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    China gas study: Strong demand growth will persist but exporters should secure contracts before unconventional gas constrains new LNG imports

    Edinburgh/SINGAPORE – Wood Mackenzie’s new study looking at the fundamentals of the China gas industry titled ‘Race for Supply – the Future of China’s Gas Market’ finds that unconventional gas, particularly shale, will increase significantly to help meet China’s strong gas demand growth. Domestic unconventional production will account for over a quarter of total gas supply by 2030. However, unconventional gas resources will take a significant time to develop and therefore meeting its gas demand will require China to import significant additional volumes of LNG and piped gas, particularly up to 2020.

    Gavin Thompson, China Gas Study Director for Wood Mackenzie says, “Development of indigenous unconventional gas is currently slow but we forecast significant volumes of coal bed methane, coal-based synthetic gas and shale gas to enter the market, reaching over 11 billion cubic feet per day (bcfd) by 2030. This will meet much of China’s incremental demand by this time. In total, unconventionals will account for over a quarter of total gas supply.”

    “Shale gas is the major growth story in China Gas. As China’s national oil companies increase their unconventional gas activity, they will look for partnership and technology in the initial phase of development, creating a window of opportunity for qualified foreign players. This is a near-term window of opportunity for International oil companies to gain access to China’s onshore acreage and to leverage skills honed in North America.”

    While domestic conventional gas supply will continue to grow, Wood Mackenzie says it cannot keep pace with future demand in the current decade and China will need to secure significant additional volumes of imported gas in the form of both LNG and piped gas.

    Thompson expands, “China’s demand for LNG is driving Pacific LNG market growth. We now forecast China LNG demand in 2020 to be 46 million tons per annum (mmtpa), up from our previous forecast of 31mmtpa. This will expand the opportunity for LNG suppliers seeking to secure markets, particularly those in Australasia. However China’s LNG import growth will be mitigated by the emergence of indigenous unconventional gas. Consequently there will be a limited opportunity for some LNG suppliers to secure long term supply or risk seeing China disappear as a potential foundation buyer for their projects.”

    China’s gas demand is forecast to rise from 9 bcfd (93 billion cubic meters) in 2009 to 43 bcfd (444 billion cubic meters) in 2030, a compound annual growth rate of 7.5%, with strongest growth pre 2020. This strong demand growth, says Wood Mackenzie, will not purely be driven by gross domestic product (GDP).

    Thompson explains, “Demand is driven by a combination of factors, including policies to reduce the country’s growing reliance on oil imports. This is important as the gas demand story is about displacing oil products, not coal, in the industrial and residential sectors. Coal continues to dominate in power, although gas will increase its market share in wealthier coastal provinces as local government supports a cleaner fuel mix. As such, we think that industry will remain the largest gas consumer in China through to 2030.”

    The China Gas Multi-Client study concludes that potential suppliers of gas to China need to rapidly engage with domestic buyers and secure contracts while the market is still available as longer term unconventional gas will constrain requirements for new LNG imports. 

    Source:  Wood Mackenzie

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