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China’s Transfer From Coal To Gas Is Well Under Way

On Tuesday, Sinopec, one of China’s top energy companies, received the first LNG cargo at its new import terminal in Beihai. The company is now moving full speed ahead with plans for three more terminals across the country in a major shift from coal to gas.

The LNG will be re-gasified at the new terminal and then supplied to household consumers in the regions of Guangdong and Guangxi, in southern China. The facility has an annual processing capacity of three million tons of LNG. The first cargo, from Australia-Pacific LNG, was 160,000 cubic meters.

Related: $91 Billion In Capex Cuts, A Serious Hangover For Oil

Beihai is the second LNG import terminal of a total of five terminals Sinopec plans to build across the country. The first started operations last year, at the port on Qingdao, and the other three will be built at Tianjin, Jiangsu and Zhejiang.

China is currently in the process of shifting its economic model from a focus on manufacturing and heavy industries to services and local consumption as the drivers of growth. This shift involves a switch from coal, which currently accounts for more than 60 percent of the country’s energy mix, to more environmentally friendly types of fuel, including natural gas as an obvious alternative.

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Beijing is also expending significant effort towards stimulating the consumption of gas. Last year, the government reduced gas prices twice in order to encourage users to make the switch. At the moment, according to Chinese consumption data, there is healthy demand for gas, supported by continuing government measures, such as incentives for gas-fueled power plants and price cuts.

Local energy leaders seem to share the opinion that LNG will be a growing part of China’s energy mix. Just recently, the vice president of CNOOC said LNG was “irreplaceable” in view of the government’s determination to cut carbon emissions. Chinese forecasts suggest natural gas will represent 10 percent of the energy mix in four years, which translates into between 300 and 360 billion cubic meters a year, according to Platts. It’s worth noting, however, that not all of this will be imported LNG: China gets a lot of its gas from Russia and Central Asia via pipelines.

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More optimism can be found in a report from the Australian Department of Industry, Innovation, and Science. The report, by chief economist mark Cully, suggests that LNG demand in the Asian nation may rise by 38 percent by 2030. The keyword here, unfortunately, is may. Whether or not this demand growth will be achieved depends on the government’s long-term dedication to carbon emission reduction as well as on the progress of the economic shift, among other, unforeseeable factors.

Right now, there is worry among some analysts that the shift away from manufacturing is affecting demand for gas in a substantial way. The effect is only natural—a consequence of moving from a focus on energy-intensive industries to industries that don’t consume as much—and should be temporary. How temporary exactly is the question that counts, but its answer lies in the future.

By Irina Slav of Oilprice.com

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