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Natural gas.. China’s key to carbon neutrality

  • 08 October, 2021
  • 12:00 pm EEST

Natural gas fits into China’s strategies to diversify its coal-dominated energy mix, as it will contribute to its transition to carbon neutrality in hard-to-decarbonize sectors by 2060.

A recent report – published by the international energy consultancy Wood Mackenzie – predicted that gas demand in China would grow at an average rate of 5.5% annually between 2020-2030.

After 2030, growth will slow, but by 2050, the country’s gas demand could reach about 660 billion cubic metres.

 

High Demand For Gas

The report highlights that China’s demand for gas is back stronger than at any time since the coronavirus pandemic slowed last year.

In the first half of 2021, the country’s gas demand saw a 16 percent year-on-year increase, driven by strong electricity consumption and industrial demand.

The poor performance of hydropower in the southwest and limited coal supplies, along with rising coal prices across the country, and high summer temperatures have supported gas-fired electricity generation.

So far, China’s gas demand has exceeded expectations, and the report expected gas demand to increase in 2021 by 13%, or 42 billion cubic meters year on year.

 

Boosting Local Production

To meet the growing demand, China is boosting domestic production, improving infrastructure, diversifying import sources, and introducing market-oriented reforms.

Domestic production is the backbone of the gas supply mix and the key to overall gas demand growth.

With gas demand increasing, the report forecasts domestic production to increase at an average rate of 4.6% annually between 2020-2030, thanks to significant remaining resources, increased exploration and development spending, and more advanced technology.

National oil companies have discovered 6.85 trillion cubic meters of natural gas resources in the past decade, 45% of the total additional resources since the founding of the People’s Republic of China.

NOCs will stick to the seven-year plan (2019-2025), and accelerate upstream exploration in response to the government’s call for enhanced energy independence, particularly when geopolitical tensions escalate.

 

The Largest Importer Of Gas

The report stressed that the increasing demand for gas in China will require more imports to bridge the gap between demand and domestic production.

China is the world’s largest gas importer, and in 2020, pipeline gas imports totaled 48 billion cubic metres, while LNG imports reached 93 billion cubic metres.

In the first half of 2021, Beijing overtook Japan as the world’s largest importer of LNG.

The report expected that China’s imports of liquefied natural gas for the whole of 2021 will exceed Japan’s imports.

Despite the high flows of pipeline imports, LNG will be crucial to meeting China’s gas ambitions.

Until storage capacity is sufficiently developed, LNG is more resilient to the uncertainties of production and demand.

 

Industrial Gas

The increase in demand comes with structural changes. Historically, the use of gas in the industrial sector (as a fuel and feedstock) has dominated the overall demand for gas in China, as it contributed about 50% of the market, and the share fell to 42% in 2020.

The report expected the demand for industrial gas to continue to grow, with the possibility of a switch from coal to gas in coastal areas.

Governments in coastal provinces are targeting the sector to reduce coal consumption and improve air quality, however, the growth rate will slow as demand for industrial electricity rises in China.

In the inland provinces, gas will struggle to increase its share, as coal is the mainstay of local economies.

By 2050, industrial gas demand will constitute 34% of the total gas demand.

 

Gas and Heating

The report indicated that the demand for residential and commercial heating and spaces is catching up quickly.

The switch from coal to gas in residential, commercial and space heating has amplified peak demand during China’s winter.

By 2050, residential, commercial and space heating gas demand could represent 40% of total gas demand.

 

Electricity Generation

From a fuel cost perspective, gas-fired electricity cannot compete with coal for base load generation.

However, the total installed capacity of gas-fired electricity could almost quadruple, to 392 GW by 2050.

However, long-term integrated renewable energy projects, in addition to storage, will pose the ultimate threat to gas-fired electricity.

The report expected that the annual hours of use of gas-powered electricity would decrease, so that gas-fired power plants would become a backup energy in the electricity system.

He stressed that the absolute growth in gas-fired electricity itself creates another challenge for gas storage, as gas-fired electricity will be called to achieve the maximum peak in a shorter time and for a shorter period.

By 2050, gas-fired electricity demand will represent 19% of total gas demand, compared to 18% in 2020.

 

 

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