THE Chinese government has launched an ambitious program to almost double its gas consumption in the next six years, as it steps up the fight against the nation’s worsening pollution crisis. Rapid economic development and industrialisation has driven demand for energy in China to the highest level ever and most analysts expect the growth rate to be extended for the next decade. It is estimated power demand will peak in 2020 and analysts have forecast there will be average growth of at least 6 per cent each year until then. Thermal coal remains the dominant energy source in China, making up at least 70 per cent of the power generation across the country. However, the Xi Jinping and Li Keqiang administration has promised to reduce the reliance on fossil fuels and increase renewable energy consumption in a bid to fix the pollution crisis that has worsened in the past year. The capital, Beijing, regularly endures Air Quality Index readings above 300, more than 10 times the level considered by the World Health Organisation to be unhealthy. A recent survey found almost 70 cities in China recorded unhealthy levels in the past year, which prompted the government to expedite its plans to reduce pollution. In his first press conference after taking office last year, Mr Li said it was his number one priority to improve the air quality in Beijing and across China. “The government will show even greater resolve and take more vigorous efforts to clean up such pollution,” Mr Li said. “We shouldn’t pursue economic growth at the expense of the environment. Such growth won’t satisfy the people. “The highest priority will be to maintain sustainable economic growth. It can be expected that the economic environment facing China will continue to be serious and complex.” A recent report by the Association for Sustainable and Responsible Investment in Asia, and Carbon Tracker, a British research firm, found China’s thermal coal demand would peak between 2015 and 2030 as the nation’s growth started to moderate and its energy sources diversify. The Chinese Environment Ministry said recently it would push ahead with a plan to increase nuclear generation to 58 gigawatts of installed nuclear capacity by 2020, up from 15.6GW now. China has 19 operating nuclear-power units and 29 more under construction, the largest program in the world. It is estimated geothermal energy will provide up to 50 million tonnes of coal equivalent power by 2020. However, China has plans to nearly double its consumption of natural gas in the next six years. Gas now provides 5 per cent of the nation’s total energy consumption and the government plans to increase that to 10 per cent by 2020 to offset the carbon emissions that contribute to the pollution. The majority of its gas will be supplied by Russia after the two countries recently signed a deal worth $US400 billion ($428bn) over the next three decades. Under the agreement, Russian company Gazprom will send natural gas into China to be used in power production. Nomura analysts said China’s aim to double natural gas consumption in the next six years was a positive but costly step for the country. “China has witnessed robust oil and gas demand growth in the past decade, especially of natural gas, which has meant that import dependency has increased by up to 60 per cent for oil and 30 per cent for gas, with China becoming increasingly dependent on expensive gas imports,’’ Nomura said. “We expect gas demand to continue to grow at double digits, underpinned by the fight against pollution. “This is likely to lead to proactive policy responses to spur domestic exploration and development such as gas-price reforms, subsidies to promote unconventional development and a reduction in windfall taxes.” The increased gas consumption is likely to prompt greater shale-gas production in China, which has prompted two state-owned enterprises to ramp up investment in the sector this year. Sinopec has said it plans to produce 5 billion cubic metres of gas from its Fuling shale project by the end of next year and 10 billion cu m by 2014. It will spend $US4bn on the project in the next few months. PetroChina recently revealed it would invest $US1.6bn on shale-gas development this year as it planned to lift its output from 1.5 billion cu m to 2.6 billion cu m. The country’s most recent five-year plan outlined that shale production could be as high as 100 billion cu m in 2020, which would require capital expenditure investments of up to $US100bn. Nomura analysts said the increased reliance was likely to prompt other Chinese energy companies to start exploring for shale-gas plays in the next few years. “The next two years are likely to see a material acceleration in shale gas and development,” Nomura said. “The domestic reforms aimed at inviting private and social capital in the shale sector should accelerate the pace of development benefiting the private oil services companies.”
