China will remain highly reliant on imports over the medium to long term to meet demand for gas, although domestic production is growing, Fitch Ratings says. We expect gas imports to continue their key role in bridging the domestic supply shortfall, notwithstanding short-term declines due to price and economic cycles.

The Chinese government has not deviated from its long-term goal to increase natural gas consumption in China, despite near-term weakness in the industry. Fitch expects China’s gas demand to rebound in 2023 from 2022, underpinned by moderating gas prices and economic recovery while medium-term gas demand would stay firm under China’s energy transition roadmap.

Fitch expects the decline in liquefied natural gas’s (LNG) share of total imports seen in 2022 to reverse over the medium term, as significant LNG terminal capacity and long-term import contracts start operation or came into effect. China’s on-going investments in gas import infrastructure would help facilitate rising gas imports.

Although there is fuel cost pass-through within the gas value chain in China, Fitch views that costs may not be fully passed through, especially during times of rapid cost increase and strong demand, which prompt suppliers to make more spot gas purchases. Chinese national oil companies remain exposed to higher import cost absorption while city gas distributors may also face time lag in cost pass-through.
Source: Fitch Ratings