Is China the Hidden Driver of Gas Market Volatility?

Global natural gas markets are experiencing a monumental transformation with the advent of shale gas, liquefied natural gas (LNG) flexibility, and a new “green” image for the old hydrocarbon.  But, below the radar, another transformation is underway, with China’s influence on natural gas markets now on par with Russia and the U.S..   While still much more reliant on both oil and coal, China has stepped in as the most agile and active force in the global natural gas market to feed growing demand.  This is not only due to Beijing’s plans to utilize more natural gas for energy usage diversification; it has just as much to do with their desire to be a larger player on the world stage, but as a consequence may create a “hidden” source of global gas price and supply volatility for the long term.

China is stepping up its own natural gas production and expanding its capacity to import LNG from countries like Qatar, Malaysia, Papua New Guinea and Australia.  Domestically, China’s East-West pipeline brings gas from its energy-rich Xinjiang province to the booming east coast.  But officials at China’s largest oil producer, PetroChina, are exploring new shale gas and coal-bed methane opportunities all over the country.  The Obama administration, eager to encourage Chinese domestic production to wean Beijing off of imports from troublesome gas producers such as Iran, recently signed an unconventional methane gas technology transfer agreement with the Chinese. 

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