Commodity Market Report

China gas markets long-term outlook H1 2019

22 August 2019

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22 August 2019

China gas markets long-term outlook H1 2019

Report summary

2018 saw China build on the coal-to-gas switching momentum of 2017 and it continued to increase gas demand at a fast pace. Gas demand grew by 17% year-on-year, or up by 41 bcm. China managed to avoid gas shortages in winter 2018/19. However, China’s gas demand has faced multiple headwinds in 2019. Current policies lean towards preventing a deeper slowdown of the economy while the pace of gas demand creation has moderated. In this update, we’ve adjusted down China’s gas demand compared with our H2 2018 outlook, primarily due to the government’s more cautious approach towards fuel choices and the downgraded GDP forecast. We have also downgraded the domestic supply outlook as unconventional resources face more challenges, which provokes a greater need for LNG imports in the long term.

Introduction
Structure of gas demand gradually changing with increasing seasonality
Gas production ramps up faster near term, underpinned by conventional sources; long-term potential hinges on unconventional sources
LNG imports will break 100 mmtpa by the early 2030s, despite more pipeline imports
Reforms will reshuffle the industrial landscape
Non-NOCs will increase their presence, slowly
Will China exert greater influence on global LNG pricing?
Key data tables
Gas sector policy and regulation
- Midstream reform is gaining momentum
- Midstream-related regulations are being updated to pave way for third-party access
- Local governments streamline end-user gas prices
- China still reviewing its fuel-switching policies
- China raises US LNG import tariffs to 25%
Regulatory structure
Gas demand overview
Industrial sector (including feedstock)
Residential and commercial sector (including winter space heating)
Transport sector
Power sector
Domestic conventional supply
Unconventional supply: tight gas
Unconventional supply: CBM and CMM
Unconventional supply: synthetic natural gas (coal-to-gas)
Unconventional supply: shale gas
Supply cost stack
Gas imports – pipeline
- Central Asia imports
- Turkmenistan
- Uzbekistan
- Kazakhstan
- Myanmar imports
- Russian imports
- Russia East
- Russia West
- Russia Far East
Assumed import pipeline contract pricing
Gas imports – LNG
Trunk pipelines
- Existing
- Under development and proposed
Domestic gas infrastructure – underground storage facilities
Gas import infrastructure – LNG
- CNOOC and its joint ventures
- CNPC-PetroChina
- Sinopec
- Non-NOCs
Regulation overview
City-gate gas pricing
- Trial stage (2011-2013)
- Two-tier pricing stage (2013-2015)
- Price adjustments and ending of cross-subsidisations for residential and fertiliser sectors (2015-present)
- City-gate gas pricing in policy versus in reality
The role of trading platforms
Pipeline tariffs
- Interprovincial transmission pipeline tariffs
- Provincial transmission and local distribution tariffs
Prices at end-user level
- Power
- Industrial and commercial
- Residential
- Transport
Value-added tax on natural gas
Appendix – end-user prices in provincial capital cities

Tables and charts

This report includes 43 images and tables including:

China gas demand by sector
China gas demand by province
China gas market balance

Supply changes vs H2 2018 outlook
China power market balance
Economic indicators
China energy policy making and regulatory structure
Total China gas demand by sector
Total China gas demand by province
Industrial fuel Gas Demand by Provinces
Fertilisers and Chemicals gas demand by top province
Residential/commercial gas demand by province
Winter heating gas demand by province
Transport gas demand by provinces
Transport gas demand by vehicle types
Gas demand in power generation by region
Power generation mix
Domestic gas supply by basin
China conventional/unconventional supply
Domestic gas supply by basin (%)
Supply growth by region/basin
China supply cost by project – full life breakeven vs import contract price
China supply cost by basin - remaining breakeven plus tariff assumption to Shanghai
Assumed Turkmenistan contract price into Shanghai (2019 terms)
Assumed Russian contract price into Beijing (2019 terms)
China contracted LNG by project and buyer (SPAs and HOAs)
Contracted LNG by import company
Contracted LNG by exporting country
China underground gas storage map
LNG receiving capacity outlook to 2025, as of August 2019 (mmtpa)
SHPGX and CQPGX transaction volumes
Key facts
Key changes to analysis from H2 2018 publication
Summary of13th five year plan energy targets
Trans-Asia gas pipeline route map
Russia-China gas pipeline route map
Key domestic gas infrastructure - existing
China LNG terminals map
China Supply and Demand Balance
LNG Demand (Contracted vs Uncontracted)
Tariff rate by individual pipeline company, effective as of April 2019
Tariffs of major pipeline routes, effective as of April 2019
End-user prices vs. competing fuel (as of July 2019)