China ramps up coal-to-gas push to strengthen energy security

Around 20 Bcm per year of new CTG capacity is under development.

China is expanding its coal-to-gas (CTG) industry to strengthen energy security and reduce exposure to geopolitical risks affecting LNG supply chains, according to Rystad Energy.

The report estimates China’s CTG capacity will reach 9.4 billion cubic metres (Bcm) per year by the end of 2026, before rising to 28 Bcm annually by 2030. The projected capacity would be equivalent to more than four times Austria’s annual coal-produced gas demand.

“China’s coal-to-gas program is a direct expression of its 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,” said Wei Xiong, vice president for Gas & LNG Markets at Rystad Energy.

Xinjiang is leading CTG growth, supported by lower coal costs. Mine-mouth coal prices in the province averaged 214 yuan ($30) per tonne between April 2025 and May 2026, below 40% of prices in Inner Mongolia.

The cost advantage has helped Xinjiang-produced CTG reach eastern China at $9.1 to $9.6 per million British thermal units (MMBtu), generally below China’s average LNG import prices. Existing CTG facilities are operating at more than 90% utilisation.

Around 20 Bcm per year of CTG capacity is currently under development, with many projects located in Xinjiang. Recent approvals in the region have also accelerated, with some project timelines shortened from more than three years to less than 12 months.

China is balancing CTG expansion with tighter environmental requirements, requiring new projects to address carbon emissions and resource use.

One example is the CHN Energy Zhundong project, a 2 Bcm-per-year facility expected to begin production in 2027, which includes electrolytic hydrogen integration, wastewater recycling and planned carbon capture capacity of 550,000 tonnes per year.

“Although the market for permanent storage-based carbon capture projects is limited in China, the country already has a well-established market for utilisation-based carbon capture projects with practical end-use cases - the question is whether it can scale,” said Eryu Wang, Carbon Capture, Utilisation and Storage (CCUS) analyst, Rystad Energy.

However, CTG development continues to face challenges, including water availability, environmental compliance and carbon emissions. China has yet to establish a nationwide decarbonisation standard for new CTG projects, while some integrated facilities require significant upfront investment and could increase water pressures in northwestern regions.

Rystad said rising CTG capacity could increasingly affect China’s LNG demand and influence global LNG markets, including producers in Australia, Qatar, and the US.

“CTG is one of China’s many hedges against a world where LNG supply is finite and politically sensitive,” said Xiong. “At 28 Bcm per year by 2030 it remains a supplemental source, not a replacement for imports, but its steady growth means every LNG exporter targeting China should model it as a structural dampener on demand, not a footnote.”