China's gas market grew strongly again in 2023. Consumption rose 7 per cent, or 2.6 billion cubic feet a day, after a small decline in 2022 when zero-COVID measures slowed the economy. Every sector used more gas. Residential and commercial demand rose 8 per cent, power sector demand 10 per cent. China also became the world's largest LNG importer again, taking 9.5 Bcf/d, 13 per cent more than a year earlier.
Beijing's response to that growth has been consistent for a decade: produce more at home to limit the share supplied by imports. The latest sign is technical. In 2023, China National Petroleum Corporation produced commercially viable gas from a shale formation deeper than 14,760 feet in the Sichuan Basin, the first time that formation has yielded gas at commercial rates. It is a real achievement. It also illustrates the limits of the domestic strategy.
The import share is the target
Domestic production supplied 58 per cent of China's gas in 2023, averaging 21.7 Bcf/d, up 6 per cent on 2022. Output has grown by more than 1.0 Bcf/d every year since 2017, mostly from conventional reservoirs and associated gas from oil production, with a rising contribution from tight gas, shale and coalbed methane.
Imports averaged 16.0 Bcf/d and supplied 42 per cent of the market, up from 15 per cent in 2010. That increase in import dependence over 13 years is what drives policy. Beijing has framed energy security in terms of limiting reliance on foreign supply, and gas, where import dependence has risen fastest, is a priority.
Imports arrive by pipeline, from Central Asia, Myanmar and Russia through Power of Siberia, and as LNG. In 2023 China's largest LNG suppliers were Australia, with 34 per cent, Qatar with 23 per cent, Russia with 11 per cent and Malaysia with 10 per cent.
Shale's contribution
China's shale gas output averaged 2.51 Bcf/d in 2023, up from 0.02 Bcf/d in 2013. That growth reflects better geological understanding and improved fracturing and automation techniques. But only two companies, CNPC and Sinopec, produce shale gas, mainly from the Silurian Longmaxi formation in the Sichuan Basin at an average depth of about 11,500 feet. Shale still accounts for a modest share of total production.
The deeper Low Cambrian discovery matters because it opens a new layer beneath existing fields. CNPC's Zi 201 well reached commercial flow rates from beyond 14,760 feet. If repeated, that would extend the resource base available to Chinese operators in the same basin.
Policy is supporting the effort. In 2018 the Ministry of Finance and the State Administration of Taxation cut the resource tax on shale gas from 6.0 per cent to 4.2 per cent, and the preferential rate was recently extended through December 2027.
Why shale will not change the picture
Three features of Chinese shale limit how far it can reduce import dependence.
The first is geology. Chinese shale formations are deeper, more faulted and more tectonically complex than the major US plays. Wells are more expensive to drill and production is less predictable. The fact that a 14,760-foot well is newsworthy tells its own story: in the United States, the Haynesville is produced from comparable depths, but the Marcellus is much shallower and cheaper.
The second is terrain and water. The Sichuan Basin is mountainous and densely populated, which complicates pad drilling, pipeline routing and water sourcing for hydraulic fracturing.
The third is market structure. US shale grew through thousands of independent operators competing for acreage and capital. Chinese shale is developed by two state companies. That allows coordinated investment but lacks the competitive pressure that drove rapid cost reduction in the United States.
So domestic shale will keep growing, but it is unlikely to grow fast enough to offset rising demand. Total domestic production growth of more than 1.0 Bcf/d a year is a strong performance. If demand grows by 2.6 Bcf/d a year, as it did in 2023, imports must make up the difference.
The demand side
The structure of demand growth matters for the import outlook. Residential and commercial consumption has almost tripled since 2014, from 3.6 Bcf/d to 9.3 Bcf/d in 2023, driven by coal-to-gas switching for heating in northern China and by connections of new urban customers. That demand is seasonal and relatively inflexible.
Power sector demand is more price-sensitive. When LNG is expensive, Chinese power companies burn more coal. When it is cheap, they burn more gas. The 10 per cent growth in power sector gas use in 2023 came as LNG prices fell from their 2022 peak.
That flexibility is one of China's strongest positions in the global gas market. Because it can switch between coal and gas in power generation, and because much of its LNG is contracted with destination flexibility, China can reduce spot purchases when prices spike and increase them when prices fall. That behaviour helped balance the global market in 2022, when Chinese buyers resold cargoes to Europe.
There is also a pricing reform dimension. Domestic gas prices in China are partly regulated, with city-gate prices set by the state and wholesale prices for industrial users increasingly linked to market conditions. When imported LNG costs more than regulated retail prices allow distributors to recover, someone absorbs the loss, often the national oil companies. Progress on passing import costs through to end users would strengthen price signals, encourage efficiency and make the economics of marginal domestic production, including deep shale, clearer.
Pipelines versus LNG
The other lever is pipeline supply. Power of Siberia from Russia is ramping up toward its full design capacity of 38 billion cubic metres a year, and Beijing and Moscow have discussed a second line, Power of Siberia 2, for years without final agreement on price. Central Asian pipeline supply is also expanding. Pipeline gas is typically cheaper than LNG and less exposed to maritime risk, but it concentrates dependence on a few suppliers.
What it adds up to
China's gas strategy is a portfolio: maximise domestic production, add pipeline imports, and use flexible LNG to balance. The deeper shale discovery strengthens the first element. It does not change the overall arithmetic, in which demand growth outpaces domestic supply growth and imports fill the gap. For LNG exporters, China will remain the largest and most price-responsive buyer in Asia for the rest of the decade.