NATURAL GAS

Background

In 2017, China was the world’s third largest consumer of natural gas, behind the United States
and Russia. Natural gas accounted for roughly 7% of China’s primary energy use—a much
smaller share than the global average (23%).1

Natural gas consumption in China is growing rapidly. In 2017 natural gas use in China grew
by 15%—more than twice the rate of economic growth—due mainly to government policies
to help clean the air in China’s cities. Annual consumption reached 240 billion cubic meters
(bcm). Many forecasts project significant growth in the years ahead.2

Natural gas in China is used mainly for heating. (Very little natural gas is used in the power
sector.) Across much of northern China, a massive conversion of heating infrastructure from
coal to natural gas is currently underway. Industrial boilers, district heating networks and
building furnaces are being converted. These conversions have helped significantly to cut
air pollution, although at times they have run ahead of natural gas supplies. In the winter of
2017–2018, Beijing and surrounding areas had the cleanest air in many years, however natural
gas shortages left some industries and buildings without sufficient heat.3

China’s natural gas comes from three sources: domestic production, pipeline imports and
imports of liquefied natural gas (LNG).

● Historically, most of China’s natural gas has come from domestic production, almost all
from conventional wells. Domestic production more than doubled in the last decade, from
approximately 70 bcm in 2007 to 150 bcm in 2017. China’s main natural gas producing
regions are Sichuan, Xinjiang, Qinghai and Shanxi Provinces.4

● China’s shale gas resource is the world’s largest, however much of the shale gas is very
deep, in mountainous areas and challenging to produce. Shale gas production in 2017 was
roughly 9 bcm.5

● China currently imports natural gas through two pipeline systems: the Central Asia
gas pipeline (from Turkmenistan, Kazakhstan and Uzbekistan) and the China-Myanmar
pipeline. Total pipeline imports in 2017 were in the range of 42–44 bcm. A natural gas
pipeline from the Russian Far East is currently under construction. Known as the Power of
Siberia, the pipeline is projected to open in late 2019 and will eventually have 38 bcm per
year of capacity.6

● In 2017, Chinese LNG imports grew by 47%. LNG infrastructure was severely stressed.
New LNG receiving terminals, natural gas pipelines and natural gas storage are under
construction to meet rapidly growing demand.7

China has more than 64,000 kilometers of long-distance natural gas pipelines, shown below.

Figure 11-1: China Natural Gas Pipeline and LNG Terminal Layout (Updated in May 2016)

When natural gas is burned for heat or power, it emits roughly half the CO2 per unit of energy
as coal. As a result, natural gas can play an important role in reducing Chinese emissions of
heat-trapping gases. However, when natural gas leaks, it becomes a potent greenhouse gas. As
a rough rule of thumb, if more than 3%–8% of the natural gas consumed as an energy source
leaks, that would cancel the climate change benefits of switching from coal to natural gas.8

Policy

Production and Consumption Goals

The Chinese government’s coal-to-gas conversion programs in northern China have been
especially prominent. The principal purpose of these policies is to improve urban air quality. The
13th Five-Year Plan (2016–2020) identifies reducing CO2 emissions as an objective as well.9

Government targets include these:

● increasing the share of natural gas in primary energy consumption from roughly 7%
today to 10% by 2020 and 15% by 2030;

● increasing the share of natural gas in urban dwellings from roughly 43% today to
50%–55% by 2020 and 65%–70% by 2030; and

● increasing the share of natural gas generating capacity in China’s power sector from
roughly 3.5% today to 5% by 2020 and 10% by 2030.10 

The 13th Five-Year Plan also calls for increasing domestic natural gas production of
unconventional gas, including shale gas and coalbed methane. The current government target
for shale gas production is 30 bcm per year by 2020. Several government targets for shale
gas production have been missed or revised downward in recent years.11

Market Reforms

China’s natural gas industry is in the midst of significant reforms.

Historically, the National Development and Reform Commission (NDRC) set natural gas prices
by adding production costs, transmission costs and fixed margins. Gas prices were kept high
for industrial users to help cover the costs of subsidizing residential gas use. In recent years, a
growing percentage of Chinese of nonresidential natural gas sales have been priced based on
market value. These price reforms are intended in part to bring down the cost of natural gas
for industrial users, encouraging the switch from coal to natural gas.12

Structural changes are underway in China’s natural gas pipeline network. Historically the
Chinese National Petroleum Corporation (CNPC) controlled almost all of China’s natural gas
pipelines. Several years ago CNPC began transferring pipelines into a subsidiary as part of
a plan to establish a separate national pipeline company.13 In 2016 NDRC reformed pipeline
pricing, granting a flat 8% return on investment for interprovincial pipelines and promoting
transparency in pipeline costs.14

As part of the effort to relieve shortages in natural gas supplies, several private companies are
being allowed to build and operate LNG receiving terminals in China.15

Environment and Safety Standards

China’s 13th Five-Year Plan (2016–2020) emphasizes the importance of protecting the
environment when developing natural gas resources.16 Implementation is left largely to the
state-owned enterprises responsible for natural gas production.

China does not have regulations addressing methane leaks from natural gas production.
Multiple ministries and industrial associations, including the Ministry of Transport, State
Administration of Work Safety and China Natural Gas Standardization Technology Committee,
set national safety standards for long-distance transport and local distribution of natural gas.17 

References

1. “BP Statistical Review of World Energy” (June 2018) at pp.5, 9 and 29, https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf.

