China is building the world's only large-scale coal-to-gas (CTG) industry as a strategic buffer against supply shocks and geopolitical tensions, with capacity on track to nearly triple by the end of the decade, according to a new analysis by Rystad Energy. Rystad Energy estimates China's CTG capacity is set to reach 9.4 billion cubic meters (Bcm) per year by end-2026, expanding to 28 Bcm per year by 2030 — the equivalent of more than four times Austria's entire coal-produced annual gas demand. No other country has developed synthetic gas from coal at any meaningful scale, making China's program a unique industrial undertaking on the global energy landscape.
China's 15th Five-Year Plan, covering 2026 to 2030, strengthens CTG's role in the country's domestic supply architecture, signaling a decisive shift from policy consideration to active execution. According to Wei Xiong, Vice President of Gas and LNG Markets at Rystad Energy, the program is a direct expression of Beijing's energy security doctrine. "In a world where LNG supply chains and pipeline routes are increasingly affected by geopolitics, China is investing in molecules it can produce, store and move without reference to any foreign supplier," Xiong said.
Xinjiang province has emerged as the undisputed hub for CTG expansion, driven by mine-mouth coal prices that averaged just 214 yuan, or approximately $30 per tonne, between April 2025 and May 2026 — less than 40% of the equivalent price in Inner Mongolia. This cost advantage translates directly into competitive delivered gas prices: Xinjiang CTG reaches East China at $9.1 to $9.6 per million British thermal units (MMBtu), generally below China's average liquefied natural gas (LNG) import price. Existing plants are running at over 90% utilization, reflecting strong demand and the cost competitiveness of domestic synthetic gas versus imported alternatives.
Approximately 20 Bcm per year of CTG capacity is currently under development, much of it concentrated in Xinjiang, with project approval timelines in the region compressing from three years or more to under 12 months in several recent cases. The Chinese government is attempting to balance CTG expansion for energy security purposes with project-specific carbon and environmental requirements. A notable example is the CHN Energy Zhundong development, a 2 Bcm per year facility scheduled to begin gas production in 2027, which has been designed with electrolytic hydrogen integration, wastewater recycling, and 550,000 tonnes per year of planned carbon capture capacity.
Despite these technological advancements, significant challenges remain. Water availability, environmental compliance and carbon emissions are described as real headwinds. China has not yet established a uniform nationwide decarbonization standard for new CTG projects, and some integrated facilities require substantial upfront capital while potentially intensifying water pressures in northwestern China.
Eryu Wang, Carbon Capture, Utilization and Storage (CCUS) Analyst at Rystad Energy, noted that while China has a well-established market for utilization-based carbon capture projects, the scalability of decarbonized CTG remains uncertain. "If the economics of decarbonized CTG will prove bankable over the long term remains an open question, but for now the global security imperative is diminishing hesitation," Wang stated. The growing CTG industry carries significant implications for global LNG markets.
As China's domestic synthetic gas production scales up, the effect on China's LNG demand — and consequently on global LNG prices and long-term supply contracting — is expected to become increasingly material for producers from Australia to Qatar to the United States. Wei Xiong emphasized that while CTG at 28 Bcm per year by 2030 remains a supplemental source rather than a replacement for imports, its steady growth means "every LNG exporter targeting China should model it as a structural dampener on demand, not a footnote." Source: Rystad Energy / OilPrice.com
Source: oilprice.com