2017 was a key and challenging year for the Chinese gas sector. All indicators point to an acceleration of natural gas penetration in the energy mix and an intensification of gas market reforms to facilitate this expansion.
Boosted by the recovery of Chinese economic growth, the acceleration of coal-to-gas switching policies, and the rebound in the competitiveness of natural gas relative to competing fuels, China’s natural gas consumption reached a record high level. According to the National Development and Reform Commission (NDRC), natural gas consumption rose by 15.3% to 237.3 bcm in 2017. China was the world’s fastest growing gas market: the country alone accounted for a quarter of global growth in gas consumption.
Accelerated reforms and focused policies aimed at increasing the role of gas and renewables in the energy mix combine to improve the natural gas demand outlook of China and India.
As natural gas in China and India hardly competes with coal on a cost-basis, the substitution from coal to gas requires a strong support of policies and a fast pace of reforms. Past natural gas developments since 2000 in these two markets show very different trends, which attest to the key role of policy measures to support gas demand and supply.
In Cedigaz Scenario, substantial domestic production growth and the expansion of pipeline and LNG infrastructure will bolster growth in gas consumption across various sectors in India and China. Cedigaz prospects for gas demand in these countries are among the highest in the forecast ranges of the different institutions. Cedigaz integrates the objectives of China’s national energy plans. However, for India, natural gas demand projections and the share of gas in the energy mix fall short of the government’s ambitious targets. Cedigaz Scenario is also based on favourable assumptions as regards the advancement of market-oriented reforms in both the gas and electricity sectors.
– Overall, the gas markets in Asia, Europe and the United States have been fairly volatile. In addition to the upcoming winter’s degree of severity, the oil price and economic context are also sources of uncertainty. Average prices for 2018 have been trending upwards, with the notable exception of those in the United States.
– The average price of gas imports to Japan continued to rise in the third quarter, mainly influenced by the uptrend in the oil price. During Q3, LNG spot prices approached long-term prices, indicating a tightening of supply due to increasing demand in Asia. According to market forecasts, this state of affairs should persist throughout the winter, followed by a perceptible price downturn starting in the spring of 2019.
– Since Q2 2018, the NBP price has been on an upward path. This trend is expected to continue throughout the winter then start a downswing in Q2 2019. Overall, it has been lower than the prices seen in Asia, a factor that does not favor LNG deliveries to the European market.
– It is thought that the Henry Hub price, up slightly at the end of Q3, will continue this uptrend over the next two quarters. The latter is not considered to be structural and, for 2019, the forward markets are anticipating a lower price due to the expected increase in production.