A recent study suggests that liquefied natural gas (LNG) is unlikely to serve as the transitional fuel enabling China to reduce its reliance on coal. Instead, the focus is shifting towards renewable energy due to its rapid progress and competitive costs.
According to the Institute for Energy Economics and Financial Analysis (IEEFA), despite China being the world’s largest LNG importer, increased purchases have not slowed down the country’s coal consumption. Since 2017, China’s demand for coal has consistently outpaced its LNG imports every year.
The study highlights that while natural gas has maintained a steady 3% share in China’s power generation since 2015, wind and solar power have quadrupled their contribution to reach 16%. Consequently, coal’s market share in the power mix has decreased from 70% to 61% over the same period.
Christopher Doleman, co-author of the report and an LNG specialist at IEEFA, noted, “Wind and solar power have been more effective than natural gas in reducing coal’s share in power generation, although coal itself has not declined in absolute terms.” Looking ahead, the report forecasts that additions to coal, wind, and solar capacities will continue to surpass new gas-fired power installations.
China’s pivot towards renewables without relying on LNG raises doubts about LNG’s role as a transitional solution towards achieving net-zero emissions. While natural gas is often seen as a cleaner alternative to coal, with gas-fired power plants emitting 50-60% less carbon, the study points out that high and volatile LNG prices, exacerbated by geopolitical tensions, have dampened its prospects.
Data from Chinese customs reveals that imported LNG costs nearly three times more than domestically produced coal and is significantly pricier than pipeline gas imports from Russia and other Asian nations. Power generation from coal remains $30-$40 per megawatt-hour cheaper than from natural gas, further complicating LNG’s cost competitiveness.
Meanwhile, onshore wind and utility-scale solar have emerged as the most cost-effective power sources in China, priced roughly half as much as gas-fired electricity. In 2023, China added a record 301 gigawatts of renewable energy capacity, nearly 60% of the global total, underscoring its commitment to reducing fossil fuel dependency to below 20% by 2060, the target year for achieving net-zero emissions.
The Chinese government has prioritized domestic energy sources over imported LNG, with the National Development and Reform Commission advocating for intensified exploration and development of domestic petroleum and natural gas. Efforts to replace coal with natural gas are also being expanded.
Despite expectations of future LNG price reductions, IEEFA remains skeptical that prices will drop sufficiently to rival coal or renewables. “Claims about LNG as a ‘bridge fuel’ should be approached with caution by policymakers in both exporting and importing countries,” cautioned Sam Reynolds, lead researcher on LNG and gas at IEEFA Asia. He added, “China’s experience clearly indicates that LNG has played a limited role in displacing coal in its largest coal-consuming sectors.”