Gas Still China's Transition Fuel of Choice: Fu

Copyright © 2021 Energy Intelligence Group

Natural gas will remain China’s energy transition fuel of choice, Sinopec former Chairman Fu Chengyu told the Energy Intelligence Forum Monday, even if LNG prices have reached historically high levels amid a domestic power crunch.

Asia spot LNG prices have been historically high recently, breaking a record last week with the Japan Korea Marker, Asia’s de facto benchmark, crossing the $34 per million Btu threshold for the first time in its history.

“Gas prices have gone up not so much because of what is happening in China, but worldwide,” Fu said.

The current rally has been mainly driven by ever-rising European gas hub prices, persistent appetite from Northeast Asian buyers and production issues at a number of LNG plants as fields mature.

China Now Largest LNG Importer

China has become the world’s largest importer of LNG this year — overtaking Japan. The country aims for a growing portion of its power and heating needs to be met with gas, a cleaner-burning fuel than coal, which is expected to account for 56% of China’s primary energy needs.

Fu expects international gas prices to be higher than they were in the past.

Gas demand is set to increases while supply is expected to remain constrained without large LNG projects expected to come on line before the middle of the decade.

Energy Intelligence expects LNG demand to grow at 3.6% annually until 2035 and at 4.1% annually up to 2030 but will then decrease during the 2030s. China will account for around 25% of the growth to 2035, while other Asian markets represent around 58%.

Coal Is the Culprit

Many Chinese provinces are currently dealing with severe power shortages due to high coal prices as well as intermittent renewable power generation that is exacerbated by unusual weather patterns.

The current power crunch should not have happened, Fu said, adding that China will need to strike the right balance between its economic growth, energy needs and its carbon emissions reduction target.

Some decision-makers moved too fast on reducing coal's share in the country’s energy mix, Fu said.

Almost 80% of the coal-power projects listed in the 14th Five-Year Plan have been stopped by local authorities because they want to show that China is committed to addressing the climate change issue, Fu said.

What the authorities did not expect is such a coal shortage, especially as many coal mines have been sold or closed down.

“This is a big lesson [for China] because we haven't seen such a situation in more than 10 years or even 30 years,” Fu said, adding that he expects the current situation to last “at least one quarter.”

But Fu remained optimistic saying that once the Chinese government decides to act, the execution will be very quick.

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