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Carbon, Covid Prompt China Rethink

Copyright © 2021 Energy Intelligence Group

China is scaling back forecasts for growth in gas consumption in response to Covid-19-related lockdowns and Beijing's push to decarbonize the economy. Chinese industry insiders and analysts still expect demand to increase by nearly 6% annually out to 2025, but reckon it will be lower than they predicted pre-pandemic. Sources with some of the Western majors think the forecasts are too pessimistic, pointing to double-digit growth in the first half of this year that turned the country into the world's top LNG buyer (WGI Aug.11'21). Analysts from China National Petroleum Corp. (CNPC) and PipeChina both said recently they expect demand to increase to 420 billion cubic meters (41 billion cubic feet per day) by 2025 and 600 Bcm by 2035, up from 326 Bcm last year. CNPC analysts put the average annual growth rate at 5.8% from 2021-25. Before 2020, the consensus was that consumption could hit 700 Bcm plus by 2035. The bulk of the growth is seen coming from city gas, industrial users and power generation, energy analysts from the National Development and Reform Commission (NDRC) planning agency tell Energy Intelligence. China's rich coastal provinces of Jiangsu and Guangdong will remain big gas users. They will look to gas to replace decommissioned coal-fired plants and will continue to rely on gas imports to help fuel export-oriented industries. Elsewhere, some new power stations will use gas to supplement renewables, and it will also be called on at times of peak power demand. Gas is neither the cheapest nor cleanest form of energy, but the system is "not workable without gas power," an NDRC analyst says. “We expect gas demand from city gas, industrial users and gas power to have very sharp growth. Renewable power is the trend, but it can’t do it all." Chinese leader Xi Jinping pledged last year to speed up cuts in emissions and reach carbon neutrality by 2060. The ambitious goal is expected to hit growth in gas demand longer term as decarbonization gathers pace, but boost consumption until 2035, at least, as coal-fired plants shut and renewables need gas as backup, CNPC analysts say. While Beijing has introduced no new policies specifically to support gas, consumers that have already switched from coal to gas won't be allowed to switch back, even if they complain that gas is too expensive. CNPC reckons gas demand for power generation will soar to 130 Bcm by 2025 from 57.1 Bcm last year, accounting for 26% of total gas consumption. Industrial demand is expected to rise to 160.5 Bcm from 129 Bcm. Sources with the Western majors believe the forecasts are too low, based on growth so far this year. “It reached 180 Bcm in the first half, it would be 370 Bcm for the full year, and it would be 400 Bcm next year,” says one. Another similarly says his company is "a bit more optimistic.” Nonetheless, some Chinese market-watchers believe consumption will be hard-pressed to reach 420 Bcm by 2025. That's partly because of concerns that new strains of Covid-19 could sap demand. It's also because imports will account for much of supply, and these hinge on price. Affordability will ultimately govern Chinese gas demand, as well as the makeup of consumption, so prices this winter will be crucial. If prices of spot LNG and crude oil remain high, end-users are expected to rely more on domestic gas and cheaper pipeline imports. Dawn Lee, Beijing China's Gas Consumption

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