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China and LNG: 5 takeaways from the CWC Gas and LNG Summit

1 minute read

Gas is having its moment in China. The mood at the recent CWC event was optimistic — with good reason. The government sees natural gas part of the transition to a cleaner energy future, and the recent boom in China’s gas and LNG demand is a sign that policy support is having an effect. What were the five big takeaways from the event?

1. The boom in China’s gas demand is set to continue

Expectations about how fast China’s gas market will grow varied — but all players expect strong growth. In 2016, gas demand was 207 bcm and only 6% of the fuel mix — but the government aims to increase this to around 15% by 2030. While it is unclear if this fuel mix goal will be reached, even minor gains in share translate into big numbers. Presenters showed forecasts for China’s gas demand increasing to 450–600 bcm by 2030.

Kerry-Anne shares her thoughts during the opening remarks on the second day of the conference.

2. Further market reform is needed for gas market to reach its full potential

Reforms and policy support have driven gas switching in the residential, commercial and power generation sectors, but industrial demand has stagnated as gas remains expensive compared to coal and oil. A series of additional reforms were introduced last year with the hope of making gas pricing more competitive, reducing expensive infrastructure costs and improving access for new entrants. However, the reforms are relatively new, and there is no consensus on how extensive they should be.

3. LNG suppliers are willing to negotiate

Chinese buyers are set to benefit from a more flexible and lower priced LNG market. At the summit, several suppliers warned that current low LNG prices wouldn’t last forever and the market needs to think about securing the next wave of new LNG volumes. But with plenty of LNG currently on offer and prices on a downward trend, buyers didn’t necessarily see this urgency. However, China’s main LNG buyers — the NOCs — are keen to dilute the impact of expensive LNG deals signed a few years ago, and key LNG suppliers were keen to emphasise the wide range of deals they could offer.

Wang Wen, Consultant China and NE Asia Primary Fuel Fundamentals, asks the panellists a question during presentation “The Evolving Global LNG Supply Scenario – Where Could New Supply to China Come from?”

4. Trade deal paves way for increased Chinese involvement in US LNG

The recently announced 100-day plan will allow Chinese companies to negotiate long-term contracts to source LNG from US suppliers. This opens the door for increased cooperation between US LNG producers and Chinese buyers. This cooperation stands to be mutually beneficial, with investment in the US LNG chain providing a natural hedge to China’s LNG buyers. Meanwhile, Chinese NOCs and gas utilities are expanding internationally, and the US presents attractive investment prospects.

5. There are opportunities to work with Chinese companies both in and out of China

China has developed many innovative uses for LNG. It is the largest market for LNG trucking and is also using LNG in other transport solutions. These technologies have broad international appeal. Meanwhile, LNG project developers want Chinese companies to support their projects. Those hoping for Chinese investment range from small-scale LNG to power in Indonesia to giant LNG export developments in Canada and many opportunities in between.

Where next?

China is already the big thing in gas and LNG markets, but growth looks set to continue. With gas firmly on China’s policy agenda, Wood Mackenzie expects strong increases in gas demand to continue. While there is huge interest in emerging Chinese LNG buyers, NOCs are also planning to sign up to more LNG. Companies can capitalise on this growth — whether by securing investment, partnering or LNG sales. We are seeing a trend of Chinese companies internationalising in both the upstream and market space.