The only way is up

China’s oil and gas consumption is only increasing, despite the downturn caused by the COVID-19 pandemic. Dr Hooman Peimani looks at the reasons why, and provides an overview of the country’s major pipeline projects.

As a major exception to the rule, China imported and consumed oil and gas in 2020 at a scale larger than the previous year, despite the COVID-19 pandemic pushing just about all the developed and developing countries into a recession. While these countries, particularly the large economies of Asia (e.g. India, Japan and South Korea), Europe (e.g. UK, France and Italy) and the Americas (e.g. Brazil, Canada and USA), experienced substantial contractions of their economies – lasting up to this date due to the extensive and long-lasting lockdowns to contain the pandemic – China began its economic recovery in 2Q20 through stringent measures. They helped it prevent the expansion of the pandemic from its few affected locations to the entire country, and, as a result, China experienced the revival of its industrial activities and exports while restoring pre-pandemic social activities by the end of 2020.

The return to economic and social normalcy in China, except for a few patches of pandemic surge, increased energy consumption in the country to surpass its consumption in the previous year. The expansion of public and private industrial activities, a harsh winter and the record low oil and gas prices boosted their imports as additional factors.

Hence, according to China’s General Administration of Customs’ data released in March 2021 (reported by Reuters), the country’s imports of crude oil increased by 7.3% in 2020 compared to its previous year’s imports in spite of the ongoing pandemic “with record arrivals in the second and third quarters”. China’s imports of 542.37 million t of crude oil, equal to average daily imports of 10.85 million bpd, reflected this development. Reported by the same source, its total imports of gas (piped and LNG) amounted to 101.66 million t in 2020, registering an increase of 5.3%

over the year before. That included the “record” import of 11.23 million t in December 2020.

For certain reasons, China’s oil and gas consumption will increase in the foreseeable future despite its impressive achievements in increasing the share of renewable, including hydro, and nuclear energy in its energy mix. As reported by BP (2020), their respective productions in 2019 (the latest year on which statistics were available for this report) were 17.95 exajoules and 3.11 exajoules when China’s total annual energy consumption was 141.7 exajoules. Hence their combined share of the total energy mix was 14.86%, as calculated by this author.

Ironically, China’s systematic efforts to decrease its CO2 emissions for environmental purposes, particularly cleaning the highly polluted air of the urban areas, has phenomenally increased its natural gas consumption used as a cleaner alternative to coal for power generation. For the same reason, such fuel has also been replacing coal to meet the urban areas’ energy needs, such as heating.

According to China’s National Bureau of Statistics’ data reported by Reuters, the “proportion of urban residents with some form of access to piped gas hit 44% in 2018, up from just 14% in 2006.” This drastic jump reflected the respective increase in the number of urban residents with access to natural gas to “almost 370 million” from 83 million. Hence, reportedly, the annual compound average rate of growth for such residential increase in gas consumption was 13% in the period 2006 to 2018, translated into the annual compound average growth rate of 14% for the country’s gas consumption factored by large gas consumption for power generation.

Consequently, China’s annual gas consumption increased to 280 billion m3 in 2018 when its domestic gas production reached to 160 billion m3, thanks to its success in raising such production. The considerable gap between gas consumption and domestic production has since widened, as reflected in their respective figures (307.3 billion m3; 177.6 billion m3, BP 2020) in 2019, the latest available statistics.

Despite China’s determination to replace fossil energy as the main source of greenhouse gas emissions with nuclear and non-pollutive renewable (mainly hydro, solar and wind) energy to deal with worsening climate change and the adverse impact of such emissions on its population’s health, there is no evidence that this will lead to a drastic decrease in its oil and gas consumption in the near future.

The reason is multi-fold, including the limits to the expansion of hydro energy in China, which – as is the case elsewhere – is the only practically available renewable technology for largescale power generation, given the limits to the use of rivers as hydro dams feedstocks’ providers. Intermittency of wind and solar energy as power-generating sources is another major factor, which cannot be addressed solely with advancements in lithium batteries. Their charging to ensure continuous power availability when wind and sunshine are unavailable at all or at the required scales deprives the respective wind and solar farms’ communities of a significant amount of the generated power when such sources of energy are available. The resulting gap must be filled with coal and gas-fired power generators as the only available option for continuous power generation.

