Part 2 - Natural Gas and China
Originally published at http://www.uniindia.com/~/natural-gas-and-china/Business%20Economy/news/2251691.html
on Dec 2, 2020
Part 1 – China’s insatiable demand forenergy here
China’s natural gas production was around
120 bcm in 2020 and could reach 175-180 bcm in 2030. IEA (International Energy
Agency) (2015) indicates that China’s natural gas production prospects will
depend heavily on its unconventional gas development, which faces various
barriers from environmental and social hazards and geological challenges.
China began to import LNG-based natural gas
in 2006 and pipeline gas since 2010.
According to China’s National Bureau of Statistics, China imported 33.6
bcm and 26.8 bcm of natural gas by pipeline and LNG in 2015, respectively.
China’s dependence on foreign natural gas was 31.3% in 2015, while imports were
only 1.8% in 2006. By 2030 it is likely to be well over 60%.
Natural Gas is transported in two ways. The
first way is to pump through pipelines from the production site to the
consumption site. This is feasible over long stretches and more economical. The
second way is to compress it into LNG, transport it by sea (or land) to a
receiving station, regasification, and then pump through pipelines. This is
more expensive. For instance, northern Europe receives pipeline Natural Gas
from Russia and also Natural Gas from other sources. The cost to customers via
LNG route is often 60-80% higher. Pipelines are preferred and most gas using
countries build extensive pipelines to take Natural Gas from either the
production sites or the LNG terminals to the consumption sites.
China’s gas pipeline network
As is evident, China’s consumption/ demand centers are in the East. Its domestic production centers are in the Central region and the Xinjiang province in the west. We will come back to this a little later.
CNPC is the largest natural gas producer
and supplier in China, providing more than 61.9% of China’s gas supply and
operating 75.2% of China’s gas pipeline. By the end of 2019, they operated
pipelines in China totaled 90,352 kilometers, including 20,779 kilometers for
crude oil, 55,810 kilometers for natural gas, and 13,762 kilometers for refined
products. That’s the scale at which the infrastructure for gas supplies has
been built.
External linkages
·
China-Myanamar pipeline - capacity 12 Bcm, operating
since 2013, overseas length 793 km
·
Central Asia pipeline A/B line - capacity 30
Bcm, operating since 2010, overseas length 1,830 km (A/B/C together)
·
Central Asia pipeline C line - capacity 25 Bcm,
operating since 2014.
·
Central Asia pipeline D line - capacity 30 Bcm,
in planning/ construction, overseas length 840 km
·
Power of Siberia - capacity 38 Bcm, operating
since 2019, overseas length 4,000 km
·
Altai (China-Russia west line) - capacity 30
Bcm, in planning/ construction, overseas length 2,600 km
The size and spread of these projects gives
one a clear idea of where China is looking to in order to secure its Natural
Gas supplies.
The Xinjiang province is extremely
important for China. It’s a major production center for domestic gas and is the
conduit for pipelines stretching to gas rich Central Asia (Kazakhstan,
Turkmenistan, and Uzbekistan). Moreover, there is possibility of stretching
this further to Iran which has the second largest gas reserves in the world (2nd
only to Russia). The importance of Xinjiang to China’s very existence explains
its approach to the Uyghur majority region. China can ill-afford any
dislocation/ disruption here. It has preemptively come down hard on any
potential trouble, defying international opinion. There’s a second story here.
China has built roadways from Xinjiang to Gawadhar port in Pakistan. This port
is being developed as a large oil and gas terminal which will receive supplies
from the Persian Gulf countries. If things go according to plan, China would
like to build a pipeline from Gawadhar to Xinjiang and further deepen its reach
towards production centers.
LNG imports
A large part of China’s imports used to be
via LNG terminals on the East coast. All the major ports of China are located
here and so are the demand centers. The strategic shift happened about 10 years
ago as China felt the need to diversify its supply lines. The South China sea
has several choke points and leaves China vulnerable to external pressures. The
tensions in this region are a subject matter for another day and we will not go
into too much detail, but we shall touch upon the obvious ones.
The South China Sea is full of oil and gas,
but has competing claims by several countries that surround it. In addition,
all shipping routes from the Persian Gulf and Europe (to and fro) go via the
narrow straits of Malacca. The United States has major presence here with bases
in The Philippines, Japan, Korea, and Taiwan. These are large bases.
All Chinese ports (and therefore their
access to global trade) are located here. Given the long term vulnerability, and
the inherent cost advantages of piped gas, China has naturally looked westwards
and northwards (Central Asia and Russia) to address its long term energy
security needs. It has worked diligently towards this. The Myanmar pipeline is
also a strategically sound investment. It lies closer to India, well away from
Malacca. This makes sure that a part of the LNG supplies can be routed through
here instead of the South China Sea. Moreover, Bangladesh is a country with
large Natural Gas reserves and can be connected to the Myanmar pipeline easily.
It’s a matter of time before we start seeing Chinese investments in Bangladesh.
Additionally, China has built and secured a port in Hambantota (Sri Lanka)
which further adds to its strategic depth.
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