The gas industry in China is one of the most important sectors within the country’s energy landscape. China is both the world’s largest producer and consumer of natural gas, with the industry undergoing rapid growth over the past few decades. The growth of this sector is linked to China’s increasing energy demand, urbanization, and environmental concerns. Natural gas, in particular, has become a preferred energy source due to its cleaner burning characteristics compared to coal, and it is increasingly being used in industrial, residential, and transportation applications.

In 2023, the market value of China’s natural gas industry reached an estimated $250 billion, contributing significantly to the country’s energy mix. Natural gas accounts for approximately 8–10% of China’s primary energy consumption, with this share expected to grow to 15% by 2030. This shift towards cleaner energy aligns with China’s goals to reduce carbon emissions and combat air pollution.

The gas industry in China includes a variety of sectors such as exploration, production, distribution, and consumption. The government plays a central role in regulating the industry, with state-owned companies like China National Petroleum Corporation (CNPC) and China Petroleum & Chemical Corporation (Sinopec) dominating the market. Additionally, the push towards natural gas infrastructure expansion has increased investments in pipeline networks, liquefied natural gas (LNG) terminals, and city gas networks.

Key Drivers of Growth

• Urbanization and Industrialization: Rapid urbanization and the growth of China’s industrial base have driven the demand for natural gas in cities, industrial plants, and power generation facilities. The country’s expanding infrastructure and growing need for energy in cities are central to the rise in natural gas consumption.

• Environmental Concerns: China is increasingly focusing on reducing its dependence on coal and transitioning to cleaner energy sources like natural gas. This shift is primarily due to air pollution and climate change concerns, with the government setting ambitious goals to increase the use of natural gas in both residential and industrial sectors.

The Natural Gas Supply Chain in China

Exploration and Production

China’s natural gas resources are both domestic and imported. Although China has considerable natural gas reserves, its production capacity does not meet domestic demand, leading to increased reliance on imports. The country’s exploration and production of natural gas primarily take place in its western regions, including Sichuan, Tarim Basin, and Ordos Basin. However, these reserves are insufficient to meet the rapidly growing demand, prompting the country to explore other sources such as pipeline imports and LNG.

Market Size and Growth

China’s domestic natural gas production reached approximately 200 billion cubic meters (bcm) in 2023. However, with total demand estimated to be around 400 bcm, the country relies heavily on imports to meet its energy needs. Over the last decade, production has grown by 7–8% annually, and the Chinese government has made investments in advanced extraction techniques, such as shale gas development, to boost local production.

Importation and Distribution

Given the gap between domestic production and consumption, China is the world’s largest importer of natural gas. The country imports gas primarily through pipelines from neighboring countries like Russia and Turkmenistan, and through the importation of LNG via ports in coastal areas such as Guangdong, Fujian, and Zhejiang.

In 2023, China’s total imports of natural gas were valued at $70 billion, with LNG accounting for approximately 60% of the imports. The increase in LNG imports is largely driven by the demand for cleaner fuels, particularly in power generation and industry. As of the end of 2023, China had established more than 20 LNG import terminals and over 80,000 kilometers of natural gas pipelines.

Infrastructure Development

To meet the growing demand for natural gas, China is continuously investing in expanding its gas infrastructure. The development of pipeline networks and LNG terminals is crucial to the distribution of natural gas throughout the country. The “West-to-East Gas Pipeline Project,” which began in the early 2000s, is one of the most important infrastructure projects for gas distribution in China. It connects gas fields in the western regions of China to the eastern provinces, where industrial and residential demand is the highest.

Market Share of Key Players

China’s natural gas market is dominated by several major state-owned enterprises, with CNPC, Sinopec, and CNOOC playing central roles. These companies have substantial market shares in the production, importation, and distribution of natural gas in the country.

China National Petroleum Corporation (CNPC)

CNPC is the largest producer and supplier of natural gas in China, with substantial exploration and production operations in domestic gas fields. In 2023, CNPC’s natural gas production accounted for around 40% of China’s total output. The company is also involved in pipeline construction and the development of LNG import terminals, solidifying its position as the leader in China’s gas industry.

Sinopec

Sinopec is another major player in the Chinese gas market. The company is involved in all aspects of the natural gas supply chain, from exploration to distribution. Sinopec’s natural gas production accounts for approximately 30% of the country’s total output. It is also a key player in the transportation of natural gas, with a significant interest in pipeline networks.

China National Offshore Oil Corporation (CNOOC)

CNOOC is primarily known for its offshore oil and gas operations, but it is also a key player in the natural gas market. CNOOC is heavily involved in LNG imports and distribution, making it one of the largest suppliers of imported natural gas in China. The company’s LNG import capacity is expected to continue expanding to meet the growing demand for cleaner fuels.

