A sudden surge of activity in China's natural gas market has sparked questions about excessive investment and effects of the country's new climate goals.
Investment interest in China's gas sector appears to be rising sharply, although gas demand has recovered only partially with China's economic rebound so far this year.
In the first three quarters, apparent consumption gained 3.6 percent from a year earlier, climbing to 230.95 billion cubic meters (8.1 trillion cubic feet), the government's top planning agency, the National Development and Reform Commission, reported.
Over the same period, China's economy edged up 0.7 percent, the National Bureau of Statistics (NBS) said.
Demand growth of 4.4 percent for the full year is expected to drop from 8.6 percent in 2019 due to the earlier COVID-19 lockdown, according to a report last month by the National Energy Administration (NEA) and government research groups.
Gas consumption is slated to rise from 306.4 billion cubic meters (bcm) last year to 320 bcm in 2020, the agencies reported.
But stronger predictions have been driven by prospects for the longer term.
Last month, an official of the PetroChina unit of state- owned China National Petroleum Corp. (CNPC) told an industry conference in Shanghai that annual gas demand will nearly double to 620 bcm by 2035, reaching 600 bcm in 2030, the Petroleum Economist reported.
The bullish outlook has been spurred in part by President Xi Jinping's commitment in September to achieve a peak in carbon emissions before 2030 and "net-zero" emissions before 2060, the industry publication said.
Mikkal Herberg, energy security research director for the Seattle-based National Bureau of Asian Research, said that CNPC's growth estimate may be optimistic.
"The PetroChina forecast looks a little overdone to me, but I think they have a vested interest in promoting gas consumption," said Herberg, adding that the company's domestic production growth for oil is likely to be "near zero."
But the role of gas is seen as crucial to reducing reliance on high-polluting coal, providing a cleaner-burning transition fuel to non-fossil energy sourcing, including solar and wind.
Carbon emissions from gas are about 45 percent lower than those from coal per unit of heat content, according to the Energy Information Administration of the U.S. Department of Energy.
Gas accounted for 8.1 percent of China's primary energy last year, the NEA report said. The share of coal stood at 57.7 percent, according to the NBS.
Over the past three years, gas has made inroads as a replacement for coal-fired heating in northern regions. In September, the Ministry of Ecology and Environment set a goal of converting 7.09 million home heating systems from coal to gas or electricity before the start of the winter season this year.
Gas demand will rise by 11.8 bcm this winter from a year earlier to 148 bcm, an official of the second-ranked China Petroleum & Chemical Corp. (Sinopec) said, Reuters reported.
While the demand growth in 2020 will be the slowest in five years due to the COVID-19 slump, the recovery prospects have spurred plans for tens of billions of dollars in investments by niche Chinese gas firms, eager to take advantage of recent industry reforms, Reuters said.
New opportunities are driving a wave of investment in city gas networks and import facilities for liquefied natural gas (LNG). Last month, Reuters profiled a dozen investment groups that are set to become "significant importers" of LNG.
The positive prospects appear to be lifting Asian spot prices of LNG from record lows earlier this year with a jump of nearly 9 percent in the last week of October, Reuters reported separately.
The opportunities for investment have followed implementation of a long-awaited infrastructure reorganization, which split off the pipeline holdings of the giant national oil companies (NOCs) into the newly-formed China Oil & Gas Pipeline Network Corp. (PipeChina) in July.
The restructuring was designed to overcome NOC barriers to pipeline access for third parties, effectively blocking investment in exploration and production by independents and smaller players.
Opportunities are expected to be enhanced by a new pattern of regulation and market pricing, affecting a range of activities from exploration and production to "last mile" delivery.
"Gas usage costs will be reduced by strictly regulating distribution and transmission charges, and deregulating the end-user retail prices and selling prices of upstream suppliers to reflect demand and supply dynamics," an analysis by Fitch Ratings Inc. said.
All these changes had already been set in motion before Xi made his surprise announcement on carbon and climate change targets to the U.N. General Assembly on Sept. 22.
In the wake of the announcement, industry reports suggest that the targets will only serve to magnify new investment opportunities.
But an alternate view is that gas investment could suffer the same fate as coal.
Environmental groups and financial analysts have been warning for years that investments in coal-fired power projects are in danger of becoming "stranded assets," to be abandoned when they are unable to generate a return as the price of renewable energy falls.
A widely-cited study by the University of Oxford Smith School of Enterprise and the Environment in 2017 estimated that if all planned or partially-built coal plants were halted in 2021, the losses would reach nearly 4.5 trillion yuan (U.S. $674 billion).
Experts say that the cost of renewables has already undercut coal and will soon fall below that of gas-fired power plants.
In January, Greentech Media, a publication of international consulting firm Wood Mackenzie Ltd., said that renewables "are now cheaper than new-build natural gas plants in many parts of the world ... and may be able to out-compete new gas-fired plants virtually everywhere on a levelized cost basis by the year 2023."
"Within the next decade, renewables are expected to be cheaper than even existing gas plants, prompting the question of stranded assets," Greentech Media said.
Cost questions aside, advocates have challenged the environmental value of investments in gas as a "bridge fuel" to meet demand before non-fossil sources take over, arguing that carbon-free energy is needed to meet the targets of the Paris Agreement on climate change.
"This requirement for a complete CO2 (carbon dioxide) emissions phase-out ... results in a dwindling role for natural gas in the power sector towards the middle of the century despite its ability to balance variable renewables," said a 2017 report by Climate Action Tracker.
"Even though gas has played an important role in modestly improving the carbon intensity of the power sector over the past decade, it is not a viable long-term solution to mitigating climate change," the publication by Climate Analytics, a non-profit climate science and policy institute, said.
The assessments are a sign that China's gas sector reforms and the wave of planned investments may face both financial and environmental risks.
But Mikkal Herberg said the pressures are likely to play out differently in Asia and the West.
"I think there are really two gas worlds today that each require a different lens," Herberg said.
"In the rich countries, especially Europe, gas will be phased down for climate reasons and move toward hydrogen as we look out 20 years. That's where stranded gas asset risk is real," he said.
"But for the fast-growing developing countries, especially in Asia, gas still has a long runway because their gas choice is about reducing or not growing coal," said Herberg.
"So, I think stranded gas assets are a problem for much further out in Asia's developing economies, including China," he said.
It is unclear how the conflicts with Xi's carbon goals for 2030 and 2060 will be resolved.
On Nov. 3, the official Xinhua news agency reported that China "will make an action plan to achieve the goal of having CO2 emissions peak before 2030," citing the Communist Party's Central Committee development plan from the fifth plenary session last month.
The report suggests that officials are still trying to resolve the energy and environmental conflicts in the yet-to- be-released 14th Five-Year Plan for 2021-2025, complicating the outlook for gas sector investments and the "net-zero" emissions goal.
This week, the Paris-based International Energy Agency (IEA) released a report on the rapid spread of renewable energy sources around the world, concluding that total installed wind and solar photovoltaic (PV) generating capacity will overtake that of natural gas in 2023 and coal in 2024.