China’s natural gas demand has been booming in recent years and will continue to grow for decades to come. Yet, the slowing economic growth in China is taking a toll on gas demand growth.
The Chinese government itself admits that this year’s gas demand growth will slow down from last year’s growth pace.
Government estimates show that Chinese natural gas consumption is set to grow by 10 percent this year, reaching 310 billion cubic meters (bcm). This year’s growth would be lower compared to last year’s 17.5-percent consumption increase, yet Chinese demand is expected to continue to grow until 2050, a government research report said this weekend, as carried by Reuters.
Even if it faces a slower pace of gas demand growth, China is looking to increase its natural gas production, especially shale gas output, to reduce its import dependence while demand continues to grow in the foreseeable future.
Increasing conventional and unconventional natural gas production would be crucial for China to meet soaring demand while trying to cut the share of gas imports at the same time, according to the report prepared by the oil and gas department at the National Energy Administration (NEA) and a research arm of the State Council of China.
The longer-term strategy is to tap more domestic resources, but in the short term, China may need to boost stimulus policies to support the slowing economic growth amid an escalating U.S.-China trade war. China’s industrial output growth slowed down to 4.8 percent in July—the lowest level in 17 years—and well below the analyst consensus expectation of 5.8-percent growth and the 6.3-percent increase in June.
Despite the current economic slowdown, no one expects Chinese demand for natural gas to start declining any time soon. Analysts predict continued growth, driven by the coal-to-gas switch, although the growth could be lower than in the recent bumper years.
Yet, some analysts are not convinced that China could meet its targets to boost significantly its domestic natural gas production, especially shale gas, which could lead to even more import dependence in the future.
China is set to double its natural gas production by 2040, but challenges in developing shale gas resources have led to a lower production outlook and expectations of more imports in the long term, Wood Mackenzie said last week. China’s domestic natural gas supply is forecast to double to 325 billion cubic meters (bcm) in 2040 from 149 bcm in 2018, according to Xueke Wang, a consultant at Wood Mackenzie. Yet, this latest forecast for 2040 is 39 bcm lower than WoodMac’s previous outlook, mostly dragged down by lowered forecasts for shale gas and coal bed methane (CBM) production, Wood Mackenzie said in its recent research.
State-held PetroChina, the country’s largest natural gas importer and the biggest oil and gas producer, aims to boost exploration of unconventional shale gas to reduce import dependence, and at the same time looks to diversify liquefied natural gas (LNG) imports amid the U.S.-China trade war, the company’s president Hou Qijun said last week.
“Had the trade war not been there, the US would have been a very promising gas supply growth source for China,” he said, as carried by South China Morning Post.
Due to the trade war, China has a tariff on imports of U.S. LNG, and due to the tariff and the trade spat, Beijing is not buying as much LNG from the U.S. as it used to.
Chinese gas demand, however, is set to grow regardless of how successful China will be in tapping shale gas reserves.
“China will be the main driver for gas demand growth, though slower than in the recent past as economic growth slows, but still accounting for about 40% of total gas demand increase to 2024,” the International Energy Agency (IEA) said in its Gas 2019 report earlier this year.
With growing demand, China is also set to soon become the world’s largest LNG importer surpassing Japan as early as in 2022, Wood Mackenzie said in a report in July.
Thanks to the coal-to-gas switch, China became the world’s second-biggest LNG importer in 2017, surpassing South Korea, and is currently second only to Japan. Demand for natural gas in China will continue to grow in the coming years as Beijing favors increased use of cleaner-burning natural gas to clamp down on stifling pollution levels.
By Tsvetana Paraskova for Oilprice.com