Status and Outlook of China Natural Gas Market中国石油集团经济技术研究院| Page 4 In...

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Status and Outlook of

China Natural Gas Market

2018.11.13·Tokyo

CNPC ETRI

IEEJ：November 2018 © IEEJ2018


Outline

I China Natural Gas Market Status

II China Natural Gas Market Outlook



68.5 72.4 72.4 72.5 71.5 71.6 69.2 70.2 68.5 67.4 65.6 63.7 62.0 60.7

22.0 17.8 17.5 17.0 16.7 16.4 17.4 16.8 17.0 17.1 17.4 18.3 18.3 18

2.2 2.4 2.7 3.0 3.4 3.5 4.0 4.6 4.8 5.3 5.7 5.9 6.4 7

7.3 7.4 7.4 7.5 8.4 8.5 9.4 8.4 9.7 10.2 11.3 12.1 13.3 14.2

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E

coal petroleum natural gas Primary Electricity and Energy

During 2000-2013, China gas consumption increased to 168 bcm, with annual growth

rate of 16%. In 2015 and 2016, y-o-y gas growth declined to 4.0% and 6.4%.

Gas share in total primary energy mix had increased from 2.2% in 2000 to 7.0% in 2017,

which was still much lower than the world average.

China Gas Consumption 2000-2017

China gas demand grew rapidly in 2017

China primary energy mix 2000-2017

14.0

11.9

6.4

16.2 17.0

17.9

20.1

23.8

16.1

9.9

20.6 22.1

12.5 14.2

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6.4

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%

bcm

Consumption growth rate



In 2017, China gas consumption has increased to 235 bcm, with annual growth rate of 17%.

• Economic development GDP grew by 6.9% y-o-y

Gas consuming industries markets improved

• Policy Coal-to-gas projects surged driven by environmental policies

• Price Alternative fuels prices increased

• Transmission line maintenance in Yangtze River Delta; less hydropower generation




Gas consumption have increased significantly in various industries, including industrial

and power generation the biggest increase in gas consumption.

• City gas: Residents, heating and traffic growth rapid

Gas consumption is 89 bcm, grew by 14% y-o-y

• Industry: Environmental policies, downstream product prices, alternative fuel prices

Gas consumption is 73 bcm, grew by 20% y-o-y

• Electricity Gas consumption is 47 bcm, grew by 23% y-o-y

• Chemical industry Gas consumption is 27 bcm, grew by 9% y-o-y

China gas utilization mix in 2017


The growth rate of natural gas consumption by

various departments 2016-2017

14%

11%

2%

-8%

14%

23%

20%

9%

-10%

-5%

0%

5%

10%

15%

20%

25%

city gas industry electricity chemical industry

2016 2017

city gas38%

industry31%

electricity20%

chemical industry

11%



Bohai rim and Yangtze river delta are the top 2 demand growth regions. China's western

region is relatively slow.

Bohai rim Growth rate of gas consumption is 21.2%, driven by “coal-to-gas”

Yangtze river delta Growth rate of gas consumption is 19.2%, driven by gas-fired

electricity


Top 2 nature gas demand growth regions in 2017



From January to September 2018, national natural gas consumption reached 197 bcm

with an y-o-y growth of 17.6%, which is higher than 15.7% of last year

In 2018, Annual natural gas consumption is expected to reach 270 billion cubic meters

with a high growth rate of 14% upon previous year.


China's monthly natural gas consumption, 2016-2018

Source: CNPC ETRI



In 2017 total natural gas supply is 241.4 bcm, with annual growth rate

of 14%.

The share of imported gas was nearly 39%.

Conventional55.1%

PNG17.6% LNG

20.8%

Shale3.7%

CBM1.8%

Synthetic Gas0.9%

Unconventional, 7%

A diversified gas supply system is established

China gas production mix in 2017



China gas production 2000~2017

7.9

11.5

7.7 7.2

18.4 19.0 18.7 18.3

16.0

6.2

11.2

6.6 6.5

9.4

8.0

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2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

%bcm

production growth rate

Source: CNPC ETRI

During 2000-2016, domestic gas production increased from 27 bcm to 134 bcm, with

average annual growth rate of 10%.

