China – Gas Policy Brief

The International Energy Authority has described China’s challenge to deliver a carbon-neutral economy by 2060 as the biggest climate undertaking ever made by any country and compared it to China’s successful challenge post-1978 to transform its rural economy into an industrial global powerhouse.

The scale and magnitude of the challenge facing the world’s largest CO2 emitter, largest and fast-growing economy and largest coal user is daunting.

Though it has been actively pursuing a sustainable energy policy for more than 20 years, coal still comprised 58% of the primary energy mix in 2020. This reflects a 10% reduction in the last decade and means the country remains the world’s largest producer and consumer of coal which is used primarily to generate electricity (69% of electricity needs).

It masks the fast rate of progress in decarbonising the economy that has turned China into the world’s largest producer of renewable power with 80% of the world’s solar generating capacity and responsible for 40% of global renewable expansion annually. Non-fossil fuels are now contributing more than 30% of electricity while its generation capacity stands at 41%.

China is focusing on three main areas towards 2060:

Going green: Adopting renewable and non-fossil fuels to reduce emissions and reducing the role of fossil fuels though coal will remain a major contributor in the medium to long term.

Technology: Developing new technologies to reduce the carbon footprint, particularly to make coal cleaner and greener and renewables more efficient and affordable, as well as increasing the production of unconventional natural reserves such as shale, while establishing leading positions in new areas such as artificial intelligence and Electric Vehicles (EV).

Market reform: Liberalising the gas, power and oil sectors, developing power and environmental product trading while promoting foreign direct investment in multiple sectors including energy and transport.

Natural gas has a niche but critical role to help drive down air pollution and emissions where there has been heavy coal use.  It is being prioritised for industry and for city heating to improve air quality in populated areas, as well as being linked to renewables as complementary energies to build innovative distributed energy systems.  Though its share of the primary energy mix is just 8%, China’s natural gas consumption is the third largest in the world and growing fast.

By 2050, natural gas will be expected to be contributing 15% with more than half coming from non-fossil fuels sources.

In the last 15 years, the government has doubled natural gas production, built thousands of kilometres of domestic gas pipelines throughout the country, backed out coal for gas in cities and industry, started importing gas by pipeline from Russia and other central Asian countries and built 22 LNG regasification plants to become the second largest LNG importer globally in 2020.

In a 2020 State Council white paper, references to natural gas focus on new technologies to increase production, including unconventional reserves such as shale, coalbed methane, tight gas and methyl hydrate, and improving midstream infrastructure – pipelines and storage.

With the scale of economic growth predicted at 4.6% per annum for the next 10 years there will be a significant role for natural gas and the size of that role over the next 30 years will depend on how quickly China moves toward its renewables options, develops clean coal solutions and other technological solutions such as hydrogen.