LNG does not displace coal in China’s transition to renewable energy

June 25, 2024 (IEEFA Asia): : Liquefied natural gas (LNG) is often presented as a transition fuel that can help countries reduce their coal consumption as they transition to renewable energy. However, according to a recent report by the Institute for Energy Economics and Financial Analysis (IEEFA), evidence from China, the world’s largest coal consumer, indicates that LNG is unlikely to significantly displace coal-fired power.

“Policymakers in both LNG exporting and importing countries should view claims about the need for LNG as a ‘bridge fuel’ with a high degree of skepticism,” says Sam Reynolds, co-author of the report and head of LNG/Gas research at IEEFA Asia. “China’s case clearly shows that LNG has played a minimal role in displacing coal in the country’s largest coal sectors.”

Great photo

Arguments that LNG has supported China’s transition to clean energy ignore fundamental trends in the development of the country’s energy sector. China has favored domestic energy resources over imported LNG for energy security and cost incentives.

China’s rising LNG imports have not reduced or slowed the growth of China’s coal consumption. Since 2017, the demand for coal has increased every year more than the import of LNG.

In the energy sector, which accounts for 60% of China’s total coal consumption, the share of natural gas production has remained at just 3% since 2015. Meanwhile, the share of wind and solar generation has quadrupled to 16%. Although coal-fired electricity production increased during this time, its relative share of the energy market fell from 70% to 61%.

“While coal has not been displaced in absolute terms, wind and solar power have contributed more than gas to reducing the share of coal in the generation mix,” says Christopher Doleman, co-author of the report and LNG/gas specialist at IEEFA. “Looking ahead, annual capacity additions from coal, wind and solar will continue to exceed new capacity from gas plants.”

The issue of safety and energy costs

Chinese government policies strongly favor domestic energy sources, including coal, renewables and domestic natural gas, over imported fuels such as LNG. Recent policies aim to “tightly control” the transition from coal to gas and position coal, not gas, as the cornerstone of electrical reliability.

For example, China’s latest energy plans aim to retrofit 200 gigawatts of existing coal capacity to support the integration of variable solar and wind generation. Meanwhile, the country’s natural gas strategy ensures that imports will not rise above 50% of total gas consumption.

LNG is also too expensive to significantly replace coal. Data from Chinese customs authorities shows that the average cost of imported LNG is almost three times higher than the cost of domestically extracted coal and gas. It is also 37% to 61% more expensive than gas imported via pipelines from Russia and other Asian countries.

As a result, producing power from coal is typically $30 to $40 per megawatt hour cheaper than producing power from natural gas. Meanwhile, onshore wind and utility-scale solar are the cheapest energy sources, costing about half as much as generating power from gas-fired plants.

While LNG prices are expected to fall in the coming years, the IEEFA report says they are unlikely to fall to levels competitive with coal or renewables.

Sectors other than energy

China’s industrial sectors, mainly iron, steel and cement, account for 33% of the country’s coal consumption.

“However, China’s investment in coal-based iron and steel production capacity still far exceeds investment in natural gas-based processes, and full decarbonization will require alternative non-fossil fuels, not a transition from coal to gas,” co-author Ghee Peh says in the report energy finance specialist for IEEFA.

Efforts to replace coal stoves with gas heaters in urban areas have come to an end, and expanding them to rural areas will prove challenging. Other factors, including energy security and cost incentives, also greatly impede the transition from coal to gas.

In the long run, China’s non-fossil infrastructure investments will dwarf those in fossil energy. Replacing coal with clean renewable energy instead of imported LNG will likely enable China to reach its maximum carbon emissions by 2030 and become carbon neutral by 2060.

Read the report: LNG does not replace coal in China’s energy mix

Read the fact sheet: LNG is not a “bridge fuel” in China’s transition from coal to renewable energy sources

Author’s contact: Sam Reynolds ((email protected)), Christopher Doleman ((email protected))ANDII Ghee Peh ((email protected))

Contact with the media: AlexYu ((email protected))

About IEEFA: :

The Institute for Energy Economics and Financial Analysis (IEEFA) researches issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diversified, sustainable and profitable energy economy. (www.ieefa.org)