Natural Gas Gaining Importance for China

Price Reforms Needed Amid Limited Domestic Supply

Heating China's cities is a "dirty task largely fueled by coal," and reducing dependence on polluting material is rising on the list of government priorities as air quality becomes an increasingly sensitive issue, according to the Economist Intelligence Unit.

Natural gas "will thus become more important as an energy source in China," Economist Intelligence Unit analysts wrote in a recent report. "But without further reforms to the current pricing system, which sets the price of gas sold in the country below the cost of importing it, the country's energy majors are unlikely to see much benefit."

China's gas use has been constrained by limited domestic supply, with the country claiming only about 1.5% of the world's reserves. And while domestic production rose over 8% in 2011, consumption surged 21.5% and is projected quadruple by 2035, based on International Energy Agency estimates.

As imports continue to rise, price reform will "become more urgent," the report said. Although gas accounted for just 4.5% of primary consumption in 2011 (compared with a global average of around 23.6%), ambitious government plans call for the share of gas to rise to 10% by 2020, the Economist Intelligence Unit said.

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