China’s rapidly growing market is without doubt one of the most coveted destinations for exporters of liquefied natural gas. In pursuit of wealth and power, LNG producers from the four corners of the globe – the rolling farmlands of Pennsylvania, the deserts of Qatar, the rainforests of Papua New Guinea and the frigid waters of Russia – are all keen to compete for a slice of the pie. However, contrary to popular belief, China might not end up becoming the LNG-guzzling giant many have prophesied. This could have a major impact on the global market as a supply glut might lead to a collapse of LNG prices globally.

China is in the middle of a great energy transition. In a bid to tackle air pollution and “turn China’s skies blue again,” in 2017 Beijing unveiled a bold policy plan. Part of this initiative is an extensive government-led switch from coal to natural gas for heating and industrial purposes. When the switch was announced, natural gas made up around 7% of China’s total energy mix, but Beijing wants to more than double this figure. The government plans that by 2030 natural gas will account for 15% of China’s overall energy mix.

In recent years there has also been much talk about the fact that China’s future natural-gas demand will to a large extent be met by LNG imports from countries such as Australia, Qatar and the US, just to name a few. In fact, some analysts even argued that China’s LNG imports could more than double and grow from 53.7 million metric tons in 2018 to well over 126 million tons in 2030. Consequently, China would absorb almost a quarter of the global LNG supply, which by 2030 could total around 500 million tons.

However, this scenario is far from certain. While it is notoriously difficult to forecast future gas demand, it could be argued that China’s future LNG demand will by and large be determined by a combination of domestic factors and the broader trends in the global gas market.

First, China’s future natural-gas demand remains very uncertain. In 2018, China consumed 280 billion cubic meters (bcm) of natural gas, and it has been estimated by various organizations that by 2030 its demand could reach as little as 450bcm or as much as 666bcm. However, its demand will depend not only on the country’s economic growth, but also on Beijing’s success in implementing its costly and heavily subsidized coal-to-gas switch. While the current market environment is relatively favorable for the switch, a major increase in prices of oil and LNG, both term and spot-market, could potentially foil China’s plan of reducing its reliance on coal.

The pace of China’s natural-gas demand will also be affected by its capacity to manage gas shortages. After several cold snaps sweeping across China and its neighbors in the winter of 2017-18, the coal-to-gas switch led to a serious gas-supply crunch in the northern part of the country. Although last winter China successfully averted serious supply shortages, given the lack of adequate supply infrastructure, Beijing will likely continue to find it rather challenging to ensure an uninterrupted supply of gas during seasonal swings in demand.

China’s future gas production will have a considerable impact on the country’s natural-gas import needs

Second, China’s future gas production will have a considerable impact on the country’s natural-gas import needs. In 2018, its total domestic gas production stood at 161bcm and the vast majority of it came from conventional sources. By 2030, China is expected to ramp up its domestic gas production to approximately 240bcm, with most of the growth coming from unconventional sources.

Still, China’s overall gas output could be even greater.

Gas extracted from shale formations could prove to be a wild card in boosting the country’s domestic gas production. China sits on top of the world’s largest shale gas reserves, estimated to be around 36.8 trillion cubic meters. Yet to date, Beijing has faced serious difficulties of harnessing its full shale potential. Myriad factors, including challenging geology, insufficient infrastructure, and low well productivity, have made it unlikely that China will be able to extract most of the gas trapped in its shale formations any time soon. For instance, in 2018, China’s two main shale gas regions, both in the Sichuan Basin, produced barely 10bcm of natural gas.

However, recent technological breakthroughs in shale gas production have led Chinese energy companies to believe that by 2030 the country could potentially produce up to 80-100bcm of shale gas. If this – admittedly rather optimistic – scenario were to unfold, China’s overall domestic gas output could see a significant bump and by 2030 would grow to a total of 270-290bcm.

Third, China’s demand for LNG imports will also depend on its imports of piped gas. In 2018, China imported 48.4bcm of natural gas from Turkmenistan, Uzbekistan and Kazakhstan via the Central Asian pipeline and 3.2bcm from Myanmar. Given that the Central Asian pipeline is inching closer to its maximum operational capacity, there are plans to expand pipeline by an additional 10bcm by the end of 2019. More important, in late 2019, the US$55 billion Power of Siberia pipeline from Russia will be completed and will reach its maximum operational capacity of 38bcm in the mid-2020s.

Although currently China has few gas-import pipelines to satisfy its growing natural-gas demand, given the recent uptick in oil prices, there is considerable upside for future expansion. Talks with Russia are currently under way regarding the construction of two additional pipelines: the Power of Siberia 2 and the Far East pipelines, which, if built, might provide an additional combined natural-gas import capacity of around 40bcm. There is also the likelihood that the Central Asian pipeline could see a major expansion by the construction of a fourth line, which could allow China to import an extra 30bcm of natural gas. Overall, if China were to expand its pipeline infrastructure, it could over the long run increase its total piped natural-gas import capacity to around 160bcm.

On top of that, Beijing could potentially make a calculated decision to put a cap on the amount of gas it receives via LNG terminals so as to limit its reliance on strategic maritime chokepoints such as the Strait of Malacca, which is an important transit route for LNG from the Persian Gulf and Africa.

To be sure, in the coming years China’s appetite for natural-gas imports and LNG will continue to grow. In fact, it is estimated that this year China might become the world’s leading natural-gas importer and in 2022 it will even surpass Japan to become the world’s largest LNG importer. However, given the uncertainties surrounding its future natural-gas demand, its domestic gas production capacity and its intentions of expanding its pipeline infrastructure, it is far from certain that China will become the LNG-devouring giant that “sucks gas out of the global market,” as one overly excited Wall Street Journal headline once put it.

Considering China’s weight in the global economy, any meaningful changes in its future LNG demand will be felt far and wide. If Beijing fails to absorb a significant chunk of the LNG that will hit the global markets and major LNG exporters do not respond by curbing their production output, we could be witnessing a potential supply glut in the years to come. This could prove to be a boon to other LNG importers, particularly those in Europe, as they would have greater access to potentially cheaper LNG, which otherwise would have likely set sail to China.

The content of this article reflects the author’s personal views.