LNG Vehicles Drive Ambitious Transportation Sector Policies
BMI View: The Chinese National Development and Reform Commission has announced future incent ives for the development of LNG -fuelled vehicles . I n the wider context of China's energy policy , this could be seen as an attempt to spur demand for natural gas in expectation of future large and cheap supply into the country. Nonetheless, until this supply is confirmed, it is unlikely that the necessary large scale downstream infrastructure change required for a boost in LNG vehicle s will be undertaken .
Falling natural gas prices over the past few years are one of the main drivers of the upcoming Ch inese energy policy. Similarly, the country is expecting a boom in unconventional reserves since the EIA announced that China may hold the largest amount of unconventional gas in the world . Current proven reserves of conventional gas are estimated at 3.03 trn cubic metres ( tcm ) . L atest estimates by the EIA put technically recoverable shale gas resources at 35.7tcm.
China is also developing extensive import infrastructure. Pipelines are already feeding the country from Turkmenistan, Kazakhstan and Uzbekistan. The Myanmar-China pipeline, holding an annual gas capacity of 12bn cubic metres (bcm) is due to open in May 2013. Negotiations with Russia are underway but are being slowed down by disagreement on prices. We expect Chinese dependency on foreign gas to grow from 35.1bcm of net imports in 2012 to 154.14bcm in 2021, in spite of extensive national reserves.
|Can't Keep Up|
|China - Production, Consumption & Net Imports, 2000-2021 (bcm)|
The National Development and Reform Commission (NDRC) announced upcoming incentives to boost the use of LNG in the Chinese transport sector. These aim at providing cheaper and greener energy. Accounting for around 9bcm, transportation in China contributes to about 8% of natural gas consumption. As reported by ChinaDaily, the number of LNG vehicles in the country is already 1mn and could reach 1.5mn by 2015. It seems to be a highly popular alternative-fuel vehicle segment. According to BMI's Autos analysts it dwarfs the progress made by electric cars, where the government aims to have 5mn electric cars on the road by 2020 and less than 10,000 were sold over 2011.
The demand for LNG vehicles is in line with our forecast for a surge in gas demand throughout the coming decade. The switch to LNG vehicles will be driven by several factors. Firstly, the NDRC policy could result in greater public sector spending. Southern Guangdong province has already announced its intention to replace liquefied petroleum gas (LPG) buses with liquefied natural gas (LNG) buses (See our online service, June 14 2012, 'Driving Toward LNG). Further changes in that direction can be expected. Secondly, the natural gas price reform may improve competition among gas providers and push prices further down. Finally, direct subsidies for LNG car purchases can also be expected.
Still Waiting For Supply Surge
One main obstacle to the development of LNG use in transport is the actual lack of downstream infrastructure. The number of natural gas filling stations in China is estimated at around only 3,000. Significant development on this side would be needed to reach larger-scale targets in LNG use. Indeed, while we expect a surge in gas demand, we do not believe that this will be driven by developments in transportation. This is not only due to the lack of infrastructure, but also due to the fact that increased dependence on gas imports could create price uncertainty for consumers. If large-scale production of shale gas were to boom in China, as it did in the US, incentives for LNG use in the transport sector could become more relevant.