According to the EIA, the Chinese government has taken nonmarket actions to boost production of unconventional natural gas and to replace coal with natural gas.

Group of answer choices

True

False

• China is the world's most populous country with a fast-growing economy that has led it to be the largest energy consumer and producer in the world. Rapidly increasing energy demand has made China influential in world energy markets. Despite structural changes to China's economy during the past few years, China's energy demand is expected to increase, and government policies support cleaner fuel use and energy efficiency measures.
• China's official data reported that its economy grew by 6.1% in 2019, which was the lowest annual growth rate since 1990. After registering an average growth rate of 10% per year between 2000 and 2011, China's gross domestic product (GDP) growth has slowed or remained flat each year since then. The 2019 novel coronavirus disease (COVID-19) pandemic and resulting economic effects has adversely affected industrial and economic activity and energy use within China and are likely to push GDP growth much lower than 6% in 2020, according to numerous analysts.
• China is transitioning away from an economy that relies on growth in the manufacturing and export sectors to one that is more service oriented. In 2018, the government attempted to enact financial regulatory reforms, reduce high local government debt levels, and cut air pollution levels from the industrial sector. However, the subsequent economic slowdown has put unemployment levels at risk of rising. The trade conflict with the United States, which began in 2017 and led to an increase in tariffs on most of China's goods exported to the United States, poses a downside risk to China's economic growth in the next few years.
• In the energy sector, the central government is moving toward more:
• Market-based pricing schemes
• Energy efficiency and anti-pollution measures
• Competition among energy firms and greater market access for smaller, independent firms
• Higher investments in more technically challenging upstream hydrocarbon areas such as shale gas and renewable energy projects
• China has been seeking ways to attract more private investment in the energy sector by streamlining the project approval processes, implementing policies to improve energy transmission infrastructure to link supply and demand centers, and relaxing some price controls.
• Coal supplied most (about 58%) of China's total energy consumption in 2019, down from 59% in 2018. The second-largest fuel source was petroleum and other liquids, accounting for 20% of the country's total energy consumption in 2019. Although China has diversified its energy supplies and cleaner burning fuels have replaced some coal and oil use in recent years, hydroelectric sources (8%), natural gas (8%), nuclear power (2%), and other renewables (nearly 5%) accounted for relatively small but growing shares of China's energy consumption. The Chinese government intends to cap coal use to less than 58% of total primary energy consumption by 2020 in an effort to curtail heavy air pollution that has affected certain areas of the country in recent years. According to China's estimates, coal accounted for a little less than 58% in 2019, which places the government within its goal. Natural gas, nuclear power and renewable energy consumption have increased during the past few years to offset the drop in coal use.
• China's natural gas production has been steadily rising during the past several years as the country tries to fill the growing need for natural gas. China's NOCs produced an estimated 6.3 trillion cubic feet (Tcf) of natural gas in 2019, 8% higher than in 2018 . Although still in its early phase of development, China's shale gas production rose substantially by 14% from 2017 levels to about 365 billion cubic feet (Bcf) in 2018.
• China's 13th Five Year Plan targets natural gas production to reach 6 Tcf for conventional gas, 1.1 Tcf for shale gas, and less than 0.6 Tcf for coalbed methane by 2020. To promote domestic upstream development of unconventional natural gas, China introduced financial incentives for producers. The government reduced the resource tax on shale gas production from 6% to 4.2% starting in April 2018 through March 2021. In addition, China extended subsidies on all unconventional production through 2023 and, for the first time, included tight gas (low-permeability natural gas found in reservoir rocks) as an unconventional natural gas source eligible to receive subsidies. China's NOCs accelerated their investments in upstream natural gas developments to respond to the government's call in 2018 to ease future natural gas shortages and to make China more self-sufficient in natural gas resources.
• China's offshore natural gas production increased 10.5% from 2018 to 335 Bcf in 2019, mostly from growth in the South China Sea. CNOOC, China's major offshore producer, plans to commission the country's second deep water natural gas field, Lingshui 17-2, and the newly explored large Bozhong 19-4 natural gas and condensate field in the Bohai Bay in northeastern China by 2022.