2. National Bureau of Statistics, “Statistical Bulletin 2017” (February 28, 2018), http://www.stats.gov.cn/english/pressrelease/201802/t20180228_1585666.html; “BP Statistical Review of World Energy” (June 2018) at p.29; International Energy Agency, “Gas 2017: Analysis and Forecast to 2022” (July 2017), https://www.iea.org/Textbase/npsum/gas2017MRSsum.pdf.

3. See NDRC, “Natural Gas 13th Five-Year Development Plan” (December 2016) at p.3, https://policy.
asiapacificenergy.org/sites/default/files/%E5%A4%A9%E7%84%B6%E6%B0%94%E5%8F%91%  E5%B1%95%E2%80%9C%E5%8D%81%E4%B8%89%E4%BA%94%E2%80%9D%E8%A7%84%E5%88%92.pdf
; (in 2015, roughly 70% of Chinese natural gas consumption was for heating, 15% for power generation and 15% for chemical industry feedstocks); Lucy Hornby and Archie Zhang, “China hit by gas shortages as it moves away from coal,” Financial Times (December 3, 2017), https://www.ft.com/content/21cb4ed2-d7f9-11e7-a039-c64b1c09b482; International Energy Agency and Tsinghua University, “District Energy Systems in China” (2017), https://www.iea.org/publications/freepublications/publication/DistrictEnergySystemsinChina.pdf.

4. National Bureau of Statistics, “Statistical Bulletin 2017” (February 28, 2018) at table 3; “BP Statistical Review of World Energy” (June 2018) at p.28.

5. Edward White, “China to miss shale production target by ‘considerable margin,’” Financial Times (April 16, 2018),https://www.ft.com/content/05adefa6-41ea-11e8-803a-295c97e6fd0b; David Sandalow, Jingchao Wu, Qing Yang, Anders Hove and Junda Lin, “Meeting China’s Shale Gas Goals,” Columbia University Center on Global Energy Policy (September 2014) at pp.5–6, http://energypolicy.columbia.edu/sites/default/files/China%20Shale%20Gas_WORKING%20DRAFT_Sept%2011.pdf.

6. David Sandalow, Akos Losz, and Sheng Yan, “A Natural Gas Giant Awakens,” Columbia Center on Global Energy Policy (June 27, 2018) at pp.6–7, https://energypolicy.columbia.edu/research/commentary/natural-gas-giantawakens-china-s-quest-blue-skies-shapes-global-markets.

7. Takeshi Kumon, “China’s newfound LNG appetite drives up Asian energy costs,” Nikkei Asian Review (February 4, 2018), https://asia.nikkei.com/Business/Markets/Commodities/China-s-newfound-LNG-appetite-drives-up-Asianenergy-costs; Sandalow, Losz and Yan, “A Natural Gas Giant Awakens,” Columbia Center on Global Energy Policy (June 27, 2018).

8. Methane breaks down more quickly than carbon dioxide in the atmosphere, making precise comparisons
a bit complicated. Experts consider methane to be roughly 84 times more powerful than carbon dioxide
as a greenhouse gas over a 20-year period and 28 times more powerful over a 100-year period. See
Intergovernmental Panel on Climate Change, “Climate Change 2014: Synthesis Report” (2015) at p.87, https://www.ipcc.ch/pdf/assessment-report/ar5/syr/SYR_AR5_FINAL_full.pdf; International Energy Agency, “World Energy Outlook 2017” (November 2017) at pp.416–417; Daniel Raimi, “The Fracking Debate,” Columbia University Press (2017) at p.111.

9. NDRC, “Natural Gas 13th Five-Year Development Plan” (December 2016) at pp.5 and 11, http://www.sdpc.gov.cn/zcfb/zcfbghwb/201701/t20170119_835567.html.

10. NDRC, “Natural Gas 13th Five-Year Development Plan” (December 2016); State Council, “Energy Development Strategy Action Plan (2014–2020)” (June 7, 2014), http://www.gov.cn/zhengce/content/2014-11/19/content_9222.htm.

11. NDRC, “Chapter 30, Build A Modern Energy System,” in “13th Five-Year Plan For Economic and Social
Development” (December 2016), http://en.ndrc.gov.cn/newsrelease/201612/P020161207645765233498.pdf.

12. Anders Hove and David Sandalow, “Understanding China’s Growing Natural Gas Sector,” Paulson Institute (September 14, 2017), http://www.paulsoninstitute.org/paulson-blog/2017/09/14/understanding-chinas-growingnatural-gas-sector/.

13. Benjamin Haas, “PetroChina to Sell Pipeline Assets Valued at $6.3 Billion,” Bloomberg (May 12, 2014), http://www.
bloomberg.com/news/articles/2014-05-12/petrochina-to-sell-pipelines-worth-6-3-billion-as-controls-ease
.

14. Hove and Sandalow, “Understanding China’s Growing Natural Gas Sector” (September 14, 2017).

15. Author interviews (June 2018).

16. NDRC, “Natural Gas 13th Five-Year Development Plan” (December 2016) at p.10.

17. National Natural Gas Standardization Technical Committee et al., “Mandatory National Standard for Natural Gas Transportation GB17820-2012” (October 2012), http://www.zjrq.com/News/NewsShow.aspx?Pkid=5608

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