Outlook for China’s gas balances
Despite a turbulent 2020, China’s gas demand grew, and LNG demand also rose substantially. This was due to a combination of factors: the robust recovery of the Chinese economy; low gas prices (both spot and oil-indexed) as well as government efforts to accelerate gas market liberalization and improve third-party access through the creation of PipeChina. These, in turn, allowed more importers to capitalize on low LNG prices, favouring LNG over pipeline supplies, even as domestic production continued to grow. The expectation of ample natural gas supplies at relatively low prices also led the government to encourage additional coal-to-gas switching through 2021. These factors set the stage for a year of strong demand growth in 2021, and in light of the government’s pledge to peak carbon emissions by 2030, there is a potential for natural gas use to grow considerably over the coming years. However, a cold snap and supply shortages in December 2020, attributed in part to PipeChina’s poor relationship with the state-owned majors, are leading industrial and commercial users to re-think the prospects of natural gas. The outlook for China’s gas market, both the strength of demand and the supply outlook, are once again unclear. This paper will argue that despite the winter shortages and PipeChina’s teething pains, the coming years will still see strong gas demand growth, but the ride will be bumpy.