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China is increasing its domestic natural gas production, and it is doing so quickly. A major consumer and importer of LNG, the country has played a key role in forecasting LNG demand. These forecasts will now have to be revised.
Less than ten years ago, China was in difficulty to boost its national gas production, particularly in shale formations. The geology of Chinese shale is different from that of American basins, and energy companies had difficulty launching commercial production. Today, Chinese oil and gas majors are pumping more gasoline than ever and announcing new discoveries in the shale field.
In November last year, China produced 22.1 billion m3, an increase of 7.1% year-on-year, Kpler reported this month, citing official production data. This increase is due to “a faster-than-expected increase in shale gas in the Sichuan Basin.” Based on this data, the energy analytics firm expects China’s total for 2025 to reach 263 bcm, and 278.5 bcm this year, again driven by growing shale gas production in the Sichuan and Shanxi basins.
As with oil, increasing domestic production would inevitably affect imports, even as China relies more on natural gas to reduce emissions. Last year, for example, China saw higher domestic gas production and a fairly substantial decline in LNG imports. In fact, liquefied gas imports fell to their lowest level in six years last year after a string of 12 consecutive monthly declines. Imports only rebounded towards the end of the year, but not enough to reverse the downward trend. Kpler predicted that Chinese demand for liquefied natural gas would also decline this year, with shale gas production removing some 600,000 tonnes of LNG demand, bringing the total to 73.9 million tonnes.
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However, 600,000 tonnes is not a lot in the context of a market where the United States alone exported more than 100 million tonnes last year. But it constitutes further evidence of a trend by China to reduce its dependence on energy imports, which has implications for global energy commodity markets that have become accustomed to relying on China as the ultimate driver of demand.
The expected drop in Chinese demand for gas – and by extension LNG – could interfere with new capacity expansion plans and LNG prices, reducing producers’ profits. It is these plans for a new wave of LNG supplies, expected to arrive by the end of the decade, mainly from major exporters the United States and Qatar, that have prompted many analysts to expect an oversupplied LNG market by 2030, which would weigh on prices.
