China Natural Gas Market - Strategic Insights and Forecasts (2026-2031)

The China Natural Gas Market is projected to register a strong CAGR during the forecast period (2026-2031).

Due to repeated droughts affecting the amount of hydropower that can be produced, there will be a growing need for new gas-fired combined cycle plants to provide much-needed firming of the grid. The use of natural gas by industry is going through evolutionary change as industrial manufacturing clusters in Catalonia and Valencia begin utilising interchangeable hydrogen blends within the eventually imposed EU carbon regulations. The CNMC has begun to deliver more regulatory influence over the unbundling of hydrogen transport, and has appointed Enagás to be the interim operator of the National Hydrogen Network. As a result of these and other factors, the Spanish gas market will grow in strategic importance as a primary source of re-exported gas and hydrogen to the rest of the European Union using the Pyrenees interconnectors.

China Natural Gas Market Key Highlights

• China’s LNG imports declined by around 25% y-o-y in Q1 2025, their steepest decline since the 2022 global gas crisis. This highlights the growing balancing role of China in the global gas market, supported by its gas-to-coal switching capability and flexibility options embedded in its vast portfolio of long-term LNG contracts

• China is strengthening energy security through expanded pipeline networks from Russia and Central Asia, alongside LNG terminal development led by national oil companies, enhancing flexibility in supply sourcing and seasonal balancing.

Market Dynamics

Market Drivers

The continued direction provided by the National Development and Reform Commission (NDRC) to convert from coal to natural gas in various heavy industrial applications continues. Industrial facilities account for more than 40% of the total use of natural gas within China and include steel making, cement production, and chemicals, all of which are expected to support continued stable demand for natural gas, which bodes well for overall future baseline usage by China’s high concentration manufacturing hubs.

The continued expansion of urban gas distribution systems is developing under China’s urban development policy. In urban centres classified as Tier 1, the penetration of gas into households has now reached an average penetration and thus provides increased volumes to the residential and commercial markets and will support further utilisation of China’s interstate gas pipeline infrastructure.

Market Restraints and Opportunities

• China’s natural gas demand declined by around 2% year-on-year during Nov 2024–Feb 2025, driven by milder winter conditions in northern regions, weaker macroeconomic activity, and elevated LNG spot prices. This combination temporarily reduced incremental gas consumption across industrial and heating-linked demand centres.

• Shenyang’s industrial corridor, supported by state-owned manufacturing and equipment clusters, continues transitioning from coal-based fuel systems to natural gas under national clean air and emissions reduction directives. This creates incremental demand growth potential, especially in metallurgy, machinery production, and urban district heating conversion projects.

Supply Chain Analysis

The Chinese natural gas supply chain includes coordinated domestic production, pipeline imports from Russia and Central Asia and LNG imports (all regulated by state planning authorities) and has experienced a demand decline of ~2% in winter seasons since 2025 due to relatively low temperatures and an economic downturn, resulting in limited LNG absorption capability. Geopolitical disruptions related to US-Iran-Middle East tension and US Trade positioning have introduced significant uncertainty associated with LNG transportation. In addition, these geopolitical tensions are impacting Asian cargo diversion, pricing volatility and short-term procurement activities.

Government Regulations

Key Developments

• November 2025: CNPC signed multiple long-term natural gas sales agreements with global partners, including Saudi Aramco, TotalEnergies, and GS Caltex, strengthening its LNG procurement and trading portfolio through coordinated supply contracts.

• December 2025: PetroChina completed the acquisition of Xinjiang Gas Storage, strengthening its underground gas storage portfolio. Post-transaction, Xinjiang Gas Storage is fully owned by PetroChina Xinjiang Gas Storage, with ownership structured through Taihu Investment (51%) and Grid Energy Storage (49%), reinforcing strategic control over gas storage infrastructure and seasonal supply balancing capacity.

Market Segmentation

By Method

China has relied upon vertical drilling techniques in conventional basins like the Ordos and the Sichuan basins to provide the base supply of natural gas. With the use of horizontal drilling techniques in tight and shale formations, Natural gas recovery will be maximised through improved recovery efficiencies. Due to geological/environmental constraints, hydraulic fracturing is used sparingly, thereby inhibiting large-scale eventualities under the oversight of national regulatory agencies when used.

By Location

The majority of the natural gas produced in China is located in onshore basins such as the Sichuan, the Ordos, and the Tarim basins, all supplying the majority of China's domestic demand for natural gas. Some additional supplies are gained through offshore production from the South China Sea (primarily by CNOOC) as well as imports from Russia and Central Asia through western pipeline corridors. The integration of all supply options (foreign and domestic) through centralised infrastructure planning continues to strengthen supply connectivity throughout the nation.

By Application

The primary source of demand for natural gas in China has been the industrial sector, with chemical and steel production and refining being the leaders in industrial consumption as a result of coal-to-gas switching policies. In urban clusters, city gas provides the fuel needed to support residential/commercial growth. Power generation supports increased demand at peak usage periods by acting as a balancing fuel, and LNG transportation has been a steadily growing, albeit small, segment of the overall natural gas market.

List of Companies

CNPC

CNPC strengthened its gas portfolio in 2025 by advancing large-scale upstream and pipeline integration projects, including expansion of cross-border gas flows from Central Asia and Russia through state-approved pipelines. The company also reported record-high operating performance under its 2025 results, reinforcing its role as the backbone of China’s domestic gas supply and transmission system.

CNOOC

CNOOC expanded its LNG and offshore gas positioning in 2025 through equity participation in sanctioned Arctic LNG projects and continued strengthening of South China Sea output. The company remains a key importer of LNG cargoes into southern terminals, ensuring flexible supply access and enhancing China’s coastal gas distribution reliability.

PetroChina

PetroChina Company Limited is Asia's largest oil and gas producer and the listed arm of the state-owned China National Petroleum Corporation (CNPC). In accordance with IFRS, the Company recorded revenue of RMB 753.11 billion in the first quarter of 2025. Net profit attributable to owners of the Company grew by 2.3%year-on-year to RMB 46.81 billion. In the first quarter of 2025, the Company’s oil and gas output grew by 0.7% year-on-year to 467 million BOE, of which the domestic oil and gas output grew by 1.2% year-on-year to 418 million BOE.

Analyst View

China’s natural gas market shows structurally steady growth driven by policy-led coal substitution and expanding industrial demand, while imports balance seasonal variability. Regulatory tightening via carbon markets supports gas switching, but demand remains sensitive to macro conditions and LNG pricing, with storage expansion improving winter supply resilience.

China Natural Gas Market Scope: