Rising Production, Consumption Show China is Gaining Ground in Its Natural Gas Goals

Blog by Shangyou Nie & Erica Downs • October 2, 2024 www.energypolicy.columbia.edu

Excerpt.  Link to full article:  https://www.energypolicy.columbia.edu/rising-production-consumption...

China’s latest Natural Gas Development Report shows the nation made gains last year in efforts to restructure its natural gas market, increasing domestic production and consumption; boosting imports of liquefied natural gas; adopting technologies to boost domestic exploration and production and cut emissions; and reforming pipeline transmission tariffs.[1] The new tariffs are likely to help grow natural gas supplies, reduce end-user costs and increase consumption. The world’s top importer of natural gas now supplies about 60 percent of its demand with domestic supplies, thanks in part to reforms aimed at increasing domestic supplies and consumption. As the world takes on many challenges from climate change and energy transition, China’s use and views of natural gas in its energy mix are critically important.  In this blog, the authors explore these key takeaways from the 2023-2024 report.

Industry and city-gas drove China’s natural gas consumption in 2023

In 2023, China consumed 394.5 billion cubic meters (bcm) of gas, a year-on-year increase of 7.6 percent. Industry and city gas, which includes residential and transport use, accounted for most of the incremental demand growth of 28.2 bcm. While industry was the largest contributor to this growth (12.3 bcm) and the largest sectoral consumer, city gas was the fastest-growing sector (Table 1). Its double-digit increase was partly due to the “explosive growth” of heavy-duty trucks powered by LNG.[2] Indeed, 152,000 LNG-powered heavy-duty trucks were sold in 2023, a year-on-year increase of 307 percent.[3] This growth continued in the first half of 2024, with sales of LNG-fueled heavy-duty trucks surging by 104 percent year-on-year. These sales contributed to an 8.7 percent year-on-year increase in China’s natural gas consumption to 210.8 bcm in the first half of 2024.[4] Sales continued to grow year-on-year in July but fell in August due to the increase in LNG prices, the narrowing of oil and gas price differentials and the absence of new policy support.[5]

More than 40 percent of Chinese domestic gas production was from unconventional sources in 2023

In 2023, China produced 232.4 bcm domestically, an increase of 12.3 bcm or 5.6 percent over 2022. Domestic output met some 59 percent of China’s total demand, keeping import dependence at 41 percent, unchanged from last year.  According to the report, 43 percent of domestic gas production, 97 bcm, was from unconventional sources (Figure 1).

China has been investing heavily in domestic oil and gas exploration, development and production (E&P) since 2019, partly due to Chinese leader Xi Jinping’s July 2018 instruction to China’s national oil companies (NOCs) to increase domestic E&P.[6] In 2019, the three major NOCs released their first ever seven-year plans to intensify E&P in 2019-2025.[7] Xi subsequently announced that China must reduce dependence on imported oil and gas.[8]  Chinese NOCs have implemented this strategy with significantly higher capital investment in domestic E&P. The three major NOCs collectively increased their domestic gas production by 43 percent in 2018-2023, setting new production records last year.[9]

China’s LNG imports rose by over 12 percent

China continues to import more LNG than pipeline gas (Figure 2). In 2023, 59 percent of China’s natural gas imports of 165.5 bcm were LNG and 41 percent were pipeline gas. The country’s LNG imports rebounded by growing 12.3 percent, and China replaced Japan as the world’s largest LNG importer on an annual basis.[10] However, China LNG imports remained below their peak of 108.9 bcm (or 79.5MT) in 2021.

Australia, Qatar, Russia, and Turkmenistan supplied nearly three-quarters of China’s natural gas imports.[11] New long-term supply contracts signed by Chinese buyers and growth in China’s regasification capacity indicate that China’s LNG imports will probably continue to grow. Chinese imports increased by over 14 percent during the first half of 2024.[12]

China made technological breakthroughs to promote natural gas production and consumption

The report highlighted a number of technological breakthroughs consistent with China’s emphasis on independent research, design and production of key equipment to counter the perceived risk of potential Western technology export bans directed at China.[13] Four new technologies are worth noting. The first two aim to facilitate energy transition and emission reduction, while the second two aim to explore and develop oil and gas either in deepwater settings or deep-seated reservoirs:

1. Simultaneous power generation using geothermal energy from hot water, encountered in deep oil and gas development wells
2. Power generation by using pressure differentiation from natural gas.[14]  This is claimed to be a net zero emission technology.   
3. Independently developed “Hai-Jing” system[15] to reduce noise levels to conduct high-resolution 3D seismic surveys in ultra-deepwater (>3,000m) areas such as the South China Sea.
4. Automated rigs for ultra-deep (>12,000m) drilling, deployed in the Tarim Basin in western China.

 Gas market conditions in 2024 seen as favorable to China’s goals

China sees a well-supplied global gas market, leading to a volatile but generally declining price environment it believes will be supportive of the “recovery and improvement” of its gas market.  The report anticipates lower global gas demand growth due to weak global economic recovery, especially in the manufacturing sector. There are, however, a number of risk factors such as geopolitical tensions, sanctions and anti-sanction moves, and extreme weather conditions. 

The report projects that China will consume 420 – 425 bcm of gas in 2024, an increase of 6.5 – 7.7 percent over 2023. It also expects domestic gas production to reach 246 bcm, and imports to rise to 174-179 bcm.   As Table 2 indicates, these projections indicate that China gas demand might grow more slowly in 2024 than in 2023 and the previous six years, whereas growth in total gas imports might be significantly lower than in 2023 and in the past 6 years, as domestic production continues to rise at a pace higher than that of 2023.