Jonathan Fenby

Chairman, China team and Managing Director, European Political Research
+44 20 7246 7880

Featured China research

China Global: Trump and Xi see off the storm – for the moment China Global: Trump and Xi see off the storm – for the moment, Jonathan Fenby, 10 Feb 2017

Recent China research

* China Watch: Strong global growth a tailwind for China's deleveraging, Michelle Lam, Trey McArver, Larry Brainard, 14 Dec 2017
* China Watch: Outlook for 2018, Larry Brainard, Trey McArver, Michelle Lam, 7 Dec 2017
* China Perspective: North Korea scores, US stuck, Jonathan Fenby, 1 Dec 2017

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Recent blog posts

Gas-to-gas competition emerging in China Gas-to-gas competition emerging in China, Stephen O'Sullivan, 17 Aug 2017
Chinese gas import dependency continues to increase Chinese gas import dependency continues to increase, Stephen O'Sullivan, 25 Jul 2017
China gas reform has not gone far enough China gas reform has not gone far enough, Stephen O'Sullivan, 18 Jul 2017
China’s gas reform – not as far or as fast as we had hoped China’s gas reform – not as far or as fast as we had hoped, Stephen O'Sullivan, 5 Jul 2017

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China: Energy security trumps carbon emissions

It looks as if energy security concerns have outweighed environmental worries based on recent approvals of coal-to-gas (CTG) projects across China. With China heavily import dependent when it comes to energy, and that dependency only set to increase over time, the benefits of domestic gas production – even at a high environmental cost – seem to have swung the case for approval.

CNOOC gets approval for a major CTG pipeline

CNOOC said earlier this month that the environmental impact assessment of its first long-distance onshore pipeline had been approved by the government. The line will carry 20 bn cubic metres a year (bcma) of synthetic natural gas (SNG) from CTG projects in Inner Mongolia and Shanxi to Hebei and Tianjin at a cost of more than US$3 bn.

The approval of the pipeline is a positive for the development of long-stalled CTG projects in the two provinces. Supply will come from CNOOC’s 4 bcma Datang Coal Mine in Shanxi and from a similar-sized project in Ordos being developed by Beijing Enterprises. CNOOC’s project had been stalled for several years but was approved just over a year ago. With the approval of the pipeline, CNOOC is likely to be more willing to go ahead with the underlying CTG project.

Upstream projects are still challenging

Nevertheless, there are still challenges. The 4 mtpa plant in Ordos which is also meant to supply the pipeline has made little progress in recent years. Similarly, Sinopec’s plan to build a much larger 30 bcma pipeline from Xinjiang to Guangdong has been put on hold and the feedstock project in Xinjiang is awaiting environmental approval.

However, the fact that CNOOC’s pipeline received approval suggests that a policy decision has been made that CTG is an acceptable technology despite the previous concerns about high costs, water consumption and large (between three and four times as much as from conventional gas production) carbon emissions. Energy security appears to be the driving force behind the change of policy on CTG. Four CTG projects were approved by the Ministry of Environmental Protection in 2016 against just one the year before. The 13th Five-Year Plan listed five projects with total capacity of more than 18 bcma, the largest expansion in the world.

Energy security concerns are a positive for CTG

Last month the government announced plans to develop a modern coal chemical industry as part of a broader objective to reduce import dependency. The aim was to encourage the development of a free market in the sector which included both commercial freedoms and regulatory changes to force third-party access on pipelines. Output of SNG this year is expected treble, from an admittedly small base last year. However, despite government support, commercial considerations are still challenging. Existing plants are running below capacity and often at a loss because of the high costs involved while further pressure looks set to come from China’s launch of its carbon emissions trading scheme.


The outlook for coal-to-gas in China, while bolstered by the contribution to energy security that it can make, is still more than clouded in our view by both the costs of the process and the environmental impact which will need to be factored into the equation before too long. In China, as everywhere, money matters and this may not ultimately be a commercially profitable technology.

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