Hence, generating enough power to meet the current need can only be achieved with a phenomenal expansion of nuclear energy as a source of continuous large-scale power generation. This is not happening now and will not likely happen in the near future, notwithstanding China’s rapid and massive expansion of its nuclear energy sector. Such expansion is demonstrated in China’s large number of operational (50 units; 48 498 MW capacity) under-construction (19 units; 19 860 MW capacity) and planned (37 units; 41 660 MW capacity) nuclear power reactors, as reported by the World Nuclear Association, securing it the world’s first rank as the hub of nuclear energy expansion.

In fact, China’s massive investment in electric vehicles to reduce its urban pollutions caused by the ever expanding number of internal-combustion-engine vehicles on its roads will only phenomenally increase its power demand. The reason lies in their highly energy-intensive production process and their requiring a phenomenal amount of electricity to power them. This demand will have to be met by renewable energy and/or nuclear energy to prevent the inevitable increase in demand for fossil-fired power generation to betray the whole purpose.

The current mismatch between the amount of power which the renewable and nuclear energy can generate, and the existing power demand has prolonged the fossil-fired power generators’ lives, coal-fired and gas-fired ones alike. The latter are expanding as a cleaner type of generator compared to coal-fired ones, which still dominate China’s power sector. This is clearly evident in coal’s largest share of China’s power mix in 2019, 64.68% (4853.7 terawatt-hours) when the shares of hydro and other renewable energy were 16.92% (1296.7 terawattshours) and 9.75% (732.3 terawatts-hours), respectively, according to BP. Gas’s share of 3.14% (236.5 terawatts-hours) completed fossil fuel domination of China’s power mix in 2019 and lasted to this year, only to continue in the predictable future.

The large deference between consumption and production of gas and oil, thanks to the rapid expansion of vehicle ownership in China, has since justified sizable and growing imports of gas (piped and LNG) and crude oil to predictably continue in the next two or three decades. No wonder, if China’s carbon neutral objective was set for 2060 during President Xi Jinping’s video address to the UN General Assembly on 23 September 2020, when he announced his country’s aim to peak carbon emissions by 2030.

Briefly, in absence of adequate domestic production, the large and expanding oil and gas requirements will ensure large imports of such types of energy in the foreseeable future to ensure their respective pipeline activities in China.

LNG imports aside, China currently imports piped gas from Central Asia via the Central Asian gas pipeline system’s Lines A and B (each 1830 km; 42 in.) with the total capacity of 30 billion m3/y completed in December 2009 and October 2010, respectively, and line C (1830 km; 48 in.; 25 billion m3/y), which became operational in 2014. Through the system’s currently realised total capacity of 55 billion m3/y, Turkmenistan and, to a lesser extent, Uzbekistan and Kazakhstan supply China with gas. Its Line D construction (about 1000 km) started in 2014 to add 30 billion m3/y to the system’s capacity, only to be

stopped in 2017 due to China’s lack of need for the latter and restarted in 2018. Its completion date is currently unknown.

Russia has been supplying gas to China since December 2019 through the East Route gas pipeline (38 billion m3/y). The two sides negotiations for a second pipeline (West Route, 30 billion m3/y) are yet to bear fruit. Myanmar is another gas supplier via the China-Myanmar gas pipeline also known as the Kyaukpyu-Nanking gas pipeline (1727 km, 40in., 12 billion m3). Being operational since 2013, the pipeline is yet to achieve its nominal capacity as its average annual throughput has fluctuated around 6 billion m3 .

Added to sea tanker-based oil imports from a host of countries in Asia, Africa and Latin America (e.g., Iran, Nigeria and Venezuela), China has imported piped crude oil from Kazakhstan through the Kazakhstan-China oil pipeline (2789 km, 32 in., 400 000 bpd), Russia via the two spurs of its East Siberia Pacific Ocean oil pipeline (4857 km; 48 in.; 30 metric t/y), namely the Skovorodino-Daqing pipeline since 2011 (1030 km; 26 in., 300,000 bpd) and the MoheDaqing pipeline since 2018 (932.1 km; 32 in., 300 000 bpd) and Myanmar via the China-Myanmar oil pipeline also known as the Kyaukpyu-Kunming pipeline (2371 or 2401.5 km; 440 000 bpd) since 2017.

Against this background, China’s major pipeline projects are discussed below.