Gas Consumption in China

Industrial Use

The industrial sector is the largest consumer of natural gas in China, using it as a feedstock for petrochemical production and as a fuel in various industrial processes. In 2023, industrial consumption accounted for around 50% of the total natural gas consumption in the country. The shift toward natural gas in the industrial sector is largely driven by environmental policies, which encourage the use of cleaner fuels over coal.

Petrochemical Industry

The petrochemical industry in China is one of the largest in the world, and natural gas is an essential input for the production of chemicals, fertilizers, and other industrial products. Natural gas is increasingly replacing coal as the preferred feedstock for petrochemical production, as it produces fewer emissions and pollutants.

Residential Use

Residential consumption of natural gas has increased significantly in China, particularly in urban areas. The demand for natural gas in homes for heating, cooking, and water heating has grown as urbanization and living standards rise. The Chinese government has prioritized the development of city gas networks to make natural gas more accessible to residents, leading to a sharp increase in household demand.

Market Dynamics

In 2023, residential consumption of natural gas in China was estimated at 110 bcm, accounting for roughly 25% of the country’s total gas consumption. The government has been pushing for greater adoption of natural gas in residential areas to reduce reliance on coal for heating, particularly during the winter months.

Power Generation

Natural gas is increasingly being used for power generation in China, as the country seeks to reduce its reliance on coal-fired power plants. Gas-fired power plants produce fewer emissions than coal plants, and natural gas offers a more reliable and flexible energy source for meeting peak demand.

Growth in Gas-Fired Power Plants

In 2023, natural gas consumption in power generation accounted for approximately 20% of the total gas consumption in China. The share of natural gas in China’s power generation mix is expected to grow significantly in the coming years, as the country transitions away from coal and towards cleaner energy sources. By 2030, natural gas is expected to account for 10% of China’s total electricity generation capacity.

Environmental Impact and Policies

Air Pollution and Carbon Emissions

Air pollution and carbon emissions have been a major concern in China due to the country’s heavy reliance on coal. The Chinese government has introduced a number of policies aimed at reducing the country’s carbon emissions and improving air quality. One of the most significant measures has been the promotion of natural gas as a cleaner alternative to coal.

Environmental Benefits of Natural Gas

Natural gas is considered to be a cleaner energy source than coal due to its lower emissions of particulate matter, sulfur dioxide, and nitrogen oxides. It is also more efficient than coal in generating electricity, as it produces fewer greenhouse gas emissions per unit of energy produced. The increased use of natural gas in China’s energy mix is expected to contribute significantly to the country’s efforts to meet its climate goals.

Government Regulations and Subsidies

The Chinese government has implemented a series of regulations and subsidies to promote the use of natural gas. These policies include subsidies for gas infrastructure development, tax incentives for cleaner energy production, and a push for gas pricing reforms. Additionally, the government has been encouraging the adoption of natural gas vehicles (NGVs) and the development of alternative fuel infrastructure to reduce air pollution from transportation.

Natural Gas in Transportation

Growth of Natural Gas Vehicles (NGVs)

The use of natural gas in the transportation sector has been growing steadily in China. NGVs are seen as a more environmentally friendly alternative to gasoline and diesel-powered vehicles, producing fewer emissions and less air pollution. China’s push to develop alternative fuel vehicles has made NGVs a key component of the country’s long-term strategy to reduce carbon emissions.

Market Value and Growth

As of 2023, there were over 7 million NGVs in operation in China, with a significant increase in the adoption of natural gas trucks and buses. The government has supported the growth of NGVs through subsidies, tax incentives, and investments in refueling infrastructure.

LNG in Maritime Transport

LNG is also increasingly being used in maritime transport as a cleaner alternative to traditional marine fuels. China has made substantial investments in LNG-powered ships, particularly in the shipping industry’s move towards reducing emissions and complying with international environmental standards.

Challenges Facing the Gas Industry in China

Supply and Demand Imbalance

One of the key challenges facing China’s gas industry is the supply-demand imbalance. Despite being the world’s largest producer of natural gas, China’s domestic production still falls short of meeting the country’s rapidly growing demand. This imbalance forces China to rely heavily on imports, making the country vulnerable to global price fluctuations and geopolitical risks related to gas supply routes.

Infrastructure and Logistics

Although China has made significant strides in expanding its gas infrastructure, the logistics of transporting gas across such a large and diverse country present ongoing challenges. The development of pipelines, storage facilities, and LNG terminals must keep pace with the increasing demand for natural gas, particularly in less developed and remote regions.

Environmental Regulations and Standards

While the promotion of natural gas is part of China’s effort to reduce emissions, the growing demand for natural gas also comes with environmental challenges. Issues such as methane leakage from production and transportation infrastructure, as well as the environmental impact of LNG terminals and gas extraction processes, must be addressed to ensure the industry operates sustainably.