National University of Singapore Energy Studies Unit senior principal research fellow Philip Andrews-Speed believes China's energy sector urgently needs reform, but it is unlikely to happen anytime soon.

"Not since about 1990, after the Tiananmen Square incident, have we been in a period of such change, uncertainty and contradiction in China," Andrews-Speed told last month's Energy in Western Australia conference in Perth.

President Xi Jinping has successfully purged his opponents and brought the Communist Party deeper into government, he said.

"Whether you're in a state company … or in … government there is a sort of paralysis at the moment because everybody is frightened of doing anything radical in case they end up on the wrong side of the fence."

Andrews-Speed believes anyone engaging with China must be aware that while the nation's political and economic elites are debating the way forward, "in the meantime, not much is happening".

The Chinese energy mix

China's total primary energy has soared for over a decade, but that growth is tapering off and is now increasing by 1.5% per year, although that increase is equal to the total annual energy consumption of the Philippines or double that of New Zealand.

China's primary energy mix, in descending size, consists of coal, oil, renewable electricity and natural gas.

Coal dominates, with a 64% share, but consumption is declining, although the decline may not continue with 200 giawatts of coal-fired power stations under construction.

Andrews-Speeds expects oil consumption to continue to increase due to its use as a transportation fuel.

The short-term outlook for renewable electricity is uncertain as it battles coal-fired power.

"In some localities, renewable electricity is getting turned off for local political reasons in order to favour coal-fired power," he said.

At the bottom of the mix is natural gas, supplying just 6% of China's energy consumption.

Part of the reason for low gas usage is it plays a small part in generating China's electricity.

Power generation is dominated by coal; hydroelectricity is significant; with wind, nuclear and gas having only a few percent each.

The residential and industrial sectors consume the most gas, followed by power and then transportation.

How much LNG China needs to import will depend on gas demand, domestic production and growth in imports by pipeline.

Need

The future outlook for gas is unclear, according to Andrews-Speed.

Consumption will grow, domestic production will probably grow, but beyond that all depends on government policy, and that is "entirely unpredictable", he said.

"The lesson from this is don't believe anybody because they will be wrong, but that doesn't mean you don't watch this space," he added.

On the demand side, the size and nature of economic growth will drive energy demand.

"Is it going to grow naturally out of its current state of relatively low growth? Is it going to be driven by the service sector which is what the government wants or heavy industry?" he pondered.

Domestic gas pricing policy will affect how much of this demand is met by gas.

Andrews-Speed said the government must balance providing incentives for domestic production with keeping the price low enough to encourage the use of gas.

Environmental policy is also an area to watch for those interested in likely LNG demand from China.

Beijing is trying to close down coal power plants and mines with administrative measures while promoting gas and renewable electricity.

"On the ground that isn't working as effectively as the central government would like," he said.

Andrews-Speed does not believe that a carbon market would be more effective than the current administrative measures.

"I am a deep sceptic … because the main producers and users of energy are partly or wholly state-owned ... companies this is just another political, economic game to play," he said.

If there was an effective carbon market Andrews-Speed believes coal would be priced out of the market.

"But as we know from Europe carbon markets never work as you want them to," he said.

Where will the gas come from?

Until 2006 China's domestic gas production was sufficient for its needs. In that year LNG imports started, with pipeline gas following in 2010.

"In the last two to three years … LNG imports have flattened off as pipelines have come on stream, mainly from Central Asia but also from Myanmar, and potentially in the future from Russia," Andrews-Speed said.

"There is no cheap gas in China, even the conventional gas is not cheap, and even if it is moderately cheap it is miles away in … the far north-west. So some of the LNG you are delivering is cheaper than domestic gas and certainly cheaper than Central Asian gas."

Andrews-Speed sees difficulties for China trying to increase unconventional gas production.

"The geology is not as good as the USA, the rocks are deeper, and they are more highly fractured and unpredictable," he said.

China's two national oil companies own most the unconventional acreage and have little incentive to produce more expensive unconventional gas instead of cheaper conventional gas. This is despite subsidies that ensure shale gas production receives a higher price that conventional gas.

"They are only doing it because they have been told get on and do it," Andrews-Speed said.

He said the government was encouraging companies other than the national oil company to produce shale gas however progress is being held back by the lack of enforced third party access to gas pipelines.

To supplement domestic production more pipelines may be built from Central Asia and Russia. However, Andrews-Speed notes that the Russian pipeline was being talked about when he worked for BP in 1993.