Baker: China poised to become world's largest LNG importer

China became a price setter on the iron ore market within the last 3 years, and China could become a future price setter for natural gas, Edward L. Morse, managing director of commodities research at Citigroup Global Markets Inc., told an energy conference at Rice University’s Baker Institute.

“China has risen to being a big LNG player,” Morse said Dec. 2 during a one-day conference on China and energy. “By the end of the decade, China will pass Japan as the biggest LNG importer.”

The March earthquake in Japan and resulting Fukushima nuclear power plant disaster “changed world market dynamics,” Morse said, noting tightness in LNG supplies worldwide since then.

He sees China and India as both becoming significant LNG buyers, adding that LNG global market tightness certainly influences gas prices.

“Australia producers could challenge traditional Middle East contracts,” for LNG, Morse forecast.

Baker Institute researchers Kenneth B. Medlock and Peter Hartley issued a paper about China’s role in global LNG markets in which they forecast Chinese LNG imports by 2040.

“We can see that Asia accounts for a massive 59% of global LNG demand, with China leading the way at 24% of all global LNG imports,” Medlock and Hartley said. “In sum, growth in supplies of natural gas from shale is a catalyst for deepening of the global natural gas market, and strong demand in Asia triggers significant growth in global LNG trade.”

China, like the US, has substantial shale gas resources but faces technical, regulatory, and market infrastructure challenges that are likely to delay rapid development, the Baker Institute said.

If China were to mobilize investments in shale gas more quickly than expected, that could greatly reduce the country’s expected large LNG imports from Australia and the Middle East, researchers noted.

China’s demand for crude oil easily could reach levels comparable with today’s demand levels for oil in the US by 2040, Baker Institute researchers said in a series of research papers prepared in advance of the Dec. 2 conference (OGJ Online, Dec. 1, 2011).

China’s growing oil demand

Baker Institute researchers discussed the implications of China’s oil and natural gas policies and domestic energy market development on global energy markets.

Researchers noted China’s rapid growth in the ownership of vehicles and the resulting growth in oil demand.

“The geopolitical implications are far-reaching as nations must deal with the implications of China’s large and growing demand for oil,” said a Baker Institute study entitled “Vehicle Stocks in China: Consequences for Oil Demand.”

The Baker Institute reports China has more than 50 million vehicles on the road, and researchers estimate more than 200 million vehicles by 2020 and 770 million by 2040 provided China’s real gross domestic product growth averages 6% between now and 2030.

Even if the number of electric cars in China rises to 5 million/year by 2030, which is in line with targets announced by China’s National Development & Reform Commission, China’s oil use from transportation still is expected to grow significantly, the Baker Institute said.

Contact Paula Dittrick at paulad@ogjonline.com.

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