China forecast to consume 420 Bcm of gas in 2020

Comments: 0

Spurred on by the challenges of growing urbanisation and concern over appalling pollution levels in much of the country, the Chinese government has just announced that it expects natural gas supply to reach 420 Bcm/year by 2020 to meet fast-rising demand. The implications of this – for China and for existing and potential suppliers to the Chinese market – are profound.

Were this any other country, the startling ambition of this target would attract scepticism. But, when it comes to gas development, China has a track record of confounding the sceptics. There are some who believe that China’s gas consumption could reach as much as 500 Bcm/year by 2020.

China’s gas consumption has been growing rapidly, from just 25 Bcm in 2000 to 144 Bcm in 2012 – an average annual growth rate of 15.9%. To reach a level of 420 Bcm in 2020, consumption would have to continue to rise by an average of 14.3% for the rest of the decade. It is estimated to have reached around 170 Bcm last year, an 18% rise on 2012.

Another 250 Bcm/year: The real challenge, however, stems from the absolute volume increase that would be required to meet the new target. The percentage increases since 2000 were from a very low starting figure. To achieve double-digit increases for the rest of the decade, starting from a figure of 170 Bcm/year in 2013, China would have to find another 250 Bcm/year of supply in just six years – and would have to construct a massive amount of infrastructure to produce, import and transport volumes of this scale. It would be an unprecedented level of gas market growth.

There are questions also over how quickly China could increase indigenous production and whether it could contract sufficient imports by pipeline and by LNG. That said, China’s “Big Three” state-owned oil and gas corporations – China National Petroleum Corporation (CNPC) and its listed subsidiary PetroChina, China National Offshore Oil Corporation (CNOOC) and China Petroleum & Chemical Corporation (Sinopec Corp.) – have been making impressive progress in growing their LNG and pipeline import capacity and constructing transportation infrastructure for these imports.

Strategic initiatives: China is still overwhelmingly dependent on coal for its energy but the nation’s leaders are keen to see natural gas take a growing share – not least because that would help to improve air quality in what are some of the world’s most polluted cities (see photo above).

In March 2011 the Chinese government presented its 12th five-year plan, covering the years 2011-2015. A key element of that plan was to increase the use of gas in the nation’s energy mix.

Towards the end of 2012, the government unveiled a natural gas policy aimed at increasing the use of natural gas in transport. As well as encouraging the use of gas, in particular LNG, in buses, taxis, trucks and ships, that policy placed restrictions on the use of gas for the production of methanol or fertiliser. The government added that it was planning to introduce much-needed price reforms that would provide better incentives to produce more gas at home and to import more gas from abroad.

In June last year, China’s National Development and Reform Commission (NDRC) announced that it would increase the average wholesale price of gas for non-residential consumers with effect from July and expand the use of a market-based pricing mechanism . Gas prices for non-residential users rose by 15% to 12.95 yuan/cubic metre. However, the most significant aspect of the decision was the emphasis on the roll-out of a market-based gas-pricing mechanism – an important structural change.

The 12th five-year plan issued in 2011 envisaged:

  • gas consumption rising from 108 Bcm in 2010 to 230 Bcm in 2015;
  •  domestic gas production rising from 95 Bcm to 176 Bcm – 138.5 Bcm from conventional sources, 15-18 Bcm from coal gasification, 16 Bcm from coal-bed methane, and 6.5 Bcm from shale gas;
  • gas imports rising from just 17 Bcm to 93.5 Bcm;
  •  installed capacity of gas-fired power stations growing from 26.4 GW to 56 GW;
  • the addition of 44,000 km of gas transmission pipelines to the 40,000 km available in 2010; and
  • the addition of 22 Bcm of underground storage capacity to the 1.8 Bcm available in 2010.

Attainable goals: According to a report recently published by China Energy Fund Committee (CEFC), a Chinese non-governmental think-tank registered in Hong Kong: “The 2015 goal of promoting natural gas consumption to 230 Bcm/year is largely attainable under the current policy scenario and may even be exceeded. Referring to the historical data of consumption growth, and in view of China’s potential GDP growth rate, natural gas consumption could reach as high as 242 Bcm/year by 2015.”

The CEFC also believes that the 2015 goal of increasing indigenous gas production to 176 Bcm/year “is likely to be fulfilled”, with conventional gas production continuing to be the major contributor to domestic gas supply. However, unconventional gas production goals are seen as “more uncertain”.

The report continues: “China’s unconventional gas reserves, a massive resource base, offer a bright prospect in the long term. However, challenges such as exploration rights acquisition, geological survey, pipeline infrastructure, drilling and exploration technologies and even accurate statistics for commercial supply cloud the future of China’s unconventional gas development.

“Whether the national plan of having 6.5 Bcm of shale gas output and 16 Bcm of coal-bed methane (CBM) surface extraction by 2015 can be achieved still remains highly uncertain . . . Further achievements in unconventional gas development will require more state-of-art drilling technologies, pipeline network development, and a market-oriented approach for gas pricing and development rights.”

As for the 2020 target, the CEFC believes that “based on different growth scenarios gas consumption by 2020 will be between 350 Bcm/year and 450 Bcm/year”.

By Alex Forbes