LNG Failing to Dent Coal’s Position in China’s Energy Mix

Many have touted the use of liquefied natural gas (LNG) as a way to reduce the use of coal to help decrease emissions. Below, we look at LNG’s role in reducing coal use in China, which is the biggest consumer of coal globally.

Generally, there is minimal evidence to support arguments that imports of liquefied natural gas into China will hugely impact coal usage in power generation. This is mainly because of the several reasons:

China mainly relies on domestically produced resources

Policies that were recently implemented to promote domestic production of natural gas were also geared toward limiting dependence on LNG imports. Currently, the east Asian country’s coal capacity additions are greater than gas-fired plants.

With the country’s national energy sector now focused on integrating variable renewable sources into the power mix, it’s going to be hard for LNG to pull through.

Growth of renewable energy generation

Over the last 10 years, the share of solar and wind in the country’s power mix has more than tripled. In the same period of time, the share of electricity fired by LNG has remained stagnant.

In figures, natural gas-fired generation rose by 140 terawatt-hours (TWh) while generation from solar and wind rose by 1250 TWh. While power generated from coal has risen 1700TWh in the same period, coal’s market share fell to 61% from 70%.

This proposes that while coal-fired power is still no. 1, solar and wind contribute more than LNG in decreasing the share of coal used in power generation.

No drop in coal consumption

While the People’s Republic of China is the biggest importer of LNG globally, the nation’s demand for coal has risen significantly higher than LNG imports annually since 2017.

Since 2015, LNG’s share in the power generation mix in the country has stagnated at 3%. This comes at a time when annual additions to coal-fired power capacity continue to exceed new LNG power plants.

LNG is too expensive

Last year, the average import price of LNG was almost three times the average cost of supplying coal in the east Asian country. While the price of LNG is expected to decrease in the future following a surge in added supply, prices aren’t expected to fall to levels that can compete with coal.

It doesn’t help that even outside power generation, LNG is struggling to compete with the consumption of coal in China. For instance, efforts to use gas heaters instead of coal-fired stoves may prove to be harder, particularly in the rural areas.

If China is taken as a case study on coal use, one can clearly see how entrenched coal use can be in different countries. As a result, coal companies such as Warrior Met Coal Inc. (NYSE: HCC) could have a considerable market to serve for years to come amid the push to transition to renewables.

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