China prioritizes gas infrastructure expansion in 2025 amid storage challenges

China will prioritize the expansion of natural gas pipeline and storage infrastructure in 2025 to enhance energy security as the country grapples with shortfalls in meeting its gas storage capacity targets, according to a draft economic plan released by the National Development and Reform Commission (NDRC) on March 5 during the annual Two Sessions.

The Two Sessions refer to the annual meetings of the main executive bodies -- China's National People's Congress and Chinese People's Political Consultative Conference -- and set the tone for economic goals for the year that in turn influence top-down policymaking.

The NDRC, as China's economic policymakers, emphasized that 2025 marks the final year of the country's 14th Five-Year Plan (2021-2025), making it crucial to balance development with security while building a modern industrial system.

While domestic gas production has already exceeded the 14th Five-Year Plan goal, storage capacity still lags far behind the target, raising concerns about supply stability during demand peaks or geopolitical disruptions, industrial sources said.

Under the 14th Five-Year Plan, China set an annual domestic gas production target of 230 Bcm and an integrated gas storage capacity of 55-60 Bcm.

By 2024, China's gas production had already reached 246.4 Bcm, exceeding the target, data from the National Bureau of Statistics (NBS) showed.

The country's gas production could rise to 259 Bcm in 2025, representing a 12.6% increase above the original goal, according to a forecast by the Economic and Technological Research Institute (ETRI).

However, China had only built some 26.7 Bcm of storage capacity by the end of 2024, falling significantly short of the 2025 goal, according to data from PetroChina.

Key initiatives

The NDRC's 2025 plan outlines several key initiatives that are involved with the gas industry, including pipeline network expansion, gas-fired peak-shaving power plant construction, optimization of pipeline network operation and dispatching mechanism, and improvement of the pricing mechanism of pipeline transportation.

The NDRC said it would accelerate the expansion of key gas pipeline networks such as the West-East Natural Gas Pipeline, the Sichuan-East Natural Gas Pipeline and the China-Russia Natural Gas Pipeline Eastern Route, which aims to improve cross-regional gas distribution.

In addition, the construction of flexible gas-fired power plants has also been included in the NDRC's plan, which aims to enhance grid stability amid increasing integration of renewable energy sources, addressing challenges related to the intermittency of wind and solar power.

The NDRC also aims to optimize pipeline operations and pricing mechanisms for pipeline transportation to enhance efficiency and promote fair competition.

It also emphasized its commitment to enhancing the security of energy resources, increasing domestic oil and gas exploration and development efforts, and ensuring the successful implementation of the "Seven-Year Action Plan."

This is a reference to a strategic initiative outlined by the National Energy Administration in 2019 aimed at boosting the country's energy security and promoting the development of its oil and gas resources.

These efforts align with China's broader push to build a "modern energy system" under the 14th Five-Year Plan, which emphasizes balancing growth with security during the green transition.

Challenges ahead

While China has successfully surpassed its domestic gas production targets, significant challenges remain in storage infrastructure, which pose risks to long-term energy security and power grid stability.

Current storage levels cover just 6.3% of annual gas consumption, which is substantially lower than the typical 15%-20% coverage seen in Europe and the US, raising alarms about supply stability during peak demand periods or geopolitical disruptions.

This shortfall is largely attributed to several challenges, including high investment and operational costs, a lack of profitable business models and technical barriers, according to industry sources.

The construction of storage facilities requires substantial upfront investment and lengthy timelines, with fiscal subsidies covering only about 7%-8% of total costs.

Additionally, the prices for gas sold from Chinese storage facilities are aligned with regulated pipeline gas prices, which are capped at low levels, hindering profitability for storage developers.

Moreover, identifying stable geological formations, such as salt caverns and depleted gas fields, for storage construction presents further challenges and delays the process, sources said.

PetroChina has acknowledged the significant pressure on the construction of gas storage capacity.

In October 2024, PetroChina said it would strive to operationalize 11 new gas storage facilities by the end of the 15th Five-Year Plan (2026-2030) to meet anticipated demand for gas storage capacity by 2040; however, specific details regarding the storage capacity were not disclosed.