China will drive LNG market expansion worldwide into 2040s

Driven by China's industrial decarbonization, the global liquefied natural gas (LNG) market will continue to grow into the 2040s, according to a recently released report.

As industrial coal-to-gas switching gathers pace in China, amid its modest economic recovery, global demand for LNG is estimated to rise by more than 50 percent by 2040, according to Shell's LNG Outlook 2024.

The report showed that the development of China's gas infrastructure has been accelerating in recent years. The growth in scale and connectivity has also enabled China to balance the LNG market worldwide, it said.

According to the report, long-term gas and LNG demand outlook in China remains strong while supply diversification is also a key characteristic of the growth in the country.

China has been ramping up construction of LNG infrastructure in recent years, including receiving terminals and storage facilities, from expansions to new facilities, as the country prioritizes a transition away from coal.

The total turnover capacity of LNG receiving stations in China reached 97.3 million metric tons per year by the end of 2022, according to the Economics and Technology Research Institute under China National Petroleum Corp.

"China is likely to dominate LNG demand growth this decade as its industry seeks to cut carbon emissions by switching from coal to gas," said Steve Hill, executive vice-president for Shell Energy.

Hill said gas has an essential role to play in tackling the carbon emissions in China's steel sector by replacing coal during the production process.

China's natural gas market achieved growth last year amid economic recovery. Data from the National Development and Reform Commission revealed that China's apparent natural gas consumption exceeded 394.53 billion cubic meters, an increase of 7.6 percent year-on-year.

China also overtook Japan as the world's largest LNG importer last year, with LNG imports reaching 71.32 million tons, up 12.6 percent year-on-year, it said.

According to BloombergNEF, China's optimized anti-COVID-19 measures last year have lifted gas consumption since the second quarter of 2023, with total demand in 2023 reaching 384 billion cubic meters, 4.8 percent higher than that the year before.

Residential and commercial sector's gas demand gained from the optimization of measures, while transport gas consumption spiked as LNG trucks became more cost-competitive compared with diesel ones, it said.

China has become the dominant force in LNG worldwide as it works toward a green transition with what is seen as a relatively clean bridge fuel, said Li Ziyue, an analyst with BloombergNEF.

Li said gas burn in the transport sector is set to see the fastest growth due to the favorable economics of natural gas commercial vehicles.

"Power gas burn may grow fast with a gas power capacity expansion and lower fuel prices," she said.

State-owned enterprises have led China's expansion of its capacity to handle LNG, while private companies are playing an increasingly active role in building LNG terminals, she said.

About 60 percent of the LNG facilities under construction are by State-owned enterprises, while the rest are by private companies in China, Li added.

China is among the countries with an extensive list of LNG terminals under construction, with some being constructed from scratch and many existing terminals undergoing expansion, Anne-Sophie Corbeau, a researcher with the Center on Global Energy Policy at Columbia University, was quoted as saying by South China Morning Post.

BloombergNEF said it expects China's base-case natural gas demand in 2024 to increase 7 percent year-on-year to 413 billion cubic meters, while LNG imports are estimated to rise 7 percent annually to 76 million tons this year.

The transportation sector is expected to see the largest increase in gas consumption during the upcoming summer months (April to September) due to the good economics of natural gas commercial vehicles.