Comparing costs, the price of imported LNG to China is too high to materially displace coal. According to Chinese customs data, the average cost of imported LNG is nearly three times that of domestically produced coal and gas. It is also between 37 percent and 61 percent more expensive than pipeline gas imports from Russia and other Asian countries, not to mention distributed solar power.
Falling technology cost of solar PV spurs a fast build-out, and the actual installed RES capacity will most likely exceed the government’s target, especially in industrialised eastern China. LNG, in contrast, is too expensive on a cost basis to displace coal. In fact, it is renewables – not LNG – that displaces coal for power generation in China and much of Asia.
Coal generation is typically US$30-40 per MWh cheaper than gas-fired power generation, analysis by the Institute of Energy Economics and Financial Analysis (IEEFA) shows. Onshore wind and utility-scale solar are found to be “the cheapest power sources,” costing roughly half as much as gas-fired power generation.
Though LNG prices are set to fall in the coming years as more US liquefaction capacity comes to the market, IEEFA analysts anticipate “prices are unlikely to drop to levels that are competitive with coal or renewables.”
Wind power displaces thermal coal
In fact, China’s growing LNG imports have not reduced or slowed the expansion of its coal consumption. Since 2017, coal demand has increased more than LNG imports every year. In the electric power sector, which accounts for 60 percent of China’s total coal usage, the share of gas-fired power generation has remained at just 3 percent since 2015, while the share of wind and solar generation has quadrupled to 16 percent. Although coal-fired generation has increased during this time, its relative market share in the power mix has fallen from 70 percent to 61 percent.
“While coal has not been displaced in absolute terms, wind and solar have contributed more than gas to reducing coal’s share in the generation mix,” said Christopher Doleman, IEEFA’s specialist for LNG and natural gas. “Looking ahead, annual capacity additions of coal, wind, and solar will continue to exceed new gas-fired power capacity.”
Bearing in mind the government’s gas strategy aims to ensure that imports of pipeline gas and LNG do not rise above 50 percent of total energy consumption.
