China Makes Large Natural Gas Discovery

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China National Petroleum Corporation (CNPC) announced the discovery of a large natural gas field in Sichuan province. The reserve, discovered by CNPC's subsidiary PetroChina, could hold 440 billion cubic meters (bcm) of natural gas, 308 bcm of which is technically recoverable. That is equivalent to enough natural gas to fuel the entire Chinese economy for two years.

The discovery comes at a fortunate time for the Chinese government, which is desperately trying to find a solution to fix the nation's horrendous air pollution. The government has sought to displace many of its coal-fired power plants with natural gas to cut down on smog, but has had to import much of the natural gas needed. Already the fourth largest consumer of natural gas in the world, China hopes to lean on gas further.

PetroChina is already producing 1.1 million cubic meters from a test well at its new discovery, but hopes to quickly ramp up production. Its phase 1 calls for 4 bcm per year, followed by Phase 2 development which will increase production to 6 bcm per year. CNPC published a report on its web site and firmly stated that the discovery is "set to provide abundant gas resources to the national gas grids."

PetroChina's discovery and development, if successful, could displace some volume of LNG imports that have been expected to increase in the coming years. Out of a total annual consumption of 169 bcm, China imported 53 bcm in 2013, or 32%. While far from certain, achieving 10 bcm of natural gas production from its Sichuan find will obviate the need for some of those imports. It will also cut out some coal-fired power plants, according to the central government's plan, with knock on effects in the international coal market.

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