In 2017, domestic gas production was 147.5 bcm, grew by 9.8% y-o-y.

• Total shale gas output raised to 9.0 bcm.

• CBM production was 4.4 bcm.

• Coal-based synthetic gas production was 2.2 bcm.

89%

3%6%2%

conventional CBM Shale gas SNG

China’s domestic gas production, 2017




China’s monthly natural gas production, 2016-2018

From January to September 2018, national natural gas production reached 115 bcm

with an y-o-y growth of 6%, which is , which is much lower than the consumption growth.

In 2018, Annual natural gas production is expected to reach 155 billion cubic meters with

a growth rate of 6% upon previous year.

Source: NDRC




36.2

50.3

38.4

42.5

1.7

5.7 5.6 8.4

15.9

24.0

28.8 31.5 32.3 32.7

37.1 39.4

0

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

%bcm

LNG Import Pipeline Import Foreign Dependence Rate

China gas imports reached 92.8 bcm in 2017, increased by 25% y-o-y. Nature gas

foreign degree of dependency increase from 37.1% to 39.4%.

LNG 50.3 bcm, grew by 39.9% y-o-y

PNG 42.5 bcm, grew by 10.6% y-o-y

China gas import volume and import reliance, 2006~2017

Source: CNPC ETRI




Global LNG import ranking, 2017Global natural gas import ranking, 2017

In 2017, China became the world's second largest importer of natural

gas and second largest importer of LNG.


Bc

m

Bc

m



China LNG import sources in 2017

Major LNG Importing sources were Australia, Qatar, Malaysia, Indonesia, etc.

Pipeline importing sources were Central Asia and Myanmar.

China gas import sources in 2017

35.7%

3.8%

3.7%

1.2%

25.3%

10.9%

6.1%

4.5%

3.1%

2.2%

2.0%

0.7%

0.5%

0.4%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

Turkmenistan

Uzbekistan

Myanmar

Kazakhstan

Australia

Qatar

Malayaysia

Indonesia

Papua New Guinea

USA

others

Russian

Nigeria

Angola

Source: BP




As oil price rebounded since the second half of 2017,China’s import LNG price rose

continuously.

• For 2017,LNG average CIF 1.86 RMB/m3, up by 14.2% year-on-year.

• From Jan. to Jul., 2018, LNG average CIF 2.1 RMB/m3, up by 15.2% year-on-year.

• For Jul 2018, LNG average CIF 2.28 RMB/m3, up by 21.9% year-on-year.

2011~2018 Imported LNG Price in China

1.00

1.50

2.00

2.50

3.00

3.50

1月

3月

5月

7月

9月

11月

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3月

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2011 2012 2013 2014 2015 2016 2017 2018

Pri

ce

(RM

B/c

m)




Pipeline: natural gas trunk pipelines totaled over 74000 km

A total of 12 storage reservoirs (groups) have been built, with the peak load capacity of

underground storage reaching 10 bcm and the peak load reaching nearly 8 bcm,

accounting for about 3.4 percent of the country's natural gas consumption.

LNG terminals: 18 in operation, current import capacity 66.4 MTA. 3 new terminals have

started operation in 2018 (Sinopec Nangang, CNOOC Shenzhen, and ENN Zhoushan).

LNG regasification capacity in China, as of Sep 2018

Source: CNPC ETRI




Regulation from

wellhead to city gate;

0.4 RMB/CM price

cap for existing gas,

incremental gas

prices linked to

alternative fuels

Existing gas city-

gate prices

increased by 0.4

RMB/CM

Incremental gas city-

gate prices decreased

by 0.44 RMB/CM;

Existing gas city-gate

prices increased by 0.04

RMB/CM.

Two prices got in line

with each other.

