Page 6 - GLNG Week 50

GLNG COMMENTARY GLNG
China may desire gas, but cheap coal is compelling
China’s demand for gas is growing, but it will struggle to displace a significant portion of coal as long as economic concerns sway policy making
PERFORMANCE
WHAT:
Despite advocating gas’ importance, China has cleared the way for greater coal consumption.
WHY:
The latter is preferred as the cheaper choice, while gas is the cleaner choice.
WHAT NEXT:
Coal will remain a compelling option as long as the economy continues to slow.
CHINA’S push for greater natural gas consump- tion continues to speed up, even as the year winds down, with imports and production rising and as well as new supply lines opening up.
Yet despite the country’s success in building up is gas supply lines, its dependency upon coal is also ramping up in line with a continued eco- nomic slowdown.
China’s leaders have set a bold target of increasing gas’ share of the primary energy mix to 15% by 2030, with the hope of displac- ing dirtier fuels. Unfortunately, reducing coal’s share of the energy mix does not translate into an absolute reduction in consumption. Overall energy demand is still rising and a smaller share of demand can still result in increased consump- tion of coal.
Demand and delivery
China’s demand for natural gas grew by 18% year on year in 2018 to 280bn cubic metres and is on track to expand by another 10% this year to 308 bcm. This growth has seen Beijing push its majors to produce more of the fuel at home while also expanding import routes into the country.
Production rose by 8% y/y in November to 15.1 bcm, according to National Bureau of Statistics (NBS) data published on December 16. Output for the first 11 months of the year expanded by 9.2% to 157.5 bcm. This is in line with a forecasted 6% rise in production for the
whole of 2019 to 171 bcm.
Piped gas and liquefied natural gas (LNG)
imports, meanwhile, climbed 3.3% y/y in November to 9.45mn tonnes (12.49 bcm) and by 7.4% in the first 11 months to 87.11mn tonnes (115.16 bcm), according to General Adminis- tration of Customs (GAC) data published on December 8.
Production appears on track to outpace imports in 2019 for the first time since 2014. However, that seems unlikely to remain the case in the long run.
China’s upstream companies have been scrambling to boost output in recent years to meet new demand stimulated by government efforts to switch away from coal. These efforts created seasonal demand spikes that have over- stretched the country’s upstream, midstream and downstream gas infrastructure. Cue winter gas shortages that embarrassed the country’s energy planners and prompted a renewed focus on gas supply.
The launch, then, of the 3,000-km Power of Siberia pipeline this month will come as a relief to the government. The pipeline aims to begin initial deliveries at around 10mn cubic metres per day, before ramping up to a peak capacity of 38 bcm per year by 2025.
While there has been some speculation that the ramp-up in piped Russian gas could come to displace LNG imports, the two forms of fuel are effectively competing in different markets.
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w w w . N E W S B A S E . c o m Week 50 19•December•2019