NATURAL GAS:

A monstrous market in the making takes 'all of the above' approach to supply

Rebecca Liebert doesn't worry much about China.

It doesn't concern her, for instance, that China makes a relatively small contribution to her business's global portfolio today. UOP, a subsidiary of U.S.-based Honeywell International Inc., sells technology used in various parts of the natural-gas value chain.

China has explicitly stated its intention to use more gas. And so, even though China has yet to tap its gigantic shale reserves, Liebert and others see a large market in the making.

"Shale alone, LNG alone, conventional gas alone, gasification into synthetic gas alone will not be enough to basically quench the thirst of the Chinese economy," said Liebert, senior vice president and general manager for gas processing and hydrogen at UOP. "It's going to be a multipronged approach."

Any less, and China couldn't keep up with its surging demand. Chinese gas consumption is on track to double its 2012 level by 2018, growing from 149 billion cubic meters (bcm) to 295, according to International Energy Agency figures released last month.

The march toward gas is largely policy-driven. Localities, and party leaders in Beijing, consider it one major way to improve urban air quality devastated by coal emissions and other pollution. By burning gas in vehicles, officials hope to ease their oil dependency.

China's current five-year plan, extending to 2015, also calls for trimming the carbon intensity of the economy by 17 percent, giving gas another point of traction.

With shale gas thought to be 10 to 15 years away from large-scale development, China is employing an "all hands on deck" approach to gas resources, importing it by land and sea and producing as much domestically as its technology allows.

"China has domestic upstream growth that would be large by any measure other than the scale of the Chinese energy system," IEA said in its report last month. "Due to its sheer magnitude, the expanding role of gas turns China into a major importer."

Between now and 2018, China will absorb all of the additional gas production in Central Asia, IEA said. As the world builds capacity to ship liquefied natural gas by tanker, one-third of that new supply will be bound for Chinese shores.

In terms of domestic supply, IEA projected China to become the world's fourth-largest gas producer by 2018, behind the United States, Russia and Qatar. This would reflect growth in onshore and offshore conventional production, coalbed methane, synthetic gas from coal and a wide variety of other sources.

To attack its supply problem, China is also letting gas prices rise. Last week, the National Development and Reform Commission issued price reforms meant to attract investment to parts of the supply chain. Observers see China on a long-term path to let gas prices be set by market forces.

"China is as close as you can get to 'all of the above' when it comes to natural gas," said Nikos Tsafos, senior manager for global gas at IHS. "There's a sense that China needs shale to grow. I don't think that's true yet. China's actually growing quite nicely without shale. Obviously, at some point, they'll need shale, but it's not today."

Getting ready for business

Liebert, of Honeywell UOP, believes her company is tuned into the major technologies China will need before it hits its shale jackpot.

In Asia, for instance, conventionally produced gas is often rich in carbon dioxide; UOP offers a product to strip it out. For LNG imports, UOP sells technology that skims natural gas liquids so they can be sold separately rather than burned away. For coal gasification, UOP offers devices that purify the gas stream during the process.

Liebert said Honeywell also hopes to insert its technology in natural gas processing plants, once China's shale gas industry takes flight.

Another U.S. firm with its sights on Chinese gas is Garfield Heights, Ohio-based Chart Industries Inc. Chart sells technology used to refuel natural gas vehicles, and it may have caught a wave as China seeks to ramp up its use of the vehicles.

PetroChina, China's largest national oil company, has purchased $85 million in LNG refueling equipment from Chart this year, according to a research note issued last month by analysts at investment bank Raymond James.