Will China's “dash for gas” halt in the future?

The consumption of natural gas in China increased by only 5.7 percent in 2015, a sharp drop from the previous year. This has resulted in aggressive restrictions on production and resale of long-term contracts. The question is: What will the supply of and demand for natural gas look like in China in the future? We estimate China's future natural gas demand based on unique panel data, and then investigate supply capacity through domestic production and international imports. Our analysis of supply and demand reveals that supply would be very likely to exceed demand in China in the future if there were no significant policy shocks. This is driven by the fact that the industrial sectors that consume natural gas the most grow much slower compared to earlier years. Possible policy shocks include price cut and encouraging the use of gas as a replacement for coal to reduce environmental woes. We also suggest that the plan for adding more supply capacity should base on a demand estimation that considers future economic growth, industrial structural shifts and environmental policy development.