The story about oil in China is never complete unless it is coupled with the story about natural gas, which I would like to relate here.

Although gas consumption represents 5 per cent of total primary energy in China compared to coal’s 66 per cent and oil’s 20 per cent, the absolute value of consumption remains substantial, especially over the last decade. However, with the Chinese government planning to reduce coal’s share to 62 per cent and with the increasing availability of domestic and imported gas, gas consumption is projected to increase sharply due to its environmental qualities, efficiency of use and competitiveness.

The plan is to raise gas’ share to 10 per cent in the energy mix by 2020.

China holds gas reserves of 164 trillion cubic feet (tcf) according to EIA and 122.2 tcf according to BP. They are the largest in the Asia-Pacific region, but represent less than 2 per cent of the world’s.

China’s gas production grew from less than 1 tcf in 2000 to about 4.8 tcf in 2014. At the same time, consumption grew from less than 1 tcf to close to 6.6 tcf. In fact, China became a net importer of gas as of 2007.

Forecasters may differ about the future outlook but all agree that the trend is upward for gas demand. The IEA in its basic scenario forecast reckons Chinese demand at 10.4 tcf in 2020 and more than doubling to 21.3 tcf by 2040. There has been an increase of more than 5 per cent a year since 2012.

With huge investments going into domestic fields, conventional and non-conventional — including shale gas, coal bed methane and coal- to — gas, production in 2020 is likely to reach just over 6 tcf, according to IEA. This is short of the 6.5 tcf the government is aiming for.

In 2040, the forecast is for China to produce almost 13 tcf though the fall in crude oil prices may slow down development of shale and deep waters gas there.

Encourage the use of gas

Similar to oil, the gap has to be filled by imports, which amounted to 1.8 tcf in 2013, or 32 per cent of demand, mainly from Turkmenistan by pipeline and from Qatar as LNG. In 2014, imports rose by 12 per cent to just over 2 tcf.

Besides enhancing domestic production, China is going all out to import pipeline gas from neighbouring countries and LNG from a range of producers. At the same time, it is enhancing the transportation and distribution network to encourage the use of gas in many regions.

The sector is dominated by three national oil companies, CNPC, Sinopec and CNOOC, though CNPC controls 77 per cent of domestic production. Sinopec is involved in developing some fields and CNOOC is leading the development of LNG terminals and with foreign companies seeking to develop China’s offshore gas resources. Even smaller local firms may be allowed to invest in LNG imports and terminals and the distribution of gas.

The national companies are open to contracts with foreign oil companies especially in offshore, shale and sour gasfields, where technical expertise is valued. Oil companies such as Shell, Chevron and ExxonMobil are involved.

Due to this open policy and the huge reserves of coal and the 1,115 tcf of recoverable shale gas, the largest in the world, coal bed methane and shale gas production are likely to increase sharply though the current production is falling short of targets.

While China likes to encourage gas use, it is at the same time trying to bring its prices in line with import prices for all sectors except the residential, which will probably follow at a later stage.

In gas pipelines, China had 35,498 miles in 2013 and the country intends to more than double that by 2020, a great achievement by all means. There are three west to east pipelines traversing thousands of miles with many branches, and a fourth line is planned.

Since 2010, international pipelines came into the picture with three delivering gas from Turkmenistan, Uzbekistan and Kazakhstan to the west of China and to join its pipelines there. In the south, China is importing gas from Myanmar since mid-2013.

More deals

Equally important are the pipelines under development with Russia to deliver 1.3 tcf a year from Eastern Siberia and Sakhalin Island by 2018 in a 30-year deal worth $400 billion (Dh1.5 trillion).

Although entering the market in 2006, China became the third largest importer of LNG by 2012 and in 2014 it imported 0.96 tcf. China now boasts 12 LNG terminals and eight under construction and more in planning to facilitate imports from Asian LNG producers and Qatar.

More deals are expected with Russia and Canada through the equity participation of Chinese companies.

As I said for oil, such huge imports are likely to have foreign policy implications … and hopefully positive ones.

The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.