China: Growing import volumes of LNG highlight China’s energy import dependency
China’s gas demand looks set to remain relatively strong over the next several years, driven largely by government environmental policies. Over the last decade, China’s gas demand has risen more than three-fold as its economy has grown and as the government has focused on increased gas use as a route to a cleaner environment in China. While the national oil companies have been instructed to raise domestic gas production by President Xi Jinping to support China’s supply security, they are struggling to do so adequately in both the conventional and unconventional spheres. As a result, a greater dependence on imports of gas is almost inevitable. These imports started arriving as LNG from Australia in 2006 and as pipeline gas from Central Asia in 2010. It is well-known that import dependency has risen steadily since gas imports began. In 2018 it reached 43 per cent, compared with just 5 per cent a decade earlier. What is less well-known is that LNG now represents almost 60 per cent of China’s gas imports, considerably ahead of the volume of pipeline imports, a trend that started in 2017 when LNG inflows exceeded pipeline supplies for the first time.
There is undoubtedly a debate inside the Chinese government about what level of overall import dependency for natural gas is acceptable. Given that gas has been playing a growing role in China’s plans to clean up its environment, rising import dependency may have been a necessary evil given that it helps tackle the socially contentious issue of deteriorating air quality. The difference between rising oil import dependency and rising gas import dependency may relate, above all, to a contrast between the global political environment when China’s oil imports were initially rising strongly 10 years ago and the current political environment when the same volume growth has been true of gas. Clearly the situation is more fraught than a decade ago. A trade war with the US, a more difficult relationship with Taiwan and generally less forbearance on the part of many Western counterparts means that the risks of being over dependent on imported energy may well be seen by Beijing as greater today than they were a decade ago.
Diversification appears to be the response – with both pipeline gas and LNG deliveries growing but also with an increasing variety of suppliers on both these import routes. However the developing trade war with the United States and the imposition of tariffs on LNG has removed that country as a potential supplier of gas to China – at least in the short-term. That has implications for other gas suppliers around the world – whether existing LNG suppliers such as Qatar and Australia or potential new suppliers such as Mozambique. Russia, also, could be a potential beneficiary of disrupted US supplies of LNG. The Power of Siberia line commissions at the end of this year and Russia will become China’s most important new supplier in recent years. China may also look more favourably on additional pipeline deals with Russia given its resource base and its desire to reach agreement on further gas projects. China for its part will want to maintain diversity in both suppliers and supply routes to ensure it retains maximum operational and commercial flexibility in its gas supplies.