China’s dependence on gas imports threatens security: Kemp | Techno Glob


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LONDON — China’s reliance on imported gas is growing despite government efforts to boost domestic production, creating an increasingly serious energy and national security problem.

China’s gas production increased by 6% in the first eight months of 2022 compared to the same period in 2021, according to the National Bureau of Statistics (“Output of energy products”, NBS, September 16).

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Production has grown at a compound annual rate of 7% over the past ten years, doubling between 2011 and 2021, as the government encourages the development of large fields in Sichuan, Xinjiang and the Ordos Basin.

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But consumption grew even faster, at a compound rate of almost 11% over the same period, as more households were connected to the distribution network.

Replacing wood, coal and gas cylinders for residential and commercial heating and cooking has played a key role in reducing urban air pollution and improving quality of life.

The population with access to gas had increased to 413 million in 2020, compared to 286 million in 2015 and 170 million in 2010 (“China statistics yearbook”, NBS).

The decade from 2010 to 2020 saw massive increases in gas access in Guangdong (+24 million), Shandong (+22 million) and Jiangsu (+19 million).

There were also strong increases in Sichuan (+14 million), Henan (+14 million) and Zhejiang (+14 million), Hubei (+12 million), Anhui (+10 million) and other provinces (+115 million).

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Chartbook: gas production, consumption and imports in China

Gas accounted for more than 8% of China’s primary energy consumption in 2020, up from 4% in 2010 and just 2% in 2000.

China had become the world’s fourth largest gas producer in 2021 (after the United States, Russia and Iran), but it was also the third largest consumer (after the United States and Russia).

Unlike the United States and Russia, which were both net exporters, China was increasingly forced to turn to imports to meet its needs, becoming the world’s largest gas importer.

China’s net import requirement increased to 170 billion cubic meters in 2021 from 29 billion cubic meters in 2011 (“Statistical review of world energy”, BP, 2022).

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The country relied on imported gas to meet 45% of its domestic consumption in 2021, compared to 34% in 2016 and 21% in 2011.

STRATEGIC VULNERABILITY

Growing reliance on imported gas has become one of China’s biggest strategic vulnerabilities as relations with the United States and its allies have soured.

One-third of China’s gas imports arrive overland by pipeline, but two-thirds arrive by sea as LNG, and the share is growing.

Pipeline imports have grown at a compound annual rate of 15% over the past decade, while LNG imports have grown 21% annually.

Pipeline arrivals come mainly from Central Asia (41 billion cubic meters) and Russia (8 billion), which have friendly diplomatic relations with China.

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But more than half of the total LNG imported comes from hostile countries, notably Australia (44 billion cubic meters) and the United States (12 billion).

Smaller volumes of LNG come from the more neutral Qatar (12 billion cubic meters) and Malaysia (12 billion), as well as Russia (6 billion).

As a result, China is increasingly vulnerable to anything that disrupts the physical arrival of fuel.

The vulnerability focuses on maritime LNG, a commercial or diplomatic embargo, sanctions or a military blockade becoming major risks.

POLICY RESPONSES

Despite the high priority given to indigenizing the energy system and reducing import dependency in the 13th Five-Year Plan (2016-2020) and 14th Five-Year Plan (2021-2025), the government has made limited progress.

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The most notable success was the construction of a deep-sea navy to protect sea lines of communication (SLOC) and counter any attempt to intercept energy imports.

But the dependence on gas imports is increasing rather than decreasing, and there has been little progress in diversifying the source of supply towards friendlier countries.

More pipelines from Siberia could eventually reduce reliance on LNG; Russia is eager for new customers to replace markets lost in Europe following its invasion of Ukraine.

But building new pipelines would take years and would likely result in only a marginal reduction in LNG requirements.

Increased deployment of renewable energy, which China has in abundance, and electrification of home and commercial heating could eventually reduce gas needs.

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But right now, most of the extra electricity is used for electricity, not for heating, and the number of residential gas connections is increasing rather than decreasing.

The best strategic option remains to increase domestic production and wait until the gas connection program is completed and consumption stabilizes.

Associated columns:

– China’s five-year plan focuses on energy security (Reuters, March 19, 2021)

— China’s gas conundrum – cleaner air but growing security risk (Reuters, March 12, 2021)

– US-China cold war would redirect energy flows (Reuters, July 28, 2020)

– China tackles smog with help from World Bank (Reuters, February 2, 2016)

John Kemp is a market analyst at Reuters. Opinions expressed are her own (Editing by Louise Heavens)

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