Miss Yichi Zhang, University of Cambridge
Being the world second-largest economy as well as the second-largest consumer of hydrocarbons, China has seen its energy consumption grow dramatically over the last few years. Its natural gas demand has also become a major factor influencing future developments of the global gas market.
Despite this growing needs, China has limited conventional gas resources and thus the prospect of growing dependence on imported natural gas has become a major political concern for Chinese government. Research about China’s growing demand for natural gas becomes very relevant for China itself and other gas consumers who will be increasingly rely on LNG markets. In this research we will focus primarily on the following questions: will China be able to support its economy with secure and affordable natural gas in coming decades? If the answer is yes, what is the most cost effective way? Finally, what are implications of soaring gas demand for the rest of the world?
We consider four policy options for Chinese governments to feed its “gas-hungry” economy. The first option is to build new pipelines connecting China with Russia, Central Asia or Middle East. Another option is to extract offshore natural gas at South China Sea, where natural gas reserve is abundant but territory disputes are also heated. The third choice is to get shale gas out of the ground at home. The reserve of technically recoverable shale gas in China is recently reported to be one of the largest in the world and has no less quantity than the conventional gas. However, the development of China’s shale gas also faces such challenges as water scarcity, disparity of the shale gas reserves and environmental pollutions. The fourth choice is to invest in more Liquefied natural gas terminals to import gas from Australia or even USA. To assess these policy options from economic and social cost-benefit perspective, we extend the mathematical simulation model of natural gas market developed by (Chyong and Hobbs 2011) to include details of the Asia Pacific region. Preliminary results show that if global LNG markets become tight in the future then development of shale gas resources in China will have beneficial effects on its energy security and in Asia more broadly.
Categories: Academic PapersYichiZhang_The_Economics_of_LNG_Export_Contract_Flexibility.pdf 1.02 MB