China’s Swapping Energy Independence for Cleaner Air

China is becoming more dependent on overseas natural gas as it seeks to wean itself off coal and avoid the toxic smog that suffocates the country every winter.

The world’s largest energy user will increase imports of liquefied natural gas about 30 percent this year as domestic production stagnates and the government pushes cleaner fuels in an effort to clear polluted skies, according to SCI International and North Square Blue Oak Ltd. Imported gas, including both seaborne and pipeline supplies, may account for about 40 percent of the country’s gas use by the end of this decade, up from roughly a third last year, they said.

The nation is aiming to raise the share of less-polluting natural gas to 10 percent of its energy mix by 2020 from 6 percent last year, the National Development and Reform Commission, the country’s top economic planner, said last month. The portion of gas will rise to 6.8 percent this year and the nation will “aggressively” expand its use, Nur Bekri, chairman of the National Energy Administration, said at the national energy work conference, according to a posting on the administration’s website.

Risky Air

“I’m pretty optimistic towards natural gas consumption and imports growth in China next year,” said Peter Lee, a Singapore-based analyst at BMI Research. “We expect to see continuous regulatory support from Beijing to drive gas consumption in a bid to arrest severe air pollution that continues to plague its major cities.”

Heavy smog has forced more than 60 cities, including Beijing, to issue health alerts since the beginning of the year and even canceled or delayed hundreds of flights. Pollution was at medium or higher levels in 186 cities Jan. 3, according to the Ministry of Environmental Protection.

The country’s LNG annual imports will increase by between 12 billion and 15 billion cubic meters — the equivalent of 8.9 million to 11.1 million tons — over the next two to three years, with the start-up of long-term contracts, according to Lee. The country’s imports in the first 11 months of the year are up 27.5 percent to 22.3 million tons.

Larger Slice

“I think China will challenge Japan and South Korea” as the world’s biggest LNG buyer in the future, said Michal Meidan, an analyst with Energy Aspects Ltd. “These are no longer big LNG growth markets. Rather, their import requirements are shrinking.”

China’s LNG shipments will make up a larger slice of the import pie as pipeline projects to pump gas from Russia are delayed, Bloomberg New Energy Finance analyst Nannan Kou wrote in a report last week. China’s gas market will remain over-supplied through 2030, which could reduce the need to build additional pipelines in the future, according to BNEF. 

Domestic natural gas output will likely grow only around 3 percent this year unless shale gas output makes remarkable improvement, said Liu Guangbin, an analyst with Shandong-based SCI International.

City gas use accounts for about 40 percent of the nation’s total demand for natural gas, while 30 percent is consumed as an industrial fuel and the rest used in the chemical and power generating sectors, China National Petroleum Corp. said in its annual research report in January 2016.

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