Beyond volume: China's gas and green power market enters a new phase

Gas: Slower Growth, Sharper Segmentation

Unlike coal and oil, gas is the only fossil fuel without a strict consumption limit. However, its growth has downshifted from the 12% gap-filling surge of the 13th Five-Year Plan, to 5.5% in the 14th and projected 3.5% annually through 2030, with 2026 itself dragged to roughly 1.5% by elevated spot prices. Beneath the slow number, the type of demand is also changing. Traditional industrial buyers like steel, paper and ceramics are using less gas, partly because of policies against overcapacity, while LNG heavy trucks and power-sector peak-shaving emerge as the new growth engines. Meanwhile, supply is moving toward a looser supply-demand balance.

By 2030, total supply is expected to reach roughly 510 bcm against consumption of 503 bcm, with LNG strategy shifting to "resource pool" management, diversified long-term contracts and large storage buffers allow flexibility in normal times and hedge against corridor disruption in a crisis.

It is not expensive gas that explains the import-retail price inversion seen in spring 2026 data, it is the price structure that cannot pass cost changes through to end users fully or promptly. Three problems stand out: hidden subsidies built into household gas prices, slow and rigid rules for adjusting prices with a 1-3 month lag during which importers and city-gas distributors absorb the cost and unclear rules on which costs count toward a price adjustment. Nevertheless, evidence shows the mechanism is starting to take effect unevenly. Towngas Smart Energy raised its residential pass-through to 90% and grew its profit margin, while China Resources Gas saw margins stabilize even as revenue and profit both fell.

Layered on top of the pricing problem are three physical bottlenecks. First, long-distance pipelines are now mostly open to all users, but at the provincial level the same company often still controls transport, sales and local supply all at once, which creates unclear rules on who gets pipeline space, especially during winter peak demand. Second, gas storage covers just 6.9% of yearly demand, far below the international standard of 15%, leaving the network with little buffer to fall back on beyond rationing by priority. Third, although data on transportation capacity is published, it often doesn't match what third parties can actually secure. Therefore, the real constraint isn't a lack of openness on paper, but a lack of predictability in practice.

Renewables: From Building Capacity to Proving Consumption
The renewables section marks the sharper inflection point. The rules of the game are shifting from policy incentive to regulatory mandate. By 2030, heavy industries like petrochemicals, chemicals, steel, and building materials will be required to source about 40% of their power from green electricity, verified through green certificates. Chemical companies could start being monitored on this as early as 2027-2028. This converts green power from an optional ESG gesture into a hard production-compliance obligation sitting on industrial balance sheets.

The more consequential shift is where profit is going. The era of earning by building generation assets like turbines and panels is framed as over. Value is moving to system balancing such as storage, smart dispatch, power-market trading and the management of green certificates. New-type storage alone is projected to draw roughly RMB 250 billion in direct investment between 2025 and 2027. That reallocation is corroborated by a striking data point: in April 2026, solar installations collapsed 79% year-on-year to just 9.52 GW, the weakest same-month figure in three years, with over a third of counties in Shandong and Henan already designated 'consumption red zones'.

In short, the problem is no longer making enough panels, it's whether the grid can actually absorb the power. For industries that cannot simply run on electricity, the report points to green hydrogen, ammonia, and methanol as the long-term answer, turning green power into a fuel that can be stored and transportable.

Two Fuels, One Underlying Question
Neither gas nor renewables is simply being asked to grow faster. Gas is being asked to prove its price signal can travel cleanly from import terminals to residential meters. Renewables are being asked to prove that the power they generate can actually be absorbed and sold, not just built. In both cases, the question has shifted away from aggregate volume growth and toward a narrower one, which specific link in the chain on whether pipeline access, price pass-through, storage capacity or grid interconnection, is being asked to absorb risk first and who is positioned to profit once that risk clears.

The above content is the major conclusions and highlights extracted from the 'China Natural Gas Market Under 15^th FYP: Diverging Demand Growth and Supply-Side Reforms Value Chain' section of the latest of the latest China (Energy Transition) Policy Perspective (produced by GL Consulting) report.

The full report examines how China's natural gas market is entering a new phase under the 15th Five-Year Plan, where demand growth is slowing and diverging even as supply-side reform accelerates. It highlights a broader shift from volume-driven expansion toward a market shaped by price reform, pipeline access and storage commercialization. The analysis focuses on the widening gap between residential and industrial gas demand, key underlying problem holding back gas price reform and where new opportunities are emerging across upstream production, LNG resource-pooling and provincial network integration.

For the full report, please contact glconsulting@mysteel.com.