Key factors affecting Chinas changing demand for liquefied natural gas

China’s energy policy aims to reduce both energy intensity and coal dependency through greater use of cleaner fuels such as gas and renewable energy. The goal is to achieve strong economic growth with lower carbon dioxide (CO2) intensity. Achieving such an outcome ultimately involves trade-offs and challenges for policy makers. Natural gas combustion has a lower CO2 intensity than other fossil fuels and, therefore, is likely to play an important role in an economy’s transition to lower CO2 emissions. China is likely to be a major source of future growth in LNG demand in the world. Three key initiatives that are likely to affect natural gas demand and LNG imports include policies aimed at transitioning the economy towards consumption-led growth, improving air quality and reducing greenhouse gas emissions, and increasing the production and use of unconventional gas. This study investigates the role of natural gas, and liquefied natural gas (LNG) in particular, as an energy source in China’s economy, and the effects various policies may have on its supply and use from 2015 to 2030. Using a dynamic general equilibrium model, this study explores key aspects of China’s future demand for energy (particularly from LNG) under three distinct policy scenarios relating to the transition of its economy, coal consumption and indigenous gas production. A composite policy scenario integrates the three specific policy scenarios to help understand the extent to which the policies strike a balance among minimising the economic cost of energy consumption, minimising carbon emissions and maximising energy security.