China’s Natural Gas Development Report – A Tale of Two Years
If 2019’s focus was on the seemingly inexorable rise in China’s demand for gas, the 2020 reports theme has been the impact of coronavirus. Despite a significant economic hit in the first half, 2020 saw positive economic growth in China – the only major economy to do so. Many of the 2019 themes carried over into the 2020 NGDR, such as sector reform – with the creation of PipeChina a major step forward – and supply security concerns, while China’s pledge to be carbon neutral by 2060 is one issue likely to be addressed in the 2021 NGDR as well as the national Five-Year Plans to be released later this year.
Introduction
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China released its Natural Gas Development Report (NGDR) in late 2020. The document reviews developments in the country’s gas sector in 2019 and the first half of 2020 - as well as the global gas industry context which affects China – and sets out plans for 2020-2021. This is now the fifth edition of the annual NGDR, produced jointly by the National Energy Administration and the Development Research Centre (under the State Council) with inputs from the national oil companies.
If the 2019 report majored on the seemingly inexorable rise of Chinese gas demand, the major theme underlying the 2020 NGDR has been the impact of Covid-19. While China was the first major economy to be affected by the virus and responded to it with a series of aggressive lockdowns which sharply reduced energy demand, the economy has since recovered and was the only major economy to show growth in 2020 – expanding by 2.3%.
In 2019, the focus in the global gas industry was on the continuing rise of Chinese gas demand on the back of a combination of economic growth and the ongoing switch from coal to gas. Linked to this were expectations of a growing demand for LNG and a consequent impact on global gas markets. While 2020 started off with a slump in activity, China emerged once again as a bright spot for the international market.
The 2019 NGDR assessed the challenges facing the industry in China – price reform and market liberalisation among them – in the context of supply security concerns beginning to come to the fore and linked to the US-China trade war.
Many of the themes from 2019 have carried over into the 2020 NGDR, which was written before President Xi Jinping’s pledge that China would be carbon neutral by 2060. Given that 2020 was also the final year of the 2016-2020 Five-Year Plan and the 2021-2025 FYP is currently being drafted, the 2020 NGDR can only provide limited visibility into the implications of the carbon neutrality pledge on short term gas market developments.
In this paper we look at this recent history as well as China’s gas sector response to Covid-19 and the country’s ambitions for the sector going forward. In addition to appearing in the final year of the current FYP, we should remember that, while the NGDR is an important statement of the government’s ambitions, it is not a binding document but rather a framework for thinking about the future development of the gas sector. With the NOCs involved in the preparation of this document and the debate around China’s gas sector, there are unlikely to be any surprises for them in its conclusions.
We start with a commentary on the government’s assessment of the global gas market and China’s operational position within it for the last full year. We then review the progress of reform initiatives in the gas market – from upstream licensing to infrastructure access to pricing.