Non-residential city-gate

prices decreased by 0.7

RMB/CM; Negotiable non-

residential city gate price

within price caps since

2016.11 (20% higher than

the base prices)

2013

2015.4

2014

2015.11

Average city-gate

prices

Existing：2.09Incremental：2.96

Average

city-gate

prices

2.51

Average city-gate

prices 2.09（lower by 16.7%）

Gas market reform accelerated—gas price liberalization

Negotiable city gate price with

fertilizer producers; city-gate

prices liberalization trial in Fujian

2016.11

2017.8

Non-residential city gate prices were lowered by 0.1 RMB/CM since September 1st 2017

The notification of lowering

non-residential city gate prices

2017.9

Market-oriented gas pricing

through trading hubs

Average city-gate

prices

Existing：2.47Incremental：2.96



In 2017, Chinese government carried out the first cost investigations and inspection for 13

pipeline companies, the pipeline tariffs are decreased according to the inspection results

and the city gate prices are decreased correspondingly.

China’s gas pipeline reform has extended from the interprovincial trunk line to the city gas

distributing network, the return on investment is restricted at lower than 7%.

The retail price has been generally decreased owning to the strong regulatory nationwide

and the consumer benefits from the reform.

NEA:

Measures for Supervision of

the Oil and Gas Infrastructure

TPA

2014.2 2016.10 2017.6

NDRC:

Opinion on strengthen the city

gas distribution tariff

supervision

NDRC:

Regulation for the Nature Gas

Pipeline Tariff (trial); Measures for

Supervision of the Nature Gas

Pipeline Tariff and Cost (trial)

NDRC:

Regulation for the Nature Gas

Infrastructure Construction

and Operation

2014.3

Gas market reform accelerated—gas pipeline reform



Shanghai Petroleum and Gas Exchange formally started operation in November 2016

Trading volumes in 2017 reached 51.2 bcm (bilateral), PNG 47.5 bcm, LNG 3.7 bcm

LNG and PNG bidding started in July and September of 2017

More gas trading hubs are emerging in Chongqing, Xinjiang etc.

Gas market reform accelerated—establishment of gas trading exchange



Private companies including Guanghui, ENN etc are participating into LNG business.

Huadian, ENN, Beijing Gas, Guanghui have signed LNG importing contracts; ENN

showed interests to take 11.7% stakes of Santos, making it the largest shareholder of

the Australian company; Beijing Gas purchased 20% stakes of Rosneft in VChNG.

LNG importing contracts signed by Chinese buyers 2008-2016

Gas market reform accelerated— increasing number of new players



It is necessary to alleviate the contradiction between supply and demand by

increasing gas supply, accelerating construction of gas storages and peak-shaving

facilities, improving peak-shaving mechanism, and increasing pipeline connectivity.

High seasonal volatility of gas demand and beyond-expected coal to gas switching

Supply reduction of Central Asian gas

Inadequate gas peak shaving capacity Total underground gas storages working capacity is 8

bcm, accounting for 3.4% of gas consumption

Lack of responsibility and emergency system for gas peak shaving

Gas supply shortage during winter of 2017

Daily gas consumption of a major city

Country

Number

of

storages

Working

gas Bcm

Maximum

withdrawal

volumes

Bcm/d

Gas

consumptio

n Bcm

% of gas

consumptio

n

US 400 133.7 3.34 759.4 17.6

Russia 24 69.6 0.74 409.2 17.0

Ukraine 13 32.2 0.29 38.4 83.9

Germany 53 24.6 0.64 70.9 34.7

Canada 61 23.2 0.36 104.2 22.3

Italy 12 17 0.33 56.8 29.9

France 13 12.2 0.27 35.9 34.0

Netherlands 5 10.2 0.22 32.1 31.8

Austria 9 8.2 0.09 7.8 105.1

Australia 7 6.4 0.02 29.2 21.9

Foreign countries underground gas storage facilities

Challenges met by China gas market



Outline

I China Natural Gas Market Status

II China Natural Gas Market Outlook



Central government

Plan Natural Gas 13th Five Year plan, Energy 13th Five Year Plan, Long Term Oil and

Gas Pipeline Network Planning

Price Notifications on Strengthening Regulation on Distribution Tariff, Lowering Non-

residential City Gate Prices, etc

Environment Air Pollution Control Action Plan for Beijing-Tianjin-Hebei Area 2017-

2018 etc.

