The emergence of China as an LNG super user

Abstract

China has recently undergone a period of rapid industrialisation and growth. In 2009 the country became the world’s largest energy consumer, with much of this demand being historically met by coal. This heavy reliance on coal, coupled with rapid urbanisation, resulted rising smog levels and deteriorating air quality. In response to public health concerns, the Chinese government introduced several policies to transition to lower polluting fuels, with natural gas being the main beneficiary. In 2017 China’s liquefied natural gas (LNG) imports grew by an enormous 46%, to 38 Mt, as the government ordered heavy manufacturers in two provinces and 26 cities to switch from coal to gas and households to cut coal use for winter heating. Although government air quality targets were met, it resulted in severe winter gas shortages particularly in northern China. A more measured coal-to-gas switching program was undertaken in 2018 and LNG imports continued to surge reaching 54 Mt, another 41% year-on-year increase. Going forward Chinese LNG growth is expected to face competition from increased pipeline gas imports and indigenous gas production. However, there are still many risks to these forecasts, and much to play out as the market continues to be liberalised. As such, Chinese LNG demand presents an enormous opportunity for LNG suppliers both now, and well into the future.