If Chinese Prime Minister Li Keqiang's recent visit to Britain sent out any signals, one of the strongest might be that China wants more natural gas.
Among dozens of bilateral cooperation agreements ranging from energy and technology to infrastructure, British oil major BP PLC signed a deal worth around $20 billion to supply China National Offshore Oil Corp. with liquefied natural gas cargos, accounting for over two-thirds of total deals signed in June between the two national economies by value.
China's heightened interest in natural gas consumption -- a response to recent smog as well as longer-term worries about public health, social unrest and an undesired national image -- comes as the country's air pollution consistently makes headlines. Last year, only three out of 74 Chinese cities monitored met a stricter national air quality standard. And China's capital, Beijing, and financial center, Shanghai, experienced air pollution at hazardous levels.
Worsening air pollution, largely linked to burning coal, has been forcing the world's largest coal consumer, China, to seek cleaner alternatives. Since last year, Chinese officials announced a long list of supportive policies for consuming more natural gas.
"Natural gas is a quick fix for China's air pollution," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. Lin added, "Wind and solar power make up only a tiny percentage of [the] Chinese energy mix, and it takes at least five years to build a nuclear reactor. So, compared to nuclear and renewables, natural gas is better positioned to quickly replace the use of coal."
According to government statistics, China's natural gas consumption increased from 107.5 billion cubic meters in 2010 to 169.2 billion cubic meters in 2013. Chinese policymakers expect this figure to continue growing, hitting 230 billion cubic meters next year and 400 billion cubic meters by 2020.
Rising reliance on foreign gas
But what has lagged behind is the country's ability to supply the needed natural gas. Although China raised its gas production by 28 percent over the last three years, the rising domestic outputs have helped narrow the gap between supply and demand -- but not close it.
With that in mind, China has sent vessels all over the globe to carry back liquefied natural gas to the country. It has also extended pipelines thousands of miles away to connect with gas-rich states such as Myanmar and Turkmenistan. More recently, Chinese President Xi Jinping shook the hand of his Russian counterpart, Vladimir Putin, in Shanghai, for a $400 billion long-term agreement signed to pump natural gas from untapped fields in East Siberia to populous Chinese cities.
While those contracts help China catch up with its growing appetite for natural gas, it also poses a threat to the nation's energy security. A self-sufficient natural gas supplier as recently as 2006, China last year relied on imported gas to meet more than 30 percent of its demand.
To strengthen energy security, Chinese policymakers have been scrambling for ways to speed up domestic gas production, and part of that growth is expected to come from unconventional gas resources. In that regard, the country's energy giant Sinopec has ramped up exploration and drilling shale blocks in southwestern China, aiming to reach an annual production capacity of 5 billion cubic meters in 2015 and then doubling it two years later.
Climate benefits in doubt
Jane Nakano, a fellow of the Energy and National Security Program at Washington, D.C.-based think tank Center for Strategic and International Studies, said that the progress by Sinopec has strengthened the prospect for commercializing shale gas resources in China. The nation, however, still confronts various barriers such as high production costs and a lack of pipelines to transfer the produced gas, she said. Besides that, there is a danger that the solution designed to end one problem may spark another.
"Shale gas production is a water-intensive process," Nakano said. "China already faces the water scarcity problem. In the absence of proper regulation on its usage and disposal, water could become a significantly contentious issue that could not only stall the commercialization but also destabilize the society."
Water scarcity likely worsened by shale gas production is one of several environmental risks associated with China's fresh interest in natural gas, according to analysts. While the Chinese government believes that it will emit 520 million tons less carbon dioxide when meeting the national natural gas consumption goal in 2015, not everyone agrees.
That is because producing synthetic natural gas -- a resource China plans to tap into through coal gasification -- may do more harm than good in terms of climate change mitigation. According to a commentary published last year by Duke University researchers, synthetic natural gas has 36 to 82 percent more life-cycle greenhouse gas emissions than pulverized coal-fired power if the gas is used to generate electricity. If used to drive vehicles, it has emissions twice as large as those from gasoline vehicles (ClimateWire, March 12).
More challenges ahead
China's push for higher natural gas consumption also can generate other headaches. For one, massive construction work is involved with 44,000 kilometers of new gas pipelines, a distance equivalent to circling the Earth at least once.
That many kilometers will be needed by 2015 for delivering natural gas from energy producers to consumers. Moreover, a government-controlled pricing mechanism has already hit gas importers such as China National Petroleum Corp. with financial losses of 105.2 billion yuan ($16.9 billion) since 2011. Such losses are expected to soar as the country's demand for natural gas continues to grow.
Chinese policymakers have begun liberalizing domestic wholesale gas prices, but completing that economic reform could take years.
Statistics from the National Development and Reform Commission, China's top economic planning agency, show that natural gas accounted for 4.4 percent of China's energy mix in 2010, and this figure is set to climb to 7.5 percent by 2015. Yet it remains lower than the international average of 23.8 percent.
"Whether or not China will further increase the share of natural gas in its energy mix depends on how fast the government wants to solve air pollution," said Lin, the energy expert at Xiamen University.
"If the government plans to solve the pollution in 20 years, we are likely to use more nuclear and renewable energy rather than natural gas," Lin said. "But if the timeline for fighting air pollution is limited in five or 10 years, more natural gas supplies will be unquestionably in need, so are higher energy budgets and more pipeline construction."
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