China's natural gas market under the new development pattern

The external environment is unpredictable, and domestic oil and gas companies have always earnestly fulfilled the mission and responsibility of ensuring supply and stabilizing people's livelihood, ensuring the orderly replacement of natural gas production, and maintaining the steady increase of domestic gas production. Multi-channel imports of overseas natural gas, especially the China-Russia eastern route gas steadily increased; Total natural gas supply for the year is expected to be about 397 billion cubic meters, up 6% year-on-year.

New projects and new technologies strongly support domestic gas supply. 2023 is the fifth year of the "seven-year action Plan", domestic energy enterprises will continue to increase exploration and development efforts, is expected to annual domestic natural gas production of about 232 billion cubic meters, up 5%, an increase of more than 10 billion cubic meters. Oil and gas enterprises represented by the three major oil companies continue to focus on the main business, maintain a high investment intensity in exploration, development, production and other links, continue to make new breakthroughs in new levels and new fields, accelerate the construction of new projects, strictly control the decline rate of old oil and gas fields, increase production and ensure supply, and do a good job of the "ballast stone" of the national economy and the stabilizer of energy supply. CNPC will focus on promoting the exploration and development of major breakthrough blocks in the past year, such as the Fudong 1 well in the Tarim Basin and the Tianwan 1 well in the Junggar Basin, so as to realize the conversion of reserves into production as soon as possible. Sinopec's "Deep Earth No. 1" Leap Forward 3-3, which was drilled in May this year, raised the record for the deepest well in Asia to 9,472 meters, while the "Deep Earth No. 1" Shunbei Oil field test well 10X achieved a high oil flow rate of 600,000 cubic meters per day. Cnooc adheres to the development strategy of simultaneously developing oil and gas, stabilizing oil and increasing gas. Baodao 21-1, China's first deep-water large gas field discovered in Qiongdongnan Basin, has proved geological reserves of more than 50 billion cubic meters, which will provide strong support for China's natural gas supply in the future.

The uncertainty of the Central Asian pipeline continues, and the China-Russia pipeline is growing steadily. The China-Russia pipeline contract will increase by 7 billion cubic meters per year, or become the only source of additional imported pipeline gas in 2023. Turkmenistan, Kazakhstan and Uzbekistan from the end of 2022 to the beginning of this year, respectively, due to equipment failure, domestic heating and chemical gas demand growth and other factors affected by short supply or supply, at the same time, Kazakhstan's gas supply contract expires in October this year, Central Asia pipeline gas uncertainty will continue in 2023. The China-Myanmar pipeline is still expected to be affected by the production decline of upstream gas fields and the growth of Myanmar's domestic demand, and the supply will continue to decline slightly. Pipeline gas imports for the year are expected to be about 69 billion cubic meters, up about 8% year on year.

The growth rate of imported LNG has turned positive, and overseas resources have made new breakthroughs. In the LNG medium and long-term purchase and sales contracts signed in China in the past two years, about 12 million tons/year of contract gas supply since 2023, pushing up LNG imports, but there are certain uncertainties in spot imports, LNG imports are expected to be 97 billion cubic meters, up 9% year-on-year. While ensuring the long-term stable supply of LNG and giving full play to the flexibility of LNG spot, domestic energy enterprises are constantly looking for overseas resources and expanding the upstream chain. In April, Sinopec announced its participation in the world's largest LNG project - Qatar North Gas Field Expansion Project (NFE), according to the agreement, Qatar Energy will transfer 1.25% of the shares of the northern gas field expansion project to Sinopec. The investment layout of international LNG resources is an important measure for domestic oil companies to improve the security, stability and reliability of clean energy supply.

The economy has accelerated recovery and a number of favorable policies have been introduced. Natural gas consumption has bottomed out

As domestic production, life, transportation and other aspects return to normal, industrial and commercial sectors have a greater space for demand growth, and natural gas, as an important peak-balancing energy to help the large-scale development of new energy power generation in the process of carbon peaking, will play a more important role. In 2023, natural gas consumption will return to positive growth, and the annual consumption is expected to be about 388 billion cubic meters, an increase of 6%.

The new urbanization process has accelerated, and urban gas consumption has steadily increased. Driven by the increasing improvement of people's living standards and the "double carbon" goal, many provinces and cities continue to implement the "town access" and "village access" project, and the penetration rate of gas and natural gas in cities and towns in China continues to grow. The "14th Five-Year Plan" National Urban Infrastructure Construction Plan proposes that by 2025, the penetration rate of urban pipeline gas should rise from 75.7% in 2020 to 85%, pushing up the total amount of residential and commercial gas use. In order to effectively reduce vehicle pollution emissions and continuously improve the level of ecological green development, the state has successively issued a number of policies such as the "Fourteen" Comprehensive Work Plan for energy conservation and emission Reduction "and" Action Plan for carbon peaking before 2030 "to support the use of LNG as fuel for vehicles and ships, and accelerate the efficient use of natural gas in the field of transportation and the construction of infrastructure such as filling stations. Demand for transportation gas will increase. It is expected that the demand for urban gas will increase by about 6% in 2023.