Utilization Suggestion of Promoting Gas Utilization, etc.

Others Some Suggestions on Deepening Oil and Gas Industry Reform, etc.

Local government

Actively carried out planning, policies on prices and utilizations.

Policies to promote China’s gas industry



Strategic Action Plan for Energy Development, Natural Gas 13th Five Year Plan,

Energy 13th Five Year Plan ,Suggestion of Promoting Gas Utilization targeted 10% by

2020 and 15% by 2030 for gas share in primary energy consumption.

It is estimated that gas consumption will be 400 bcm by 2020 and 600 bcm by 2030.

2.2 2.4

4.0

5.9

10.0

15.0

0

2

4

6

8

10

12

14

16

2000 2005 2010 2015 2020 2030

%

Huge potential market

Share of gas in primary energy mix – planned goals by 2020 and 2030



The major gas consuming sectors in China are city gas (40%), industrial (30%) , power

generation (15%) and chemical (15%)

Suggestion of Promoting Gas Utilization distributed by 13 national departments pointed

out four key utilization areas for gas: cities and towns, power generation, industrial fuels and

transportation.

Key orientation of China gas demand

• Gas-fueledvehicles

• Gas-fueled ships

• Coal-to-gas inindustrial sector

• Distributivegeneration

• Peak generation

• Cogeneration

• Residentialcustomers in townand rural areas

• Clean heating innorthern areas.

City and towns

Power generati

on

Transportation

Industrial fuels



Outlook: Demand

Gas Demand Forecast of China

It’s projected that China natural gas demand will be 321 bcm by 2020 and the average

annual growth rate will be 9% for 2018-2020.

During 2020-2030, the gas demand in residential heating(belongs to city gas in our

model), power sector and industry sector are projected to grow fast and the biggest

uncertainties come from power sector.



It is expected that the supply capacity will be 345 bcm in 2020, with 220 bcm domestic

gas, and 125 bcm imported gas.

Supply capacity will be as much as 590 bcm in 2030, with domestic production of 390 bcm

and 200 bcm imported gas.

The supply capacity can be able to meet demand by 2030.

Gas Supply Capacity of China 2015-2030

Outlook: Supply



27

ProjectDesigned capacity

(bcm/yr)Status Operation start date

Central Asia Gas Line A30

Operation 2009.12

Central Asia Gas Line B Operation 2010.10

Central Asia Gas Line C 25 Operation 2014.5

Central Asia Gas Line D 30 Delayed —

Myanmar-China gas pipeline 12 Operation 2013.07

Sino-Russia East Gas Line 38 Under construction —

Sino-Russia West Gas Line 30 Planned —

Pipeline gas import capacity is 67 bcm in 2017. It’s projected that the PNG import capacity

will be 105 bcm after completion of China-Russia East Line in late 2019, and over 135 bcm

by 2030.

We expect PNG import to reach 130 bcm by 2030.

China gas supply capacity, 2017

Outlook: Supply



28

Driven by rapid LNG import growth, LNG import capacity increase quickly, y now, 18

LNG terminals in operation, import capacity reached 66.4 MTA.

There are 12 projects are under construction with import capacity 29.3 MTA, most of

which are expansion of existing projects. Moreover, there are more than 50 proposed

projects.

It’s projected that the capacity will exceed 100 MTA by 2025 according to the under

construction and proposed additional terminals.

Outlook: Supply


CNPC Economics &Technology Research Institute

中国石油经济技术研究院

CNPC Economics & Technology Research Institute, ETRI

Thank You


Contact:[email protected]

Status and Outlook of China Natural Gas Market中国石油集团经济技术研究院| Page 4 In...

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