China s Natural Gas Demand Outlook. Vice President Yonghun JUNG Ph.D. World Gas Conference 2006 Amsterdam, the Netherlands 5-9 June 2006

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1 Asia Pacific Energy Research Centre China s Natural Gas Demand Outlook World Gas Conference 2006 Amsterdam, the Netherlands 5-9 June 2006 Asia Pacific Energy Research Centre Vice President Yonghun JUNG Ph.D.

2 Contents Historical Trend for China s Gas Consumption Energy Demand and Supply Outlook for China Evolution of Energy Policy in China New Regulations on Emissions Fee Energy Price Trends Infrastructure Development

3 Historical Trend for China s Gas Consumption 40 Despite the rapid growth in recent years, natural gas accounted for only about 2.5 % in total primary energy demand in Pow e r Transport Commercial Industry Reside ntia l Share of Natural Gas in TPED 3.0% MTOE % % % % % % Share in Total Primary Energy Demand (%) (Source) IEA (2005), Energy Balances of Non-OECD Countries, OECD/Paris.

4 Drivers for the APEC Energy Demand Thousand Barrels per Day Growth of Oil Demand ( ) APEC economies accounted for 90 percent of the world s increment of oil demand ( ). Income Growth GDP per capita will grow at a n annual rate of 3.5 percent. Urbanisation By 2030, share of urban popul ation will reach 68 percent of t he total from 52 percent in million people per year will move from rural to urb an cities N. America L. America NE Asia SE Asia Oceania APEC -400 (Source) Blackwell (2005) China Russia OECD Europe Non-OECD Europe CIS/FSU Middle East Africa Others Industrialisation Industry value added will grow by 4.8 percent per year, while GDP will grow by 4.1 percent per year.

5 Evolution of Energy Policy in China The 10th Five Year Plan on Energy Investment to the western region Diversification of energy sources Ensuring energy security Improvement of energy efficiency Improvement of environment The 11 th Five Year Plan on Energy Promotion of energy conservation Improvement of energy intensity by 20 percent by 2010 compared with that of Development of domestic energy source Coal, oil, gas, hydro and nuclear Diversification of energy sources Establishment of stable, economically viable, clean and safe energy supply system

6 New Regulation on Emissions Fee In July 2003, China tightened its regulation on SO 2, Dust, CO, Mercury, Soot. This was followed by tightening regulation on its emissions on NOx in July Fee per Unit Pollutant Standard Equivalent Kg Pollutant per Pollutant Standard Equivalent Fee per Kilogramme of Pollutant Sulphur Dioxide (SO 2 ) 0.6 yuan/pse 0.95 kg SO 2 /PSE yuan/ kg SO 2 Nitrogen Oxides (Nox) 0.6 yuan/pse 0.95 kg Nox/PSE yuan/kg Nox Dust 0.6 yuan/pse 4.0 kg Dust/PSE yuan/kg Dust Carbon Monoxide (CO) 0.6 yuan/pse 16.7 kg CO/PSE yuan/kg CO Mercury (Hg) 0.6 yuan/pse kg Hg/PSE 6,000 yuan/kg Hg Soot 0.6 yuan/pse 2.18 kg Soot/PSE yuan/kg Soot (Source) China State Environmental Bureau (2003)

7 Impact of Emissions Fee on Electricity Price Assuming that wholesale electricity price would be at 4.5 cents/kwh, a study found out that share of emissions fee in electricity price is estimated at 6.9% for coal-fired power generation, while that of natural gas fired power generation is estimated at 0.2%. Emissions, Kilogrammes per kilowatt-hour Emissions Charge per Kilogramme Emissions Charge per Kilowatt-Hour SOx Charge, Coal Plant kg/kwh $ /kg $ /kWh NO Charge, Coal Plant kg/kwh $ /kg $ /kWh NO Charge, Gas Plant kg/kwh $ /kg $ /kWh Dust Charge, Coal Plant kg/kwh $ /kg $ /kWh Dust Charge, Gas Plant kg/kwh $ /kg $ /kWh Total Charge, Coal Plant kg/kwh $ /kWh Total Charge, Gas Plant $ /kWh (Source) Logan (1999), Liu (2003)

8 LNG Prices to Japan and China 7 6 Indonesia to Japan y = x Indonesia to Japan LNG Price (USD/MMBTU) Brunei to Japan Australia to China: Guangdong y = 0.05x Malaysia to Japan Australia to Japan Australia to Japan Brunei to Japan Malaysia to Japan JCC Price (USD/bbl) ALNG to Guangdong (Source) APERC Analysis (2006)

9 Rising Energy Prices ( ) Cold W eather and Infrastructure Constraint Commencement of Iraq War Cold W eather and Infrastructure Constraint Oil Demand Surge in Asia and USA $/1,000kcal Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 DUBAI in Tokyo market W TI (Market of NY) Henry Hub, La. LNG Import Price to Japan LNG Import Price to Korea LNG Import Price to US Coal Import Price to Japan Source:APERC (2006)

10 Natural Gas Infrastructure Development in China I r k u t s k S a k h a l i n Urumqi X i n j i a n g Beijing I n n e r M o n g o l i a Jilin Tarim Basin Yinchuan Taiyuan Tianjin Lanzhou Jinan Jiaozuo Anyang Hanzhong Xian Jiangsu Yichang Nanjing Sichuan Shanghai Wanxian Wuhan East China LNG Existing Pipeline Network Stage 1 ( ) Stage 2 ( ) Stage 3 ( ) Guiyang Shaoyang Nanchang Fujian Guangdong Fujian LNG Guangdong LNG Source:APERC (2006) Hainan

11 China s Natural Gas Infrastructure Development West-East Project High cost project. LNG Terminal Development Foreseeable high risks associated with LNG price and electricity tariff. Gas Distribution Network Development More investment is needed from diverse investors Rising world interest rate could increase financing cost substantially

12 Energy Demand and Supply Outlook for China Coal Oil Gas Hydro Nuclear NRE History Projection NRE -1.4 % p.a. Nuclear 10.1% p.a. Hydro 4.8 % p.a Gas 7.6 % p.a. MTOE Oil 4 % p.a Coal 3.9 % p.a (Source) Asia Pacific Energy Research Centre (2006), APEC Energy Demand and Supply Outlook, Forthcoming

13 Incremental Growth of Energy by Source ( ) Gas demand will be driven by electricity, industry and res/com sectors. NRE (Unit: MTOE ) Gas Oil Coal P&H Generation Oil Refining Industry Transport Commercial Residential (Source) Asia Pacific Energy Research Centre (2006), APEC Energy Demand and Supply Outlook, Forthcoming

14 Implications China gas market is at the crossroad Competition with coal fears of pro-longed high oil price Environment consideration taking a back seat due to ene rgy security concerns Prospect of uneven development of gas distribu tion network: urban vs. rural Connection fee Need capital for the market development Ultimately Chinese gas market development will be depending upon the economic growth

APEC Energy Outlook and Security Issues Asia Pacific Energy Research Centre (APERC)

APEC Energy Outlook and Security Issues (APERC) Summary of APERC Presentation Energy demand in the APEC region is projected to rise by almost 60 percent between 1999 and 2020, at 2.1 percent per annum.