China's natural gas consumption created a record high of 235.2 billion cubic meters (bcm) last year, with an increase of 17% or 34 bcm from a year ago, said the country's largest oil and gas producer China National Petroleum Corp. (CNPC) in an annual development report for oil & gas sector.

The demand surge mainly came from China's ambitious "coal-to-gas" conversion reform in heating system that covered most regions in the north in order to tackle air pollution, said the report.

After Beijing, Tianjin and Hebei's Langfang and Baoding set "non-coal areas" in the downtown, 3.94 million of households have completed "coal-to-gas/electricity" heating system reform in 28 northern cities including these four, not mentioned to millions of homes in other cities.

The report estimated the urban natural gas burns for heating purpose reached 88.5 bcm, up 14.2% on the year prior.

Driven by price hikes of downstream products and stringent environmental requirements, the full-year natural gas consumption by industrial sector totaled 72.7 bcm, rising 20.2% from 2016, with 46.7 bcm used for power generation, up 22.9%.

Compared with the rapid-growing demand, the supply didn't keep up the pace, especially in December, the peak consumption time in the winter heating season.

Although China stepped up natural gas output to 147.4 bcm last year, up 8.5% from 2016, according to data from the National Bureau of Statistics, the country had to import a huge amount from other countries.  

The report estimated natural gas imports totaled 92.6 bcm in 2017, up 24.4% year on year, accounting for 39.4% of the total demand.

Aside from the more-than-expected gas usage for heating amid "coal-to-gas" conversion and rapid growing industrial demand, the report also attributed the country's gas reserving and scheduling capacity to the supply shortage in the winter.

By end-2017, China's underground natural gas reserves only made up 3.4% of the total demand, a far cry from 10-15% of other countries. Most cities hadn't yet set up gas storage facilities and needed to rely on dispatch from natural gas suppliers.

Meanwhile, an effective pricing system for peak shaving of gas supply is a must for improvement of gas supply capacity in the future as the current system can't present the peak shaving costs of underground and LNG tank storage.

The report said China's supply gap will remain in the next few years when all "coal-to-gas" projects are set to be completed as planned.

In 2018, China's natural gas demand is expected to reach 258.7 bcm, with a slower growth at 10% or so, said a researcher from CNPC. On the other hand, domestic output will grow to 160.6 bcm while imports will reach around 10.5 bcm, which is likely to make China go beyond Japan to be the No.1 gas importer in the world.

(Writing by Alex Guo  Editing by Harry Huo)
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