Growing demand heralds ‘golden age’ of gas in China, says IEA

Out-Law News | 03 Jul 2014 | 11:08 am | 2 min. read

The “golden age” of natural gas established in North America will expand to China over the next five years, according to a new report from the International Energy Agency (IEA).

The IEA’s ‘Medium-term Gas Market Report’ (5-page / 992 KB PDF) projected a near doubling of Chinese gas demand up to 2019, compensating for “a slight slow-down in growth in many other areas of the world”.

China’s industrial and transport sectors will drive overall domestic gas demand to 315 billion cubic metres (bcm) within the next five years, representing “an increase of 90% over the forecast period”, the IEA said.

According to the report, global demand is set to rise by 2.2% annually by the end of the forecast period, compared with a rate of 2.4% projected in last year’s outlook.

IEA executive director Maria van der Hoeven said: “We are entering the age of much more efficient natural gas markets, with additional benefits for energy security. While demand growth is driven by the Asia-Pacific region, and especially China, supply growth for the international gas trade is dominated by private investments in liquefied natural gas (LNG) in Australia and North America.”

However, van der Hoeven warned that high LNG prices threaten to “crimp demand as many countries are increasingly unwilling, or unable, to afford these supplies... which could open the door to coal”.

Van der Hoeven said: “Looking ahead, unless we see timely investment in new production and LNG facilities and the reversal of the recent cost inflation of LNG, only a very strong climate policy commitment could redirect Asia’s coal investment wave to gas.”

The report said China remains “the driver” behind global gas demand with a 13.3% growth rate, and that it is by itself "responsible for half of the world’s additional gas consumption”. By contrast, many other non-OECD regions “show modest growth, while demand fell in Latin America, where droughts forced power generators to resort to gas-fired plants and drove exceptional increases in both gas demand and LNG imports”.

According to the report, China’s output surged by 9%, although this increase “only covered half of the additional demand”. However, with China’s government adopting “tough plans” to reduce pollution, gas is “emerging as a major part of the solution”.

While China will remain a “significant importer, half of its new gas demand will be met by domestic resources, most of them unconventional”, the report said. Chinese production is projected to grow by 65%, from 117 bcm in 2013 to 193 bcm in 2019.

The IEA’s projections reflect a report published by General Electric (GE) in 2013 (37-page / 3.15 MB PDF) which said rising energy-related issues, such as air pollution and need for greater energy efficiency, have caused China to look for other options. “It is within the context of these changing conditions that we see natural gas becoming the new focal point of China’s energy strategy over the next 15 years,” GE said.

However, GE said: “Even though China’s government and business leaders have been focused on diversifying China’s energy future and capturing the benefits of gas, China’s gas future is uncertain. New supply sources hold promise, and there is strong potential to capture the benefits of gas in urban areas, but institutional forces could slow growth.”

In May, China and Russia signed a purchase and sales contract on a major gas supply project. Under the terms of the 30-year contract, the pipeline will start providing China with 38 bcm of natural gas annually from 2018.