Natural Gas in China: An Overview
This research paper delves into the prospects for the Peoples Republic of China’s gas market, its consequences for her needs, and the possible world’s effects of China’s natural gas policies.
All the way through 2020, China aims to carry out intense shifts in her energy outline. Accordingly, China’s natural gas represents is beneficial as it aims to advance towards a cleaner energy and to eliminate coal as a fuel. However, as the Chinese government continues to support the usage of gas, the possible need of PR China’s needs may be past her expectations. Moreover, it seems that the local gas production would be inadequate to meet the country’s needs and alternative gas development would not be easily realized over the next couple of years. In view of the large size of PR China’s energy needs for gas, there are deep impacts on the Chinese gas markets.
Policy Implications
The Chinese reliance on the imports of natural gas could simply touch 50% over the next few years. To support the energy needs, China is likely to prefer a diversified base of reliable global suppliers. China at present has various choices that fulfill this condition.
Despite the fact PR China normally supports overland pipelines for her gas supplies; it may, however incline more towards LNG imports. Pricing, the desire to support LNG-related infrastructure to promote the country’s economy, and apprehensions for overseas gas supplies may all encourage China to increase its dependence on LNG.
Natural Gas in China: An Introduction
China appears in the world market for the natural gas; however its size and prospective continues to be highly tentative. At present, the PR China’s share of natural gas market is smaller than that of California (CEIC Database, 2007), though the future needs for natural gas in this country is enormous.
In 2007, PR China`s natural gas usage rose by about 24% and reached 69.5 bcm (NBS, 2008). Because of this rapid rise, China is a top country of the world concerning natural gas utilization. According to IAEA, China will become top natural gas consuming country by 2015. Till the start of Liquefied Natural Gas imports by China in 2006, the country was self-reliant regarding the natural gas. Though the country has increased the local production of gas, which rose by about 18 % and reached nearly 69 bcm in 2007, its import reliance is hoped to rise quickly as a result of increased gas demands. The demand of gas, along with the growing urbanization of cities, the development of industrial usage has been the major motivation behind this significant rise in demand. The Chinese government has raised natural gas consumption through various policies and regulations, and by creating the infrastructure. In spite of the rapid rise in gas usage, the contribution of natural gas in the PR China’s energy mix is rather low which stood at 3.5%, while her coal’s share stood at 69.5%. The natural gas usage per head was only 53 m3 in 2007 whilst the world`s average was nearly 460 m3. With the aim of promoting the consumption of this energy source as a replacement fuel for oil and coal, the Chinese government aimed to raise the share of natural gas in PR China`s total energy usage up to 10% by 2020, and has been major the growth of the natural gas market in the country. It was however only throughout the last few decades that PR China’s natural gas market has shown a remarkable growth.
Trends & Challenges
With the development of the natural gas market in PR China, the present price regulations have proven to have many organizational drawbacks. Primarily, further inflows of natural gas from various gas fields to the same pipeline supply to several consumers are creating problems in establishing the gas source and the initial expenditure. In the formative stage of natural gas market in China, the gas supply chain was quite simple. Of late, the expansion of interrelated gas networks offers the impression of unfairness and creates a problem directly both to manufacturers and the consumers. Secondly, the sector priority policy for distribution and price structure of the natural gas shows the problem of having to conform to the inter-sector disparity of demands and supply, in addition to seasonal and regional disparities. For the consumers, fixed and rather cheap gas prices drop to offer incentive for major saving and judicious consumption of natural gas. On the other side, low-cost gas prices do not give motivations for expanding more expensive gas fields or introducing new technology. This rigid pricing policy for natural gas has had its deficiencies, especially considering high oil prices in 2007. In the housing sector, the truth that the natural gas price was less expensive than LPG supported a fuel changeover. In the manufacturing sector, inexpensive natural gas supported the glut of various petrochemical products. In the fertilizer sector, some manufacturers exported goods created from cheap gas – the commodities that the government aimed to allot for local farmers.
Yet another critical problem happened as a result of the growing disparity between global and local gas prices during in 2007 and 2008, which happened for various reasons. Natural gas prices as a result of long-standing contract were progressively rising as the gas prices are fixed by the price rule relating to petroleum prices with certain limits. Similarly, the LNG demand was quite strong all over the Asia-Pacific market for the same rationales as in the PR China and as a result of growing demand in Japan due to nuclear plant failure in 2007. Because of this increased demand for LNG the spot cargo prices of the natural gas rose. The rise of LNG price level impacted the LNG in the Atlantic market.
Implications in the Global Context
Healthy growth of PR China’s natural gas market would like to have an encouraging impact on the global market. The energy switch from coal to natural gas would decrease pollution of a greenhouse gas / unit of energy use in the country. The use of coalbed methane would also be contributing to the decrease of Carbon dioxide emissions and offer prospects for foreign companies to invest in China.
With the aim to keep China’s natural gas market sustainable, the price structure appears to be unavoidable. As a result, China’s local gas prices should rise and be tied to global prices. The rise of gas prices will improve energy effectiveness and conservation in PR China. The growth of local production could be increased by the price rise in both traditional and unconventional gas fields. The Chinese natural gas market will also become more viable for exporters of LNG. It is expected China to become the biggest pipeline gas importer and one of the top LNG importer in the Asia-Pacific region by 2015.
The present scenario created by the global economic recession is having negative impacts on the growth of PR China’s natural gas market. Moreover, there are various positive rationales supporting the growth of the gas market. Declining natural gas prices in the global market and failing apprehension over inflation in the country’s macro economy have offered the prospects for price restructuring. It should be observed that the revaluation of the Chinese currency, which evaluated 15% versus the American dollar, has alleviated the effects of increasing import prices on a dollar base. PR China’s economic incentive package, which stood at 4 trillion, is probable to motivate local demand and investments in local infrastructure, which might have encouraging effects on the growth of the natural gas market in China.
As regards the global market, PR China appears to be pushing its investments and acquisitions to get energy resources abroad, utilizing the reduced global price of assets as well as rich reserves of the foreign currency. The country’s forceful investments in oil and gas projects could help to improve the world supply capacity. Yet, PR China should avoid any rise in tension, which may take place while investing in geopolitical sensitive and countries. The rise in energy import reliance may make China more responsive to the significance of global supply security of gas than ever before, and facilitate it to understand the need for co-operation amongst the energy-using countries.
Works Cited
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Han, W., Liu, X. and Zhu, X. Analysis of China’s supply of and demand for oil and gas, Paper presented at the Natural Gas Policy Seminar Beijing, June 2000. Print.
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National Bureau of Statistics (NBS), People`s Republic of China, China Energy Statistical Year Book 2008, Beijing. 2008.
Zhou, F. Role of gas in China’s energy economy and long-term forecast for natural gas demand, Paper presented at the Sino-IEA Conference on Natural Gas Industry, Beijing, November 9-10. 1999. Print.
