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Trailing Gas Demand Signals China Import Boom: Energy Markets

China’s ranking as the biggest energy consumer and the least reliant on natural gas for power generation among the world’s leading economies is raising the prospect of an import boom as it seeks to cut pollution.

Demand in China may more than triple this decade, with consumption for electricity generation increasing more than fourfold, according to the International Energy Agency. Gas currently accounts for less than 1 percent of the nation’s power generation, compared with 23 percent in the U.S., the only country with a larger economy, and 48 percent in Russia, according to Bloomberg rankings based on World Bank data.

Efforts to cut reliance on coal, which produces about twice as much pollution as gas, are raising prospects for cleaner-burning fuels in China, fanning investments in gas-export terminals from Canada to Australia. China, the world’s fastest-growing major economy, creates more of the greenhouse gases blamed for global warming than any other nation. It agreed along with India two days ago to negotiate the first-ever limits to fossil-fuel emissions.

“Gas use in China is really set to take off as they take environmental benefits into account,” Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd., said in an interview. “China is well aware that without gas there will be no sustainable growth.”

China Petroleum & Chemical Corp., known as Sinopec, and ENN Energy Holdings Ltd. offered HK$15.3 billion ($2 billion) cash for China Gas Holdings Ltd. to gain control of a distribution network covering 20 provinces, the companies said today in a statement. Buying China Gas will give the companies access to its 6.6 million residential customers and 41,981 industrial and commercial users in China

Five-Year Plan

China, whose power utilities generate more electricity from coal than any other country, aims to boost environmental protection in its five-year plan through 2015 as it seeks to avoid “blindly” pursuing unsustainable economic growth, according to Premier Wen Jiabao. The country wants to cut carbon dioxide emissions by as much as 17 percent per unit of gross domestic product during the period, Wen said Feb. 27.

Chinese GDP expanded 9.1 percent in the third quarter from a year earlier, outpacing every other major economy. The nation’s annual target in the five years ended 2010 was 7.5 percent, a pace it has exceeded every year. The growth target for the so-called 12th five-year plan is 7 percent.

To meet demand China may purchase about 44 million tons a year of liquefied natural gas, or LNG, by 2020, according to Philip Olivier, president of global LNG at Paris-based GDF Suez. Imports of the fuel, gas chilled to a liquid for shipping, rose 27 percent to 5.2 million tons in the first half of the year.

World’s Biggest Buyer

Spot LNG cargoes for delivery to Japan, whose prices are a global benchmark because it’s the world’s biggest buyer, averaged the highest in 17 months in October, according to government data. The nation paid an average $797 a metric ton for non-contract cargoes, up 6.4 percent from a month earlier, data on the website of the Tokyo-based Ministry of Finance show. That’s about $15.30 per million British thermal units.

“We expect strong growth in Chinese LNG demand next year, as new terminals start up and expect 20 million tons a year of new demand over the next five years,” Sanford C. Bernstein & Co. said today in an e-mailed report.

Gas consumption may surge to the equivalent of 251 million metric tons of oil by the end of the decade, and to 420 million tons in 2035, from 78 million tons at the end of 2009, the IEA said Nov. 9 in its World Energy Outlook. Use of the fuel for electricity generation in China will quadruple to 72 million tons by 2020 and 157 million tons by 2035, it said.

Canada may start exporting LNG to Asian consumers as early as 2015, according to Calgary-based consultant Ziff Energy Group. Companies including China National Petroleum Corp. are planning to build the first LNG ports in British Columbia.

Domestic Production

State-controlled Chinese energy companies are also ramping up domestic production as China lays pipelines to reach users. Sinopec, as China Petroleum & Chemical Corp. is known, increased gas output by 22 percent in the first nine months. Cnooc Ltd., the nation’s biggest offshore energy explorer, boosted production of the fuel by 17 percent, while PetroChina Co., the Hong Kong-listed unit of CNPC, pumped 5.9 percent more gas.

“For gas-fired power generation to really take off in China, it would require either development of unconventional sources like shale gas or a policy change to focus on cleaner power generation,” said Michael Parker, a Hong Kong-based senior analyst at Bernstein.

Chinese companies including Sinopec’s parent, China Petrochemical Corp., are bidding for gas assets in Canada, the U.S. and Australia to expand reserves and obtain drilling technology to extract the fuel trapped in shale rock.

Largest Acquisition

China Petrochemical agreed in October to buy Canada’s Daylight Energy Ltd. for C$2.2 billion ($2.2 billion) to access shale gas in its largest acquisition this year.

Cnooc agreed in February to purchase a 33.3 percent stake in Chesapeake Energy Corp.’s Niobrara shale project in Colorado and Wyoming for $570 million, after paying $1.08 billion last year for one-third of a Chesapeake shale venture in Texas.

Chinese shale may hold 1,275 trillion cubic feet of gas, or 12 times the country’s conventional gas deposits, the U.S. Energy Information Administration said in April. China’s “technically recoverable” reserves are almost 50 percent more than the 862 trillion cubic feet held by the U.S., the EIA said. China currently doesn’t produce any shale gas commercially.

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