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Chinese natural gas, a great leap forward: part two

Hydrocarbon Engineering,

Read part one of this article here.

Dominance of fossil energy

Production and the push for non-fossil energy

China is a major producer of energy, but an unfortunate amount of it is coal. Despite heroic efforts to expand production of oil and natural gas, China's resources and production have been overwhelmingly dominated by coal. In 2013, China produced 1840 million toe of coal, versus 208.1 million t of oil and 105.3 million toe of natural gas. Coal accounts for 85% of China's fossil energy production.

Decades of extensive coal mining, transport, storage and combustion have caused serious environmental problems. In the early years, China's leadership hesitated to tackle environmental protection issues related to coal, as the fuel was relied upon so heavily to power the growing economy. Efforts to place restrictions on coal use were resisted, with many believing that China was in a stage of economic expansion that could be derailed if costly environmental regulations were adopted. In addition, many coal mines were under the control of local governments, which relied heavily on coal for their operating budgets. As time passed, China's economic power grew and an environmental movement began to emerge. The country is working to control coal use and to expand oil and natural gas production, including unconventional oil and gas. In the past decade, there also has been a major effort to develop non-fossil sources of energy.

Renewable energy: rapid growth from a small base

China is the world's largest generator of electricity, and coal is the key fuel. Fossil energy provides approximately three quarters of the power sector fuel mix. However, there is a sizable and growing amount of renewable electricity. China is the world's largest producer of hydroelectricity, and it is the site of the world's largest hydropower installation, the Three Gorges Dam along the Yangtze River.

Hydropower is of course considered a source of renewable, clean energy, but the Three Gorges Dam was hugely controversial. The scale of the project caused environmental problems, including destruction of habitat and damage to biodiversity. The Three Gorges project also required relocating over 1.2 million people, many of whom have not found suitable homes or employment since. Several other hydroelectric dams have been completed or are planned upriver from the Three Gorges Dam.

The size of the hydropower resource in China dwarfs the other types of renewable electricity being developed. However, since the year 2007, there has been a sharp uptick in wind based electricity and electricity from biomass and waste. Solar and wind power also have grown. In 2000, non-hydropower renewable electricity generation was 0.03 quadrillion Btu. It grew to 1.4 quadrillion Btu in 2012, amounting to an average growth rate of 37%/y. Despite this rapid growth, however, these alternatives contributed only 15% to the renewable electricity mix, the rest being hydropower.

China has also greatly expanded its production of biofuels. From a baseline of zero in the year 2000, ethanol production grew to 43 200 bpd in 2012 while biodiesel production grew to 15 700 bpd, for a total of 58 900 bpd of biofuels production. While the growth has been impressive over the past decade, to place it in the national context, these biofuels accounted for approximately 0.6% of Chinese oil demand in 2012.

Natural gas as a substitute for oil as a substitute for coal?

Within the energy sector, the most pressing issue is meeting demand without increasing the reliance on coal. The best that is hoped for is a percentage reduction in coal as a source of primary energy, though it is acknowledged that the total tonnage of coal used will continue to grow. In this regard, petroleum and natural gas, though fossil fuels, are regarded as cleaner fuels. Natural gas in particular is being given high priority, both in terms of domestic production and increased imports. Essentially all non-coal sources of energy are being promoted, including alternative and renewable energy sources. As discussed above, these are showing double digit growth rates, but they are growing from a small baseline and cannot hope to supplant coal. Hydroelectric power is significant at 206.3 million toe, accounting for 7% of consumption. Other renewable energy sources contributed 42.9 million toe, or 1.5% of the mix. Nuclear power contributed 25 million toe, or 0.9%. Coal remained dominant at 67.5% of the primary energy mix, followed by petroleum at 17.8%. Natural gas consumption was 145.5 million toe, or 5.1% of primary energy use.

China is a significant producer of oil, but efforts to expand production have been stymied. China has become the world's largest oil importer. Oil production has been gently declining in recent years, falling from 3.7 million bpd in 2007 to 3.5 million bpd currently. Imports have grown from 9.3 million bpd in 2007 to an IEA estimate of 12.1 million bpd in 2014. The IEA forecasts Chinese oil imports of 12.5 million bpd in 2015. There are high hopes placed on shale resources, but China's shale is more gas prone than oil prone. Moreover, developing shale resources using hydrofracking is water intensive, and China's water resources already are strained. A ‘hockey stick’ shaped surge in oil production, such as the shale boom caused in the United States, is not expected in China.Shale gas production, however, is expected to rise significantly. China's reserves of shale gas are thought by some to be the largest in the world, though the Chinese government has grown more conservative in its estimates. The companies developing the resources have noted that the drilling conditions are more difficult than expected. Sinopec and CNPC control most of the shale gas reserves. Sinopec has been the leader in shale gas development, launching the country's first commercial scale shale gas project in the Fuling District, Chongqing Municipality.

Sinopec, CNPC and CNOOC all have been working with Shell in various shale gas developments. Sinopec has also been working with ConocoPhilips and Chevron to explore shale gas resources. China's Ministry of Land and Resources believes that total Chinese shale gas output can rise to 6.5 billion m3 in 2015. The country has set an ambitious goal of attaining 30 billion m3 production in 2020. For purposes of comparison, natural gas consumption in 2013 was reported by BP at 161.6 billion m3, or 145.5 million toe.

Accordingly, on the natural gas side, China has been in a state of constant activity. Natural gas is now considered one of the key fuels that can be developed, imported, transported and used in quantities large enough to help meet the goals of the new Action Plan. Developing the domestic resources is also helping to expand and improve the natural gas distribution network, which in turn is helping with plans to import additional LNG and pipeline gas.

Written by Nancy Yamaguchi. This is an abridged article taken from the April 2015 issue of Hydrocarbon Engineering. Part three will be available soon.

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