The growth of China’s energy needs over the last two decades has been astronomical, and LNG has been no exception. In 2020, China imported 66.7Mt of LNG. In 2030, China will be importing over 95Mt of LNG annually, having an average growth of over 3.5% and having seized pride of place as the largest global importer. This growth is coming on the heels of rising energy needs, increasing pressure on environmentally-unfriendly fuels and a growing LNG market improving availability.

The development of LNG in China has grown rapidly over the last 5 years, and China’s hunger for gas is reshaping the world’s gas market. The LNG market, by necessity, influences and is influenced by the natural gas pipeline supply to a country.

In September 2020, Beijing outlined its long-term climate target: hit peak emissions before 2030 and achieve carbon neutrality by 2060.  China expects carbon emissions to peak around 2025, followed by a plateau and then a sharp decline.  By 2035, China is aiming to see a 20% decline in CO2 emissions relative to that peak. By 2050, it could witness more than a 70% decline, leading to carbon neutrality by 2060. 

A Piping Hot Resource

With the LNG price in Asia pushing well above US$10/MMBtu, pipeline gas is attractive for lower costs where it is available. Unfortunately for Chinese electrical providers, significant constraints on pipeline gas remain in place, and LNG remains in high demand.

Russia has been investing in stronger pipeline connections to China with the Power of Siberia pipeline extension that will compete directly with seaborne LNG trade. Once the extension is complete at the end of 2022 the 800km pipeline extension could carry up to 38 billion cubic metres of natural gas into China annually. Once complete,

Significant additional pipeline gas supply from Russia will apply downward pressure to the international LNG market, abated by the recent spats between the Australian and Chinese governments limiting Chinese interest in that supply market, and the ravenous hunger for natural gas generated by environmental restrictions.

Gas provided 3.1% of China’s 2020 energy supply, with LNG representing 21.8% of the imported gas supply. China primarily sources from Australia, Russia and Qatar, with an increasing presence from North America as the US grows into the market.

Preferred Sources

The Australian-Chinese trade relationship has been cooling in the early parts of 2021, with poor prospects of returning to the levels of cooperation seen pre-pandemic. With that in mind, the Chinese government will seek to increase LNG imports from alternative sources – primarily Russia and Qatar, with the United States expected to become the key supplier in the coming years due to sheer volume of output and proximity across the Pacific.

Prices will continue to rise, particularly during high-demand periods such as China’s summer. The majority of the US LNG market remains linked to the Henry Hub price, and will likely remain a more economic selection than Australia’s traditionally expensive gas, or Qatar’s higher shipping costs.

With large growth in both the US and Qatar LNG exports, those markets will be the primary providers of new LNG globally. Qatari exports are expected to feed the growing European market and with China’s proximity to North America, 20Mt of import market growth will come from the US over the 2021-2030 period.

With rising importance in the gas market and increasing pressure on fossil fuels, LNG has become increasingly popular as alternative fuel for other sources than primary electrical power, including bunkering fuel and marine transport. With increasing popularity of these end uses, including over 50% growth in the oceangoing bunkering market over the next two years, LNG demand is only expected to rise globally.