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Analysis: China's green Winter Olympics 2022 to boost natural gas demand

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Analysis: China's green Winter Olympics 2022 to boost natural gas demand


Anti-pollution measures in various sectors

Accelerates coal-to-gas and coal-to-electricity switch

Higher gas demand seen amid surge in global gas prices

  • Author
  • Staff
  • Editor
  • Debiprasad Nayak
  • Commodity
  • Coal Electric Power Energy Transition LNG Natural Gas Oil Metals

China's push to host a "green" 2022 Olympics and Paralympic Winter Games is expected to boost clean energy demand including natural gas consumption over the coming winter-spring heating season, but this has also raised concerns about costlier natural gas as global prices surge to record levels.

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China committed to the World Health Organization's air quality standards for the games, scheduled to take place over Feb. 4-20 in Beijing, when it first applied to host them in 2014. Since then, the central and provincial governments have taken new measures to cut pollution from industrial, residential and transportation sources in the region, including switching away from coal in many sectors.

These complement ongoing anti-pollution policies that have previously supported China's natural gas demand growth, including the State Council's Air Pollution Prevention and Control Action Plan 2013-2017, Clean Winter Heating Plan in Northern China 2017-2021 and the Blue Sky Defence War, or three-year action plan for cleaner air, in 2018.

The latest salvo of anti-pollution measures underscore the role of policy in China's natural gas demand growth, but also highlight concerns around the price of natural gas in the current market and its role as a transition fuel in the wider decarbonization debate.

China plans to power all games venues in the co-host cities of Beijing and Zhangjiakou with renewables-based electricity and more than 85% of public transport will be from clean energy vehicles including pure electric, natural gas-powered, hydrogen fuel cell and hybrid vehicles, according to state media.

Beijing has already cut its coal consumption to 1.73 million mt in 2020 from a peak of 30 million mt, and the share of clean energy including natural gas in its total energy mix has increased to 98.1%, data from the National Energy Administration showed. Natural gas was estimated to account for more than 34% of total energy consumption in Beijing.

Zhangjiakou city in the neighboring Hebei province has built six natural gas pipeline networks with an annual gas transportation capacity of 3.2 billion cu m, five hydrogen-generation projects and 16 hydrogen-filling stations, all expected to start by the end of 2021, according to state media. It will also supply around 22.5 billion kWh/year of renewables-based electricity to meet around 10% of Beijing power consumption via a new power grid.

Moving away from coal

Authorities have been cleaning up industrial pollution around the capital for years and also cracking down on small inefficient coal-fired boilers that generate heat. This includes shutting of small units, switching them to natural gas where available or to electricity where the grid is connected.

The 2017 action plan for instance targeted phasing out coal boilers in 12 million households, and the 2013 plan imposed a firm grip on newly added production capacity in high energy consumption and high emission industries, accelerate elimination of outdated production capacity and resolutely put an end to illegal projects under construction in industries with serious overcapacity.

Zhangjiakou plans to phase out 6,100 coal-fired boilers with a capacity of 35 mt/hour or below, implement coal-to gas switching for 36 coal-fired boilers with a capacity of above 35 mt/hour, and move to cleaner heating fuels for 242,130 households as of 2021, local media reported Sept. 10. The city's mayor visited counties and districts to supervise coal-to-gas and coal-to-electricity switching.

Tangshan city, one of China's major steel producing hubs in Hebei province, plans to cut steel production by 57% in the second half of 2021, shut down coal-fired boilers with a capacity of 35 mt/hour or below, and switch 209,300 households to cleaner heating fuels by end-September to ensure good air quality during the games, local media reported citing environmental notices.

Hebei province surrounding Beijing has focused on a campaign over Aug. 20-Dec. 31 to crack down on the use of poor-quality bulk coal. It also called for faster decommissioning of coal-fired boilers in public institutions in the whole province in August.

Shandong province, located in the east of Hebei, plans to decommission 383 coal-fired boilers with a capacity of 35 mt/hour or below, and implement coal-to-gas switch for 89 coal-fired boilers by end-October, according to a local government document dated Aug. 12.

Shanxi province, located in the west of Hebei, has taken strict measures to control industrial pollution, and plans to implement clean heating fuel switch for 917,400 households by end-October, state-media Xinhua reported Aug. 19, citing local officials.

These measures are expected to boost China's natural gas consumption.

Concerns over high LNG prices

However, the expected increase in gas demand has raised concerns of higher prices.

Trucked LNG prices have stayed above Yuan 6,000/mt ($927/mt) since August, and the concern is where prices will be headed in peak winter and whether industrial users can withstand such high gas prices, a Chinese trader said.

China's industrial and transportation sectors are more sensitive to LNG prices than residential users, and their gas feedstock costs are more market-driven.

JKM, the benchmark price for spot LNG in Northeast Asia, was assessed at $23.185/MMBtu on Sept. 14, up nearly four times year on year, S&P Global Platts data showed.