The economic engine strongly promoted industrial development, and the growth rate of industrial gas consumption turned from negative to positive. In the first quarter of this year, the epidemic prevention and control turned rapidly and steadily, and the policies and measures to stabilize growth, employment and prices continued to exert their strength. The national economy stabilized and picked up, and China's GDP growth rate recovered to 4.5%, achieving a good start. The strong economic engine has promoted the steady recovery of industrial production, and the overall improvement of business expectations has pushed up the demand for industrial gas storage. With the continuous promotion of the "dual carbon" strategy, the state and various provinces and cities have successively issued the "industrial green development" related policies such as the "carbon peak Implementation Plan" in the industrial field, to promote the accelerated development of the industrial green low-carbon cycle, the "coal to gas" project in the industrial field is promoted in an orderly manner, and the new part will take "stability" as a foothold to ensure the stability of the industry's gas use. Industrial fuel gas demand is expected to rise by about 5% year on year in 2023.

Clean energy policies support a rebound in the growth rate of gas-fired power generation. With the acceleration of green and low-carbon transformation and the increasing proportion of renewable energy in the power system, there is still a large space for development of gas-powered power generation with strong peak load balancing capacity, fast lifting and lowering load and fewer restrictions.

First, with the support of policies related to the use of clean energy, gas power generation capacity has grown steadily, and it is expected that the installed gas capacity will grow by 11% in 2023, an increase of 4 percentage points over the previous year, providing growth potential for gas power generation.

Second, the rapid growth of electricity demand drives the use of gas for power generation. The overall recovery of macroeconomic operation will promote the growth of power demand, China Electric Power Union is expected in 2023 the whole society electricity consumption of 9.15 trillion KWH, an increase of about 6%, the summer (June to August) may appear regional meteorological drought, will have an impact on the local power supply and power delivery, gas and electricity peak frequency regulation prominent role.

Third, the market-oriented reform of on-grid electricity prices has been gradually deepened, and the price transmission mechanism has been accelerated. At the same time, the interconnection level of natural gas pipelines has continued to improve, and the construction of LNG receiving stations has steadily advanced, and the natural gas supply in relevant provinces has become more diversified, providing a more stable price and resource guarantee for gas-powered power generation. Gas demand for gas-fired power generation is expected to rise by about 7% year-on-year in 2023.

Significant progress has been made in the construction of storage and transportation facilities. The supply pattern of "one national network" has basically taken shape

Under the new situation, the construction of a pipeline network system with sufficient scale and sufficient radiation scope is an important basic guarantee for the development of China's natural gas market towards higher quality. In recent years, the construction of natural gas storage and transportation infrastructure has been accelerated. First, the scale of gas storage continues to increase. Baijuhe, Bai15, Sudong 39-61 and other gas storage tanks have been put into operation, and 220,000 cubic meters and 270,000 cubic meters of large-capacity LNG storage tanks have been successfully topped, and China's emergency peaking support capacity has steadily improved. By the end of 2022, China has built 22 underground gas storage clusters, with actual working gas capacity of about 19.2 billion cubic meters, and LNG receiving stations with storage capacity of about 11 billion cubic meters. Second, the supply capacity of the pipe network system has been further improved. By the end of 2022, China will have about 120,000 kilometers of long-haul natural gas pipelines. In addition, regional natural gas pipelines in the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Pearl River Delta, as well as provincial-level natural gas pipelines in Zhejiang and Shandong provinces, have been continuously improved. After the establishment of the national pipeline network, Guangdong, Hainan, Zhejiang and other provinces completed the market-oriented integration of provincial networks, the reform of the operation mechanism of the national natural gas pipeline network continued to advance, and the "national one network" gas supply pattern was gradually established.

Upstream and downstream prices will speed up

The market-oriented reform of the oil and gas system continued to deepen

In recent years, the reform of the natural gas price system has been continuously promoted, and the price linkage mechanism of the industrial chain and the price supervision of infrastructure services have been increasingly improved, which has effectively guaranteed the stability of the natural gas market. On the one hand, in 2022, the international natural gas prices are high and volatile, and Shanghai, Tianjin, Guangzhou and other places have launched the upstream and downstream natural gas price linkage mechanism, further play the positive role of price leverage in regulating supply and demand, straighten out the supply and demand relationship in the natural gas market, and timely channel the price anchor segment to ensure the demand for gas. In 2023, the national "two conferences" proposed to "establish and improve the linkage mechanism of urban gas terminal sales price and procurement cost", the National Development and Reform Commission conducted field research around the "study and improve the linkage mechanism", and provinces and cities continued to introduce relevant policies, and the upstream and downstream price linkage of natural gas is expected to accelerate within the year. On the other hand, in 2022, the state for the first time specifically formulated a policy document on the price of receiving station gasification service, "Guiding Opinions on Improving the Pricing Mechanism of Imported LNG Receiving Station Gasification Service", and introduced a new pricing mechanism for LNG receiving station gasification service. Standardize the pricing mechanism of LNG receiving station gasification service, such as unified pricing methods, pricing items, pricing methods, and clarifying the price check cycle. A unified service price system will help better regulate and manage the market, while a clear gasification price pricing mechanism will attract more LNG traders and help form a healthy competitive natural gas market.