China gas markets long-term outlook H2 2017 Report

Commodity Market Report 22 December 2017

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Report summary

In 2017 we witnessed dramatic changes in China's gas market. With a 18% year-on-year demand growth year-to-date (January to October), the market shifted from oversupply to shortage, in just 12 months' time. We expect the strong gas demand growth to continue through the mid-term. Underpinned by thorough implementation of coal-to-gas switching in both industrial and residential sector, gas demand will grow from 206 bcm in 2016 to 332 bcm by 2020 – 3% higher than our H1 outlook. This will require a higher-than-expected increase from all supply sources – domestic production, pipe gas imports, as well as LNG. There's also a risk that current pipeline connectivity and regas capacity won't be able to support the size of growth. Future policies will need to weigh carefully the relationships between supply, infrastructure and demand.

Executive summary
- Coal-to-gas switching creates surging gas demand
- Growing domestic output underpins China gas supply
- Infrastructure is increasingly a constraint
- China is no longer over-contracted with LNG
- There remain near-term downside risks to piped gas imports
- China accelerates the pace to tap unconventional gas resources
- What's changed – H1 v. H2
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