Southern section (East Route gas pipeline) Construction on the southern section of the East Route gas pipeline system (ERGS) on its Chinese section began in January, as reported by Xinhua. Going online on 2 December 2019, Russia has since supplied China through the ERGS with Russian gas (38 billion m3/y) to last for 30 years, as part of the world’s single largest energy deal (US$400 billion) made between Gazprom and CNPC in 2014. The ERGS consists of a Russian system (Power of Siberia, 3000 km, 1420 mm, 38 billion m3/y), which passes through the Irkutsk and Amur Regions and the Republic of Sakha (Yakutia) to supply gas from the Chayandinskoye field in the Yakutia gas production centre to the consumers in Russia’s Far East and to China. According to Gazprom, the three-line system is currently under extension to have another feeding line (803 km) scheduled for completion in late 2022 to link the Kovyktinskoye field in the Irkutsk gas production centre to the Chayandinskoye field, which currently feeds the system.

Having northern, southern and middle sections, the ERGS’s Chinese system combines building a 3170 km pipeline and using an existing 1800 km pipeline passing through six Chinese provinces (Heilongjiang, Jilin, Liaoning, Hebei, Shandong and Jiangsu), the Inner Mongolia Autonomous Region, Tianjin and Shanghai. Its northern and middle sections went online in 2019 and 2020, respectively.

Being under construction since January, the southern section (1509 km) will feed Shanghai with Russian gas by connecting Yongqing county in Hebei province to Shanghai passing through Shandong and Jiangsu provinces, according to the China Oil & Gas Piping Network Corporation also known as PipeChina. Planned to go online in 2025, its reported daily capacity will be 50 million m3 .

On May 18 2021, work began on a major tunnel of the southern section beneath the Yangtze River in east China’s Jiangsu Province.

Tianjin-Hebei gas pipeline PipeChina is constructing the Tianjin-Hebei gas pipeline. Valued at US$1.3 billion, the trunk line, whose construction started in October 2020, will connect a gas import terminal in Tianjin to Xiongan near Beijing once it is completed, according to Reuters. The pipeline (413.5 km; 43.5 in.) will have the annual capacity of 6.6 billion m3 once it is operational. Reportedly, the undertaker plans to connect the pipeline to other pipelines, including the Shaanjing pipelines designed to carry Chinese gas from its northwest fields to Beijing, as well as Russian gas from the Power of Siberia feeding the ERGS.

East African crude oil pipeline project Apart from being a major east African project, the East African crude oil pipeline project (EACOP) is noteworthy for its serving as an indictor of China’s expanding clout in Africa and its repositioning itself as a rising superpower with claims to many regions of the world far away from its mainland.

Thus, two east African countries of Uganda and Tanzania signed an agreement with French Total and Chinese CNOOC on 11 April for the construction of a major oil pipeline to export crude oil from landlocked Uganda to international markets through western Uganda’s Indian Ocean Tanga Port, as reported by Reuters. The EACOP’s shareholders are Uganda National Oil Company (UNOC) and Tanzania Petroleum Development Corporation (TPDC), added to Total and CNOOC, whose exact shares are currently unknown.

Ugandan President Yoweri Museveni and Tanzanian President Samia Suluhu Hassan attended the signing of the agreement consisting of three accords, namely a host government agreement for the pipeline, a tariff and transportation agreement and a shareholding agreement.

In May, Tanzania signed a Host Government Agreement (HGA) with the Total-led joint venture to build the pipeline as part of the US$3.5 billion Lake Albert resources development project in Uganda and Tanzania, including Tilenga and Kingfisher upstream oil projects in Uganda and the construction of the EACOP in Uganda and Tanzania. The HGA reportedly provides for the legal and commercial framework for the financing, construction and operation of the pipeline project.

Connecting the yet-to-be built Kabaale Industrial Park in Uganda’s Hoima district to Tanzania’s Chongoleani peninsula near Tanga Port, the 1445 km pipeline (216 000 bpd) will enable Uganda to pursue an export-led posture towards the development of its oil reserves estimated at 6 billion bbls, discovered in 2006 in the Albertine rift basin of its western part near the country’s border with the Democratic Republic of Congo. Tanzania’s Tanga Port will enable Uganda to access the international markets by sea tankers.

Reportedly, the project has become controversial due to the opposition of environmentalists for its alleged threat to the ecologically sensitive areas along its route. This has promoted 263 NGOs from different countries to urge 25 potential funding banks not to fund the project.