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China‘s dash for gas – US LNG could help meet the challenge

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China’s switch from coal to gas – both to decarbonize its energy mix and tackle pollution under its Blue Sky policy – requires importing considerably more gas imports and investment in related infrastructure, DNV GL said in a report. Gas currently accounts for only 7% of China’s energy mix, compared to a global average of 22% – but the Chinese government aims to boost that share to 10% by 2020, and as much as 15% by 2030.

US LNG is poised to cover a substantial share of China’s growing gas demand, competing with pipeline gas from Russia through the soon to be opened ‘Power of Siberia’ interconnector. However, boosting gas imports and use in China requires substantial investment in LNG import terminals, gas storage as well as more and upgraded pipelines to handle and distribute the gas, DNV GL finds.

Moreover, as Chinese gas imports grow, the safety challenge for pipeline operators will also rise. Mr. Zhou, a manager from a major Chinese pipeline operator, said: ”While China is enhancing pipeline interconnection, we need to pay high attention to safety management with zero tolerance for major incidents.”

While policy makers in Beijing seek to boost domestic production of gas, the country also needs more LNG and piped gas imports. Forecasts of how much vary widely, though the consensus is that import dependency will grow significantly. DNV GL’s Energy Transition Outlook model sees imports meeting more than 70% of gas consumption in Greater China in 2040 (see graph).

With government driving the pace, prospects for gas in China look positive if the infrastructure materializes. DNV GL’s Industry Outlook 2019 research showed almost two thirds (61%) of senior industry professionals in China say more investment is needed in LNG and pipeline infrastructure.

Gulf Publishing’s Energy Web Atlas counted 18 LNG import terminals in operation in China in 2018, with a total installed domestic capacity of nearly 60 mill tonnes per annum (Mtpa). Seven were being expanded. The same publication also reported that another seven terminals will add nearly 19 Mtpa capacity by the early-2020s, with more expected by mid-decade. In addition, China is adding gas storage and contracting LNG carriers to becomes less exposed to seasonal shifts in LNG prices.

The country is also looking to piped imports. BP’s Energy Outlook commented that around half of the additional gas imports that China will require will need to be met by additional pipeline capacity from Russia and other Commonwealth of Independent States countries, and the rest from LNG. This year, there are plans to create a state-owned national pipeline company to operate all oil and gas pipeline networks. The goals for this organization will include overhauling and expanding China’s national gas pipeline network to extend its reach and reliability.

”China’s plans for LNG facilities and gas pipelines are an opportunity to become leading edge in areas such as asset integrity and safety by applying learning from expansion projects worldwide,” said Arthur Stoddart, regional manager, China, South Korea and Japan, DNV GL – Oil & Gas. ”It is therefore encouraging that China is open to international co-operation to assist it on this journey.”

As Chinese gas imports grow, and as the government pursues its plan to ensure regional interconnection of oil and gas pipelines, the safety and reliability challenges will multiply. ”The pressure on securing natural gas supply is high, while the requirements on the reliability of facilities and equipment is even higher,” said Zhou.

”We still have challenges in intrinsic safety management, and integrity management of facilities and equipment,” he added. ”Gaps need to be closed in the establishment and implementation of our management system, and strong execution and sufficient tools need to be in place to facilitate the implementation, and to achieve management improvement. Moreover, we need to further transfer our people’s mindset, enhancing their capability to fully meet the needs of safety management.”

Over the past decade, DNV GL’s International Sustainability Rating System (ISRS) has directly contributed to the continuous improvement of the quality and execution of major Chinese pipeline operators’ management systems. Zhou said: ”It has enabled our company to achieve safe production in those years that we have implemented ISRS. We believe it is a meaningful thing to do.” 

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