Key Findings
In China, LNG will play a minimal role in supporting the clean energy transition in the largest coal-consuming sectors. The growth of renewables generation, rather than gas or LNG, has eroded the share of coal generation in the country’s power mix.
Over the past decade, the share of gas-fired electricity in China’s power mix has remained at just 3%, while the share of wind and solar has quadrupled to 16%. The growth of renewables has contributed more than gas to a reduction in coal’s market share from 70% to 61%.
China is relying on domestically produced resources for energy security and reliability. Recent policies aim to control coal-to-gas switching while setting limits on LNG imports.
LNG is too expensive to meaningfully replace coal in power generation. Coal-generated power is US$30-40 per megawatt-hour cheaper than natural gas, while onshore wind and solar are the cheapest power sources. Falling costs for renewables and storage technologies pose the biggest risk to gas-fired generation.
Executive Summary
One of the most common arguments to justify investments in liquefied natural gas (LNG) infrastructure and promote consumption globally is that LNG provides a “bridge” to clean energy by displacing carbon-intensive coal usage. Proponents often point to China — the world’s largest coal consumer and LNG importer — as a key example of where LNG can supplant coal-fired generation, while life-cycle assessments associated with natural gas and LNG typically focus on coal displacement in the power sector.
This report examines claims about the role of LNG in displacing coal in China’s power mix — the country’s largest coal-consuming sector — by focusing on national energy sector developments over the past decade. It finds little evidence to support arguments that LNG imports to China will meaningfully displace coal usage in the country’s power mix due to the following reasons:
1. Rising LNG imports to China over the last decade have not reduced or slowed the country’s coal consumption.
Although China is the world’s largest LNG importer, the country’s coal demand has increased more than LNG imports every year since 2017. Claims about the role of LNG in displacing coal usage appear to be based on hypothetical arguments that coal generation would be even higher without gas-fired power. Yet, the share of natural gas in the country’s power generation mix has remained at just 3% since 2015, while annual coal-fired power capacity additions continue to surpass new gas-fired power plants.
2. The growth of renewables generation, not gas or LNG-fired power, has eroded the share of coal generation in China’s power mix.
As the share of gas-fired electricity has remained flat, the share of wind and solar in China’s power mix has quadrupled over the past decade. In absolute terms, generation from wind and solar has increased by 1,250 terawatt-hours (TWh) since 2015, while natural gas-fired generation has increased by just 140TWh. Although coal generation has increased 1,700TWh over the same timeframe, its market share has fallen from 70% to 61%. This suggests that although coal-fired power is not being displaced in absolute terms, wind and solar contribute more than gas to reducing coal’s share in the generation mix.
3. China relies on domestically produced resources, rather than LNG, for energy security and reliability.
Recent policies aim to “strictly control” coal-to-gas switching and promote domestic production of coal and natural gas, while setting limits on LNG import dependence. As a result, coal capacity additions have far outpaced additions of gas-fired power plants, and both are dwarfed by wind and solar installations. National energy sector development plans have called for coal plants to provide flexible operations to integrate variable renewables sources.
4. On a cost basis, LNG is too expensive to materially displace coal in power generation.
In 2023, the average LNG import price was nearly three times the average cost of coal supply in China. Although LNG prices are expected to decrease in the coming years due to a surge in new supply, prices are unlikely to fall to levels that are competitive with coal. Power generated from coal in China has tended to be US$30-40 per megawatt-hour cheaper than from natural gas. Meanwhile, onshore wind and solar are the country’s cheapest sources of power. Falling costs for renewables and storage technologies pose the biggest risk to gas-fired generation.
LNG is doing little to displace coal consumption even outside China’s power sector. Chinese investments in coal-based iron and steelmaking capacity still far exceed natural gas-based processes, and full decarbonization will require non-fossil fuel alternatives rather than a shift from coal to gas. In urban areas, efforts to replace coal-fired stoves with gas heaters have been reasonably successful but have largely run their course, and extending these efforts into rural areas will prove challenging. Other policy factors weigh heavily against widescale coal-to-gas switching, including the perceived energy security and cost benefits of domestically sourced coal, as well as recent achievement of urban air quality targets that have reduced the air quality arguments for curbing coal use.
Ultimately, policymakers in both LNG exporting and importing countries should approach industry arguments about the necessity of LNG as a “bridge fuel” from coal to renewables with skepticism. Evidence from China — touted by the industry as a key market for LNG displacement of coal — shows that LNG is expected to play a minimal role in supporting the clean energy transition in the country’s largest coal-consuming sectors.
The fact sheet of this report is available here.
CORRECTION: This report was amended on 7 October 2024 in P.7 (Figure 1) and P.20 (Figure 10). We regret the errors.
