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Chinese gas outlook in doubt on weak Jiangsu demand

Multiple economic impacts of the pandemic are stacked up against the nation’s ambitious gas strategy

Jiangsu, China’s largest provincial gas market, is set to miss an annual demand target for the fuel that previously looked within reach—raising questions about the outlook for the overall Chinese gas market for the rest of this year as the prolonged pandemic depresses global economic output.

Jiangsu, part of the economically vibrant Yangtze River Delta region on China’s eastern seaboard, reported apparent consumption of 16.74bn m³ from January to August. A comparative figure for the same eight months of 2019 was not disclosed, but calculations by Petroleum Economist using released figures for individual demand categories indicate overall consumption declined by 5.6pc year-on-year 

The drop will raise doubts over the ability of Jiangsu, the country’s second-largest provincial economy after Guangdong, to achieve its demand target of 32bn m³. The target was set out in an official three-year infrastructure development plan released in March 2019—well before Covid-19 upended the global economy and international energy markets. 

The likeliest scenario is that China’s gas demand will follow a bumpy trajectory in the coming months

Jiangsu’s limp demand marks a significant reversal from 2019, when the province accounted for nearly 10pc of Chinese gas demand. Gas consumption reportedly increased by 6.3pc on the 2018 figure, to a record 28.7bn m³, while national gas use reached 306.7bn m³.

Jiangsu’s biggest gas-consuming sector by far, city gas and industry, has been chiefly to blame for this year’s slump in consumption. The sector recorded the biggest drop of, 6.1pc, to 8.94bn m³, followed by a 5.9pc decrease in power generation, to 6.69bn m³. The so-called ‘direct supply’ of gas to bulk users such as factories was the only segment to see year-on-year growth, of 1.1pc.

National demand trend

The deceleration reflects a broader slowdown in China’s gas demand in recent months, which will create significant uncertainty for the approaching winter heating season. This four-month period from mid-November to mid-March represents China’s peak gas demand season, as urban gas heating systems in northern cities are in use.

Gas demand in China was to some extent less affected by the Covid-19 outbreak than other energy sources, as the fuel is typically supported by robust household demand. Gas use rebounded in April and May as Chinese LNG importers took advantage of cheap international spot prices and state-run producers aggressively increased domestic output to please the central government.

But demand has softened recently. Apparent gas consumption in July was 24.63bn m³, with year-on-year growth of 0.6pc, the lowest daily apparent consumption and the lowest growth rate since China restarted economic activities in late March, according to state economic planning agency the National Development and Reform Commission (NDRC). From January to July, apparent consumption increased just by 3.3pc more than the same seven months of 2019, according to the NDRC.

5.6pc – Fall in Jiangsu gas use year-on-year

Compounding weak demand growth, industry sources speculate the figures may have been driven primarily by more aggressive underground gas storage rather than genuine need from consumers and industry. This would mean fundamental support for gas consumption could be shaky entering the heating season.

The demand outlook for the rest of 2020 will depend largely on economic growth in the second half of the year and whether Beijing provides a stimulus to boost domestic gas use. Renewed lockdowns around the world during the next six months could suppress global demand for Chinese goods, curbing manufacturing output and the associated need for gas.

The likeliest scenario is that China’s gas demand will follow a bumpy trajectory in the coming months, with growth remaining weak into October, before recovering modestly in November and December once the heating season begins.

China’s gas goals appear increasingly in doubt. The country had been aiming for gas to meet around 10pc of its energy consumption by 2020, according to a directive jointly published by 13 governmental agencies in mid-2017. But analysts estimate a 10pc share would be equivalent to 360bn m³, or a 17pc jump from 2019—growth that looks overly ambitious.

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