China’s underserved northeast will record “explosive” growth in consumption when Russian gas finally arrives next year in the region, the country’s only area not serviced by a natural gas trunk pipeline.
“In the next decade, the northeast will see explosive growth because, currently, only limited gas is imported from Qatar via a terminal in Dalian in [China’s northeastern] Liaoning province. And supply from small gas fields in [China’s northeastern] Heilongjiang province are far from enough to meet demand,” Frank Li Yuntao, general manager of investor relations at Hong Kong-listed China Gas Holdings, said on Wednesday.
The company, China’s largest gas distributor with 508 projects, commands just over 70 per cent of the market in Liaoning and Heilongjiang. The nearby Jilin province is served mostly by small local state-owned franchises. China Gas invested in a gas distribution concession in Heilongjiang’s capital city Harbin as far back as a decade ago, but it has been waiting for gas supply to make it viable.
And it could take years before the 3,968km pipeline – called “Power of Siberia” – has a major impact, as it will only reach full capacity in three to five years, said Li. He said initial supply from Power of Siberia is expected at 5-8 billion cubic metres (bcm), while its total capacity stands at 38 bcm.
The pipeline, built at a cost of US$55 billion, will deliver natural gas under a 30-year, US$400 billion contract signed between Gazprom, the world’s largest proven gas reserve holder and exporter, as well as the Russian section’s developer, and PertroChina’s parent, China National Petroleum Corporation, in 2016. PetroChina, the country’s biggest gas producer and importer, is building the China section.
The first gas is expected to flow on a trial basis by December 20 this year, according to Gazprom.
In the next decade, the northeast will see explosive growth
An insufficient gas supply means the northeast region relies on highly polluting coal-fired boilers for winter heating in households and commercial buildings, as well as for industrial applications. Beijing has made huge strides in pollution control in recent years, by aggressively pushing coal boiler replacement programmes in northern cities in favour of gas-fired ones, but China’s average emission levels remain much higher than World Health Organisation-recommended limits.
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Beijing, home to about 21.5 million people, last year burned about 17 bcm. It is served by China Gas’ largest shareholder, Hong Kong-listed Beijing Enterprises Holding, which has sole distribution rights for China’s capital.
China Gas joined sister company Beijing Gas Group, rival ENN Energy, provincial government-owned Heilongjiang Chenergy Group and Shaanxi Gas Group in August 2018 to form a joint venture and spent more than 13 billion yuan (US$1.9 billion) on 36 branch pipelines totalling 2,800km in Heilongjiang.
China Gas is targeting an average of 25 per cent growth in gas sales over the next three years, before accounting for potential sales of Russian gas in the northeast.
Swiss bank Credit Suisse has forecast that China’s average gas demand growth will be 10 per cent in the nine years to 2026. Last year’ gas consumption grew by 17 per cent, up from 15.3 per cent in 2017 and 6.6 per cent in 2016.