China's natural gas sector keeps growing

China's Natural Gas Market

The natural gas market in Asia is growing stronger and stronger. The region is still heavily reliant on coal and oil, but natural gas will be vital to Asia's energy future as it tries to move away from more traditional sources of energy and the exploitation of its significant reserves remains a fairly new phenomenon.

China, with its rapidly expanding economy and population, has an "astonishing" thirst for energy in the words of a recent IEA report and is right at the sharp end of Asia's growing natural gas industry. China's underdeveloped natural-gas industry is set to grow as the nation seeks alternatives to its rising purchases of oil - and that's boosting the prospects for shares of local companies that produce and distribute the fuel source.

Because natural gas represents a far cheaper alternative to oil it is becoming increasingly attractive to China.

The current natural-gas price of US$5 (per million thermal units) is equal to US$29 a barrel of oil equivalent in heat-value terms, which represents about a US$50-a-barrel discount to crude oil's current price of about US$80 a barrel, researchers from Yuanta Research said.

Making the most of its potential

"This discount is driving the energy industry towards increasing gas consumption, particularly in applications that can replace oil," they said.

Up to now the whole of Asia's natural gas exploration infrastructure has suffered from serious under-investment as a result of neglect due to the region's interest in oil. The nation has about 11 years of reserves-to-production for oil, compared with about 32 years for natural gas, the analysts said, citing data from BP PLC's 2009 statistical review.

In China crude oil takes up 19 percent of energy consumption while coal accounts for around 68 percent. This means that only four percent of the country's primary energy demand is made up from natural gas. China's appetite for oil has grown alongside the nation's car market, now the largest in the world, and it imports having climbed to 17 million-18 million tons a month currently from 10 million in 2004.

However, China are showing signs of switching focus to natural gas as a long term energy solution, it has recently made plans to acquire gas assets overseas and the government has said it is willing to invest heavily in domestic production. This is likely to attract foreign interest, but if the country is to fully exploit its natural gas potential, it must guarantee interested parties that political red-tape will not be an issues and over-centralized decision-making will be relaxed.

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Daniel Jones

Daniel is a Politics and Philosophy graduate from Cardiff University where he also worked as a section editor on the award winning student newspaper. After university he joined an IT support company where he was a B2B online writer. He loves anything to do with sport and joined GDS in July 2009.

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