Jonathan Fenby

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

Featured China research

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Recent China research

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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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Chinese gas import dependency continues to increase

China’s gas import dependency looks set to increase further this year as strongly growing domestic demand moves ever further ahead of domestic production.

When China began buying gas abroad, imports accounted for just 2 per cent of demand in 2007. That figure started rising in 2009 to reach almost 5 per cent; by 2012 imports supplied more than a quarter of demand. Last year’s import volumes reached almost 35 per cent of demand and industry observers are forecast a further rise this year - some predict import dependency of more than 40 per cent.

Domestic gas output has been de-emphasized by the major Chinese oil companies since they were forced to scale back capital expenditure plans and reduce investment when the oil price fell sharply. As a result, domestic gas output – conventional and unconventional – has not kept up with strongly rising demand so far in 2017. Domestic output in the first five months was up 6.8 per cent against the same period last year. Beijing’s target for 2017 output is an increase of 24 per cent – to 170 bcma, a level that generally regarded as overly optimistic.

The companies admit they have taken time to explore new fields in China, while the difficulties of shale gas development meant that even the relatively modest unconventional gas targets have been missed. So the companies have focused on importing gas through pipelines and LNG. Although geographical diversification has increased, so has the level of import dependency.

Imports rose by 8.8 per cent in the first four months of this year, compared with 2016. LNG volumes have risen 26 per cent so far on the back of cheap spot prices for LNG in Asia. Pipeline imports, however, declined by 10 per cent during the same period, most likely because of the availability of additional import infrastructure and cheaper spot cargoes. Pipeline volumes may struggle to recover this year owing to the interruption in Uzbek volumes since the beginning of the year. In the first four months, pipeline imports accounted for just over 50 per cent of total imported gas. It is possible that for 2017 as a whole they will fall below half of all supplies.

LNG imports are forecast by some analysts to reach 28 million tonnes this year – up 11 per cent against 2016. More than three-quarters will go through pipelines to end users and around 22 per cent will be trucked. The latter figure may change in time as some of the newer import terminals (notably CNOOC’s terminal at Jieyang in Guangdong and Guanghui Energy’s Qidong plant in Jiangsu) are not yet connected to the pipeline network and use trucks to distribute. Local authorities and distribution companies are not necessarily supportive of new import terminals; Guanghui Energy is still trying to persuade local companies to allow it to connect to their pipeline networks.

Overall, China industry analysts are suggesting that import dependency in 2017 will rise to 37–40 per cent of gas consumption, compared with the 2016 level of 34 per cent, as a result of what seems to be a sustained increase in demand in China since 2016. While such a high level of import dependency could raise concerns about security of supply, imports are far more diversified now than in the past. Pipeline gas comes in from Central Asia (Kazakhstan and Turkmenistan but not Uzbekistan so far this year) and Myanmar. LNG imports were sourced from at least 15 countries last year. Meanwhile, US and Australian volumes are growing; and these two countries – along with Qatar – are likely to prove the mainstay of Chinese LNG imports in the years to come.

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