
[15] bp, Statistical Review of World Energy.
[16] Ibid.
[17] The National Energy Administration, Natural Gas Development Report (2022).
[18] Ibid.
[19] Ibid.
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