Melody Li Eric Yep
26 Jul 2023
Synopsis
China's natural gas consumption is predicted to rise by 5.5%-7% in 2023 after a decline in 2022, driven by city-gas, power generation, and other sectors. The demand for gas could be affected by price fluctuations and the European gas market. China aims to increase domestic production and maintain price stability through long-term contracts and LNG imports. In 2022, China produced 220.1 Bcm of natural gas and aims to rely on domestic supply for more than 50% of its needs. China is also exploring renewable energy options but will still rely on coal during energy shortages.
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| Image used for representational purposes - Open AI |
China's annual natural gas consumption is estimated to reach 385 Bcm to 390 Bcm in 2023, a 5.5%-7% year-on-year increase, reversing a 1.2% decline in 2022, according to the China Natural Gas Development Report 2023 published by the National Energy Administration.
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City-gas and power generation would be the primary drivers of growth, with the commercial sector, transportation and heating demand expected to significantly contribute to demand for city-gas, the report said.
The rise in gas consumption for power generation would stem from the growing number of gas-fired power plants and increased demand during the summer season. However, demand from industrial users would remain price-sensitive, depending on gas price fluctuations during the second half of 2023, according to the report.
"Looking forward to the second half of 2023, the global gas market is expected to continue being influenced by the rebalancing of supply and demand in the European market," the report said, adding that demand in Asia is expected to recover steadily with the need to gradually restock gas inventory.
"Given the high inventories in Europe and the US, international supply of natural gas appears promising in the absence of cold weather forecasts," it said.
The NEA, which is one of the country's main energy market regulators, said supply of natural gas in China is expected to increase mainly due to higher local production and increased supply of pipeline gas from the China-Russia eastern route, and LNG imports will resume growth with increased flexibility to adapt to changes in supply and demand within the country.
China's natural gas strategy comprises strengthening domestic gas production and long-term contracts, complemented with LNG imports from the spot market, to reduce volatility and maintain price stability, the NEA said.
2022 production rises
In 2022, China produced 220.1 Bcm natural gas, an increase of 6% year on year, surpassing an annual growth of 10 Bcm for the sixth consecutive year, the report said.
The government aims to keep reliance on domestic natural gas at more than 50% in the long term, and use natural gas as a peak-shaving tool amid periods of high power demand, according to the report.
Long-term contracts play a crucial role in ensuring supply stability and Chinese companies signed nearly 17 million mt/year of long-term LNG sale and purchase agreements in 2022, with FOB contracts accounting for nearly 60% of the total to optimize supply amid LNG price spikes, the report said.
China is actively exploring renewable energy options such as wind, solar and hydropower to diversify energy sources, but coal would still play an important role as the last resort during an energy crunch to ensure stability, the report said.
China's total natural gas consumption was 364.6 Bcm in 2022, slightly down 1.2% year on year, partially due to pandemic-related restrictions. Natural gas accounted for 8.4% of total primary energy consumption, a decrease of 0.5 % from the previous year.
The share of city-gas rose to 33% of total natural gas consumption, but the share of industrial sector, natural gas power generation and the chemicals industry decreased to 42%, 17%, and 8%, respectively, in 2022, the report said.
China's natural gas imports in 2022 fell 9.9% to 150.3 Bcm. The main suppliers were Turkmenistan, Australia, Russia, Qatar and Malaysia, accounting for 81% of the total volume. Pipeline gas imports from Russia saw a remarkable 54% increase, underscoring the importance of this partnership in China's import strategy, the report said.
LNG imports fell 19.5% to 87.6 Bcm in 2022. The main suppliers were Australia, Qatar, Malaysia, Russia, Indonesia, Papua New Guinea and the US. China paid higher import costs on rising international gas prices and the value of LNG imports rose 25% in 2022, NEA said.
H1 2023 overview
Global gas markets eased in the first half of 2023 due to a milder winter, elevated stock levels in Europe and the US and slowing global economic growth.
China's natural gas consumption in January-June rose 5.6% year on year to 194.1 Bcm, domestic production rose 5.4% to 115.5 Bcm and total natural gas imports rose 5.8% to 79.4 Bcm, with 33.2 Bcm for pipeline gas and 46.2 Bcm for LNG, the report said.
However, inflexible pricing embedded in long-term contracts presented some challenges, resulting in high import costs compared to international LNG spot prices during H1 2023. This scenario could dampen domestic demand while encouraging greater LNG imports from the spot market, the report added.
Source: www.spglobal.com
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