China bets on synthetic gas as geopolitical risk drives need for energy security

As nations race to cut import exposure to geopolitical tensions, China is building the world’s only large-scale coal-to-gas (CTG) industry as a strategic buffer against supply shocks. No other country has developed synthetic gas from coal at any meaningful scale. China’s 15th Five-Year Plan, covering 2026 to 2030, strengthens CTG’s role in its domestic supply architecture, signaling a move from consideration to active execution. Rystad Energy estimates China’s CTG capacity is on track to reach 9.4 billion cubic meters (Bcm) per year by end-2026, growing to 28 Bcm per year by 2030 — the equivalent of more than four times Austria’s entire coal-produced annual 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.

China’s Xinjiang province has emerged as the undisputed hub for CTG expansion, driven by mine-mouth coal prices that averaged just 214 yuan, or $30 per tonne between April 2025 and May 2026, less than 40% of the equivalent price in Inner Mongolia. This cost advantage flows directly into delivered gas prices: Xinjiang CTG reaches East China at $9.1–$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 in Xinjiang, with project approval timelines in the region compressing from three years or more to under 12 months in several recent cases.

The government is threading the needle of supporting CTG for energy security while imposing project-specific carbon and environmental requirements. New projects are responding to these changes, such as the CHN Energy Zhundong development, a 2 Bcm per year plant scheduled to begin gas production in 2027 and designed with electrolytic hydrogen integration, wastewater recycling and 550,000 tonnes per year of planned carbon capture capacity.

Although the market for permanent storage-based carbon capture projects is limited in China, the country already has a well-established market for utilization-based carbon capture projects with practical end-use cases - the question is whether it can scale. 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.

Water availability, environmental compliance and carbon emissions remain real headwinds, and China has not yet established a uniform nationwide decarbonization standard for new CTG projects. Some integrated facilities require substantial upfront capital and may intensify water pressures in northwestern China, with the consideration that reported water consumption applies to the entire CTG complex rather than carbon capture alone. Moreover, if the end-use for the captured CO2 ends up in geological storage in China, there could be further limited scopes for carbon capture commerciality.

As CTG capacity ramps up despite these challenges, the effect on China’s LNG demand — and therefore on global LNG prices and long-term supply contracting — will become increasingly material for producers from Australia to Qatar to the US.

CTG is one of China’s many hedges against a world where LNG supply is finite and politically sensitive. 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.

Contacts

Hanyu Liu
Analyst, Commodity Markets
Hanyu.liu@rystadenergy.com

Eryu Wang
Analyst, CCUS
Eryu.wang@rystadenergy.com

Wei Xiong
Vice President, Gas & LNG Markets
Xiong.Wei@rystadenergy.com

Katie Keenan
Senior Media Relations Manager
Phone: +1 713 301 9300
katie.keenan@rystadenergy.com

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