China, World’s Largest Natural Gas Importer, Adds Production Incentives

Oct 28, 2019

by ASME.org

China’s natural gas consumption has outpaced growth in the sector’s domestic production. The country’s natural gas imports, both by pipeline and as liquefied natural gas (LNG), accounted for 45 percent of the Chinese natural gas supply last year, bolstered by varied incentives from the government. China is now the largest natural gas importer in the world, exceeding 12 billion cubic feet per day. Last month, Morgan Stanley forecasted that China’s LNG imports could double to 111 million tons by 2025. Before the trade war with the U.S., China was the third-largest buyer of American LNG, accounting for 10 percent of total U.S. LNG exports.

As imports increase, the Chinese government has prioritized boosting production as well. In June 2019, the government introduced an incentive program establishing new subsidies for natural gas production from tight formations and subsidy extensions for shale and coalbed methane production. These subsidies are scheduled to be in effect through 2023, at the earliest.

Major beneficiaries of Beijing’s subsidies and subsidy extensions include the state-backed PetroChina—Asia’s largest oil and gas producer—and its subsidiary Kunlun Energy. Both PetroChina and the China Petroleum and Chemical Corporation (Sinopec) have collectively committed to ensuring the doubling of China’s 2018 levels of shale gas production by next year.

Furthermore, PetroChina’s president, Hou Qijun, said the company would diversify its imports amid the protracted U.S.-China trade war, looking to invest in more gas projects under China’s Belt and Road Initiative. Citing trade tensions as preclusive, Hou Qijun said that without the trade war “the U.S. would have been a very promising gas supply growth source for China.”

Another major development was the Chinese government allowing foreign companies to operate independently in the country’s oil and natural gas upstream sector. In effect since July 30, 2019, this National Development and Reform Commission (NDRC) decision will open the door to foreign gas companies competing for contracts and licenses.

Many foreign businesses, nonetheless, have noted slow progress in derestricting foreign investment in China in many industries. China’s recent response to this sentiment was releasing a draft report on “Implementing Regulations of the Foreign Investment Law,” on which the president of the EU Chamber of Commerce in China said, “We are entering a phase of economic headwinds.”

ASME is increasing its monitoring of—and engagement with—international trade and related public policy developments that impact ASME’s members and the engineering community at large.