Step-by-step explanation

• Therefore its true that the Chinese government has taken nonmarket actions to boost production of unconventional natural gas and to replace coal with natural gas because China's government anticipates boosting the share of natural gas as part of total energy consumption from almost 8% in 2019 to 10% by 2020 and 14% by 2030 to alleviate the elevated levels of pollution resulting from the country's heavy coal use. Although natural gas is still a small contributor to China's overall energy portfolio, it is swiftly becoming an important fuel source, and China is now one of the fastest-growing natural gas markets in the world.
• China's natural gas consumption rose by 9% in 2019 to 10.8 Tcf from 9.9 Tcf in 2018. During the past decade, China's natural gas demand increased rapidly by about 13% per year, making it the world's third-largest natural gas consumer behind the United States and Russia . Although most natural gas consumption comes from industrial users, including mining and oil and natural gas extraction (accounting for more than 40% in 2018), the shares of natural gas consumption in the electric power and transportation sectors have risen during the past decade.
• Several factors have contributed to robust growth in natural gas consumption during the past few years. Poor air quality, particularly in urban areas of northeastern China, where excessive coal use in the winter causes smog and dangerous levels of pollution, prompted the government to enforce fuel switching from coal to natural gas for industrial use, power generation, and residential and commercial heating. Strict environmental targets set by the central government in 2017 created a surge in natural gas demand by northern cities during peak demand use in the winter months in 2017 and 2018. Other demand drivers were low natural gas prices, higher natural gas use in the transportation sector, and the expansion of natural gas infrastructure to relieve supply bottlenecks and to transport natural gas to demand centers.
• China relaxed its coal-to-gas switching program at the end of 2018 to alleviate natural gas shortages that occurred in the winter of 2017-18, particularly in northern cities. This policy shift and slower economic growth caused the pace of China's natural gas demand growth in 2019 to decelerate from significantly higher growth in 2017 and 2018.
• Natural gas is generally more expensive than coal and continues to face supply constraints because of insufficient storage, import terminals, and pipeline capacity. The rate of demand growth in the next few years is expected to depend on China's environmental policies in the power sector and increased coal-to-gas switching for households and industries. The rate of demand growth also likely depends on the pace at which China can build its natural gas infrastructure. The response to the COVID-19 pandemic is expected to adversely affect China's natural gas demand growth, especially for the industrial, commercial and transportation sectors, in the first part of 2020.

Liquefied natural gas

• To fill the widening gap between China's domestic natural gas production and demand, the industry has relied on an increasing amount of pipeline imports and liquefied natural gas (LNG) trade. In 2019, China, the largest natural gas importer in the world, imported 4.6 Tcf, 7% higher than 2018 levels. LNG imports account for 62% of the total, and pipeline imports, mostly from Turkmenistan, account for 38% .
• China surpassed South Korea and became the second-largest LNG importer after Japan in 2017. LNG imports climbed to 2.9 Tcf in 2019, rising 13% from 2018 levels. LNG imports have sharply accelerated each year since 2015 as a result of lower global LNG prices and China's coal-to-gas switching policies. As a result of the economic and energy consumption slowdown in the first few months of 2020 in response to COVID-19 containment efforts, some Chinese NOCs have declared force majeure on some contract cargoes or have delayed receipts because natural gas demand has contracted. The macroeconomic effects from the pandemic response will likely dampen China's LNG growth in 2020.
• China has diversified its LNG suppliers during the past few years, and Australia is now the largest supplier, at 46% in 2019. Purchases from new natural gas liquefaction projects in Australia began in 2016. LNG imports from the United States grew rapidly in 2017 and 2018, reaching an average of 5% of China's total LNG imports. However, U.S. imports slowed significantly after September 2018 when China imposed a 10% tariff on U.S. LNG shipments as part of the trade dispute between the two countries. China raised LNG tariffs on the United States to 25% in June 2019, and LNG imports from the United States dropped to zero by April 2019. After signing the first phase of a trade deal with the United States in January 2020, China's government offered tariff exemptions on LNG from the United States, which could bolster U.S. LNG cargoes to China for the first time in more than a year.
• As of late 2019, China had 21 LNG regasification terminals with a combined capacity of 3.5 Tcf. China is quickly building various terminals along its entire coastline, and another 1.9 Tcf is under construction and slated to come online by 2023.
• China's rapidly growing natural gas demand during the past few years has opened up opportunities for independent or non-NOC Chinese energy companies to operate in the LNG space. Several local state-owned municipalities, natural gas distributors, and power developers own stakes in existing LNG terminals. In 2019, the government renewed an initiative in 2014 to allow access rights to third-party companies for supplying natural gas to LNG terminals, providing more supply opportunities for firms involved along the entire LNG supply chain, from the upstream natural gas procurement to the downstream distribution. CNOOC has signed several LNG third-party access deals with various independent companies since late 2018, and it released third-party access bids on the Shanghai Petroleum and Gas Exchange in early 2019.