11:52 13.12.2017

The Whole World Is Paying the Price for Cleaner Air in China

Source: Bloomberg
The Whole World Is Paying the Price for Cleaner Air in China
  • China’s anti-smog policies lifting global natural gas prices
  • Air quality in Beijing has improved by 41% so far this year

China’s war against smog is lifting prices for energy all over the world, according to analysts at Goldman Sachs Group Inc. and the International Energy Agency.

Policies promoting natural gas use have helped boost China’s consumption by 19 percent this year and raised it to the world’s second-biggest importer of liquefied shipments of the fuel, lifting prices for spot cargoes. Higher gas prices are boosting demand for coal, which has already seen prices rise because of separate Chinese policies restricting mine production, Goldman analysts including Christian Lelong said in a Dec. 12 research note.

Rising global energy prices are another ripple effect of China’s blue skies efforts, which have improved air quality in Beijing and other notoriously smoggy cities but also resulted in natural gas shortages in the country and a burgeoning heating crisis in some areas.

“China’s dash for gas may lead to further increases in global gas prices, either because the shortage of gas drives some Chinese consumers back to coal and exacerbates the tightness in that market, or because China ends up attracting LNG shipments that would have otherwise gone to other countries,” Lelong said. “This would leave China’s push for cleaner air as creating a cost to other global consumers, as gas typically sets the marginal cost of power.”

Spot LNG prices in Northeast Asia rose this week to $10.05 per million British thermal units, the highest level since January 2015, according to industry publication World Gas Intelligence. Newcastle coal futures on ICE Futures Europe are up 15 percent over this time last year, at $98.65 a ton.

Revising Forecasts

China’s rising demand means it will need by 2020 to import about 15 million tons of LNG more than the previous forecast of 61 million, Lelong said. U.S. LNG producers will be the primary beneficiary as they’re better positioned than European terminals to be the swing suppliers to Asia, and will have higher utilization because of the increased Chinese consumption.

Reducing the reliance on coal-powered energy is key to China’s push to reduce smog, which can be particularly bad in the north and northeast, home to the rustbelt and cities like Beijing and Tianjin. Goldman estimates that in Beijing the air quality has improved 41 percent relative to the historical trend. Implementation has been rocky, though, with gas shortages reported in several provinces.

How China’s Anti-Smog Push Left Citizens Freezing: QuickTake Q&A

“China’s coal-to-gas shortage has pumped up LNG spot prices to $10,” Yang Lei, a senior adviser to the International Energy Agency, said in a panel discussion in Beijing on Wednesday. “Basically, the whole world is paying for bluer skies in China.”

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