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China set to cap coal consumption, boost domestic oil & gas output in 2021

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China set to cap coal consumption, boost domestic oil & gas output in 2021

Highlights

Installed capacity for non-fossil power generators to reach 1,100 GW

Energy consumption to rise 5%: Platts Analytics

Domestic oil to reach 196 mil mt, natural gas to hit 202.5 Bcm

Singapore — China is set to cap coal consumption in 2021 by reducing it to less than 56% of the country's total energy mix, while planning to boost domestic oil and gas output -- a set of targets that are deemed easy to meet when overall consumer energy demand recovers from the pandemic-induced economy, industry and market analysts said.

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China's National Energy Administration on April 22 released the annual Energy Work Guidance for 2021, which aims to manage energy security risks and achieve energy transition to meet the targets of peak carbon emissions by 2030 and carbon neutrality by 2060. The guidelines covered energy structure, supply security, energy efficiency, technology innovation and electricity market reform.

Coal accounted for 56.8% of China's total energy consumption of 4.98 billion mt standard coal equivalent in 2020, according to China's 2020 Statistical Communique on National Economic and Social Development released by the National Bureau of Statistics on Feb. 28.

The NEA, the country's top energy planner, aimed to boost the installed capacity of non-fossil power generators, including hydro, wind, solar, biomass and nuclear, to reach 1,100 GW this year. By end-2020, installed capacity of non-fossil power generators stood at 980 GW and is projected to reach 1,120 GW in 2021, according to China Electricity Council.

This suggests that coal power generators' share in energy consumption will further shrink in 2021, given that installed capacity of coal power generators stood at 1,080 GW in 2020 and had taken a 49.1% share of the country's energy consumption, the council's data showed.

The council expects China's total installed capacity to hit 2,370 GW by end-2021, up 7.7% year on year.

ENERGY CONSUMPTION SET TO RISE IN 2021

The NEA did not set energy consumption targets for 2021, but the volume is widely expected to rise amid the recovery in economic activity this year and despite efforts to reduce energy intensity. In 2020, it set the target to cap consumption at 5 billion mt of standard coal equivalent.

S&P Global Platts Analytics estimates China's GDP to grow by 8% in 2021, and it expects the country's total energy consumption to be able to increase by up to 4.8% year on year. At these rates, the government is still expected to meet its target of reducing annual energy intensity by 3% this year.

The central government in March set a GDP growth target of above 6% for 2021, compared with growth of 2.3% in 2020. In order to meet the 2060 carbon neutrality target, the government vowed to cut energy consumption per unit of GDP by 13.5% by 2025, while targeting a 3% drop in 2021.

Platts Analytics projects China's oil demand to grow nearly 5% this year after annual demand stayed largely flat in 2020.

Natural gas, on the other hand, is expected to have an average annual growth exceeding 20-30 Bcm during the 14th Five-Year plan (2021-2025) to reach about 350 Bcm in 2021, according to CNPC Economics & Technology Research Institute.

The healthy growth in gas demand is also supported by NEA's target of achieving a clean heating proportion of 70% in the northern region in 2021. Besides, the energy planner said it will study and explore clean heating in the south, and encouraged the development of clean heating in a market way in the Yangtze River Basin and developed areas of the south.

Natural gas is viewed as an efficient energy to meet this target, along with electricity.

BOOST DOMESTIC OUTPUT

Meanwhile, the NEA called for increasing domestic oil, gas reserves and production by maintaining sufficient upstream investment in order to enhance the country's energy supplies.

It set the target for domestic crude production to reach about 196 million mt and natural gas output to hit 202.5 Bcm in 2021.

These represent a 2.3% year-on-year increase in oil production from 191.51 million mt in 2020, and a 7.2% year-on-year rise in gas output from 188.85 Bcm last year.

This target is expected to be met as state-owned giants -- PetroChina, Sinopec, CNOOC -- have been emphasizing domestic production with increasing investments in response, even when oil prices dropped in 2020 and their international peers announced cuts, or caps, to upstream output to shift the focus to green energy.

As a result, China's crude oil output rose 1.4% year on year to 49.18 million mt in Q1, while production in March rose 3.3% on the year to hit a four-year high of 4.04 million b/d, or 17.09 million mt, data from the NBS showed.

Meanwhile, domestic gas production jumped 13.1% to 53.31 Bcm in the same period.

"The growths are sustainable and likely to rise the rest of the year, especially for gas, as more new domestic projects come on stream, like CNOOC's flagship projects in Bohai and South China Sea," a Hong Kong-based analyst said.

S&P Global Platts Analytics estimate China's gas production to hit 208 Bcm in 2021.