Coal-to-gas switching policies push up China’s LNG imports

Monday, 06 September 2021
Free Read

Only Asia has seen LNG imports rise despite the pandemic, largely due to the Chinese government’s coal-to-gas switching policies which pushed up imports by 1.0 billion cubic feet per day (Bcf/d) in 2020. India’s LNG imports increased 0.4 Bcf/d amid low prices for spot cargoes in spring and summer.

China remains the second largest LNG importer globally, with 68.9 million tons or a 19.3 percent market share – up by almost 2 percent from its 2019 market share, and bound to expand further, according to figures in the newly release Annual Report 2021 by the International Group of Liquefied Natural Gas Importers (GIIGNL).

In India, import grew 2.7 million tons or 11 percent underpinned by the operational start of the Mudra LNG regas terminal and higher utilization rate of the Kochi LNG terminal. Comparatively cheap spot LNG prices in the shoulder seasons prompted many Indian utility buyers to dispatch gas-fired rather than coal-fired plants for power generation.

In contrast, LNG import to Japan eased of 0.3 Bcf/d over the course of last year to average 9.8 Bcf/d, largely due to the greater utilization of nuclear reactors for baseload power generation.

Carbon price “too low” to make a difference

Coal-to-gas switching is, so far, still largely policy-driven given that the price on carbon emissions in Asia is far too low to make a fuel switch economically viable. Boston Consulting Group finds that levying a price of $40 per ton on carbon emissions in China would render gas-burn 30 percent cheaper than coal.

More generally in Asia, a carbon price of $20 to $50 per ton would bring gas to achieve cost equivalence with coal. However, these are all still “well below what is required to get the world onto a trajectory compatible with the Paris Agreement 2° Celsius pathway – about $125 per ton,” analysts pointed out.

Assuming such carbon pricing was in place, for new combined-cycle gas turbine generator (CCGT) built now, there would be a positive cash-flow through 2040.

Today, the median price of carbon across 46 national jurisdictions is roughly $13 US/ton but just about a third of national prices are above the $20 mark. Analysts see carbon pricing as an essential policy instrument to promote investment in small-scale LNG regas and integrated gas-fired power projects, often situated in remote areas.

Policy makers are urged to steer new investment by increasing the price of carbon, controlling pollution and rewarding efficiency. “The adoption of natural gas technologies has already proved to be a highly cost-effective solution for improving air quality and reducing emissions, through fuel switching away from coal and oil,” analysts concluded. 

Related Video

Free Read