Chinese demand for natural gas raised in H117

China’s natural gas consumption increased by 15.2 percent in the first half of this year, the Shanghai Securities News learnt from the Sinopec’s mid-year working conference on oil and gas business on August 8. Sinopec expects that the demands for natural gas in this winter and next spring will increase by around 5 percent from this summer and spring. The reason is that the national economy is steadily improving and industrial demands for gas have increased significantly; on the other hand, for the sake of environmental protection, the demand for natural gas heating has further increased in North China.

Previously, impacted of low oil prices and low coal prices, the growth of China’s natural gas consumption fell to the lowest point in 2015 in ten years, with only 5.7 percent on a yearly basis. The figure in 2016 was 6.6 percent. Yet since the beginning of this year, China’s natural gas consumption has seen explosive growth. Latest data from the National Development and Reform Commission (NDRC) shows that China’s natural gas consumption added 15.2 percent year on year to 114.6 billion cubic meters in the first half of this year.

The NDRC proposed in guidance that China will gradually make natural gas a major energy in China’s modern clean energy system. Heating in North China in winter, industrial and civilian use of natural gas and natural gas for power generation for peak shaving will have large demands for natural gas.

At present, China’s natural gas accounts for about 7 percent in the primary energy, a number lower than the international average level. According to the development goal, the proportion will reach around 10 percent by 2020, and increase to about 15 percent by 2030.

From the aspect of demand, industrial gas consumption is positively correlated to economic growth. As China’s economy improves steadily, the gas consumption in industry has also increased this year. As industrial projects are usually put into operation in the peak in the third and fourth quarters, industrial gas consumption will also welcome a high season.

From the aspect of supply, a head of Sinopec’s oil and gas business analyzed that restricted to the progress of natural gas production, shutdown in winter and supporting pipe network, natural gas supply in China will be affected in this winter and next spring. The growth of natural gas demand and supply is not consistent. An industry insider said that China’s natural gas throughout and the production in major producing areas in West China are still not consistent with the demands in the major sales areas in East China. Particularly, it needs more investment in pipe network construction.

The recovery in the natural gas market has transmitted to the upstream producers. To increase production capacity is now on the agenda. In the first half of this year, Sinopec saw increase in both natural gas production and sales in the first half of this year. The company plans to increase production capacity in next three years. In the first half of this year, Sinopec produced 12.75 billion cubic meters of natural gas, an increase of 1.8 billion cubic meters or 16.4 percent; it sold 11.8 billion cubic meters of natural gas, an increase of 1.75 billion cubic meters or 17.4 percent.

Adhering to the strategy of “sustainable crude oil, rapid growth of natural gas, breaking reform dilemma, innovation for development”, Sinopec will expand gas production capacity from 2018 to 2020. Sinopec plans to expand its current natural gas production capacity of 28 billioncubic meters to about 40 billion cubic meters.

Natural gas and oil have different pricing mechanism. As the former is priced by the NDRC, its price is more stable. When there are strong demands for natural gas, expanding production capacity and sales to seek more profits has become a common choice of related companies. An industry insider analyzed that all the mining companies, pipeline companies or companies engaged in urban fuel gas and industrial and commercial gas, and equipment companies are expected to benefit.

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