November 18, 2016

China will need to subsidize and import natural gas to reach target of 10% of overall energy mix

China plans to boost natural gas from 6% of its energy usage to 10% by 2020.

However, to affect a large-scale transition from coal to natural gas in China will be far more difficult than it has been in the U.S., where the price of natural gas per unit of energy output is much lower than that of coal. In China, the situation is reversed.

One approach that’s likely to significantly reduce coal use is China’s upcoming national carbon emission cap-and-trade system, a key enabler of its pledge at the 2015 UN Paris climate talks to hit two targets by 2030: to peak CO2 emissions and decrease carbon intensity (CO2 emissions per unit of GDP) by 60-65 percent below 2005 levels. But because the cap-and-trade system penalizes carbon emissions, which result from the combustion of natural gas (albeit about half as much as coal per unit of energy output), it would have the effect of decreasing natural gas consumption as well. And at the current relative prices of fuels, the policy would not result in a switch from coal to natural gas.

An integrated strategy combining the cap-and-trade policy with a natural gas subsidy (an estimated $5 billion paid for through the sale of emissions permits under the policy) would enable China to reach its 10 percent natural gas target in 2020 and further reduce coal use, keeping the nation on track to meet both its climate and natural gas promotion goals.

Climate Change Economics - The future of natural gas in China: Effects of pricing reform and climate policy

China probably does have the world’s largest shale gas potential with 1,115 Tcf of technically recoverable resources, but future production doesn’t seem as promising as it was just a few years ago, constrained by geological complexity, shortages of water, land access, and the limitations of infrastructure and the service industry.







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