China Gas Demand Forecasts Leap

A significant increase in forecasts for Chinese consumption should make global gas suppliers rest a bit easier. The country’s biggest gas producer, China National Petroleum Corp. (CNPC), has just raised its consumption forecast for 2030 to 620 billion cubic meters per year (60 billion cubic feet per day), 22% higher than the 508.7 Bcm/yr forecast it made last year, spurred by increased coal-to-gas switching. The state-owned giant puts consumption in 2050 at 750 Bcm/yr, up 5% from its previous 711 Bcm/yr forecast. Consumption in 2016 was 206 Bcm (WGI Jul.20’16).

Demand prospects out to 2040 have brightened as the government focuses on replacing coal in the industrial and residential power sectors. CNPC expects annual growth of 8.1% from 2015-30, before consumption among industrial and residential users reaches saturation point and growth decelerates. It projects domestic production at 315 Bcm/yr by 2030 and 380 Bcm/yr by 2050, compared with 137.1 Bcm last year. China’s reliance on imports will consequently increase to 49% of total consumption in 2030 from 35% last year, when imports amounted to 72.1 Bcm. CNPC sees imports of 305 Bcm/yr in 2030 and 370 Bcm/yr in 2050.

Late last year, Beijing ordered 28 cities around Beijing in northern China to ban coal-fired heating in winter (WGI Jun.28’17). More policies have since been introduced to encourage coal-to-gas switching, returning gas consumption to double-digit growth. Demand increased 15.2% in the first half of 2017 to 114.6 Bcm — versus 9.8% in the first half of 2016 and 6.6% over the full year — while first-half imports jumped 17.9% to 41.9 Bcm. Pipeline imports were 1% lower year-on-year at 21.3 Bcm, but LNG imports leapt 38.6% to 15.92 million tons, or about 22.3 Bcm, as a number of end-users turned to LNG because government-set prices for piped gas were higher. This was the first time imports of LNG have been higher than piped gas over a full half year.

Government officials have been urging LNG importers to take advantage of low international prices to cut average domestic gas costs. “China should grasp the opportunity of expanding US LNG exports and make full use of international low-priced natural gas resources,” Li Wei, director of the Development Research Center government think tank, told a gas seminar in Beijing this weekend. From 6.4% last year, Beijing wants gas’ share of total energy consumption to rise to 10% by 2020 and 15% by 2030. Li Yinghua, deputy chief of the National Energy Administration’s (NEA) oil and gas bureau, predicted consumption this year at 230 Bcm-240 Bcm, 12%-16.5% higher than last year.

The government has been prodding CNPC, Sinopec and China National Offshore Oil Corp. (CNOOC), the country’s biggest LNG importer, to open their LNG terminals and gas pipelines to the private sector, while simultaneously trying to persuade private firms to buy LNG and build their own terminals (WGI Dec.7’16). The country now has 12 terminals with combined capacity of nearly 47 million tons per year. The average run rate last year was 54%, ranging from a high of close to 90% at CNOOC’s Dapeng terminal in southeast China to less than 40% at others. The state-controlled giants are generally reluctant to open up to third parties, largely because they don’t want cheap spot LNG competing with their more expensive term imports. CNPC is an exception. The only gas supplier to Beijing, it is under pressure to ensure the capital doesn’t run short in winter, so is willing to let local gas distributor Beijing Gas import spot LNG when spot prices are high (WGI Nov.2’16).

Gas analysts at the state-run China Energy Research Society have also hoisted their forecasts, encouraged by growth so far this year. They put consumption in 2020 at 290 Bcm/yr, up from their previous forecast of 280 Bcm/yr, but an analyst admits big difficulties predicting how many end-users will switch from coal to gas. NEA Chief Economist Guo Zhi said recently that “coal will still be a primary energy source in China for a long time. We can’t simply cut coal production, but should use fossil energy cleanly and effectively.” China aims to shut 500 million tons/yr of coal production capacity by 2020. At least half the country’s coal users are industrial outfits that could turn to gas to take up the slack.

Dawn Lee, Beijing