Energy demand growth and environmental concerns will drive natural gas demand in China, with volumes set to exceed 600 billion cubic meters per year (Bcm/y) by 2040.
The prediction was made by Ming Cai, LNG and natural gas consultant at Poten Partners, on Thursday during the Gastech Virtual Summit. The Chinese market is expected to lead gas demand growth globally, alongside India and other markets in Asia.
With the majority of China’s power generation still relying on coal, there’s great need for green energy to be developed, including natural gas. Cai expects strong gas and liquefied natural gas (LNG) demand growth in the coming years.
He said gas demand is to reach around 300 Bcm this year, increasing to 520 Bcm in 2030 and exceeding 600 Bcm by 2040. LNG imports, which were around 60 million tonnes per annum (Mtpa) in 2019, are estimate at roughly 64 Mtpa this year before surging to 200 Mtpa by 2040.
The consultant said that Chinese LNG imports have reached 33 Mt in the first half of 2020, and is on track to reach 64 Mt by year-end, Kallanish Energy learns.
Despite the government’s push for companies to increase domestic gas production, China is to continue to rely on imports either via pipeline or LNG. Cai noted that the previous “small club” gas market in China is changing and “the door is opening.”
With domestic and international private companies now entering the Chinese gas industry, more opportunities are opening to new LNG players in the country. Cai sees non-state companies increasing their share in the regasification market by 2025.
There are currently six terminals in operation in the country and ten terminals under construction, he noted. Strong seasonal demand and a large volume of unmet demand, is expected to boost investments in LNG infrastructure.
But investors will face a variety of risks, the consultant said, mentioning regulation (one party government); infrastructure (low utilization rate, cost overrun and operational expertise); and demand uncertainty (Covid-19, fast domestic gas production growth, additional pipe supply from Russia).
Cai also said players will need to find a balance to handle prices risk. That’s because LNG is bought based on international prices, but sold in China under domestic oil and gas prices. Companies may be exposed to losses if they can’t work out a way to be competitive, he added.
Finally, the Poten Partners consultant pointed out that “to work with Chinese players, finding the right partner and designing the right structure are key considerations.”
The ideal partner in China will have “money, experience and a good relationship with the government,” he said. Current regulation still dictates that a Chinese company will own the majority of an investment in the country.
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