Overview of China’s Natural Gas Industry
Growing energy demand and heightened interest for clean energy sources are driving the growth in China’s natural gas industry. Natural gas is regarded as a clean source of energy as it is efficient to produce, safe to use and more environmental friendly. China is currently the world’s third largest natural gas consumer after the United States and Russia. Natural gas consumption in China rose from 7.2 bcf per day in 2008 to 12.4 bcf per day in 2012, representing a CAGR of 14.6%. China’s portion of global gas consumption also rose significantly from 2.7% in 2008 to 4.3% in 2012.
The natural gas industry has enormous growth potential due to the low natural gas penetration rate in China. China’s natural gas consumption in 2012 accounted for only 4.2% of its total primary energy mix, far below the global rate of 21.3% in 2012. In comparison, China’s coal consumption in 2012 accounted for 68.0% of its total primary energy mix. Furthermore, China’s per capita natural gas consumption was 11.0 cubic feet per day in 2012, which is far behind the world average of 40.9 cubic feet per day. According to SIA Energy, China’s gas consumption per capita is expected to grow to 22.2 cubic feet per day by 2020. Although this represents a CAGR of 9.2% from 2012 to 2020, China’s gas consumption per capita by 2020 will still be significantly lower than the world average of 42.2 cubic feet per day by 2020. These differences indicate significant growth potential for natural gas consumption in China.
China’s natural gas consumption is limited largely by gas supply availability and infrastructure for the transmission of gas. As a result, there exists large unmet demand for gas in the market. The significant uptake in new gas supply over the past decade resulted in high gas consumption growth. In particular, the opening of West-East Pipeline One in late 2004 (with a capacity of 1.6 bcf per day to transport gas from western China to eastern China) and West- East Pipeline Two in early 2010 (with a capacity of 2.9 bcf per day to transport gas from Central Asia across China) have enabled the transportation of significant new gas volumes in China, helping China boost its gas penetration.
China Gas Supply (2011-2020)
SIA Energy predicts that China’s natural gas supply and consumption will reach 32.0 bcf per day by 2020, representing a CAGR of 9.4% from 2014. This forecast is made according to a SIA Energy’s assumed development schedule of new gas supply sources, including domestic conventional and unconventional gas sources, pipeline gas imports, LNG imports, and more readily available infrastructure. SIA Energy predicts that China’s natural gas market will continue to be supply- and infrastructure-constrained for the next six years. According to SIA Energy, China’s natural gas supply growth from 2014 to 2020 will be mainly driven by unconventional gas production, which is expected to grow at a CAGR of 33.4%, as well as pipeline imports, which are expected to grow at a CAGR of 15.1%. By contrast, domestic conventional gas production is expected to grow at a CAGR of 3.1%. The chart above illustrates the contributors to gas supply and consumption in the PRC since 2011 and projections for the growth of those contributors through 2020.
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