China is scaling up coal-to-gas production as part of a strategy to reduce its exposure to geopolitical disruptions in global gas markets, a move that could constrain future demand for liquefied natural gas (LNG) and reshape competition among major exporters.
Rystad Energy estimates that China’s coal-to-gas (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 expansion makes China the only country operating a large-scale CTG industry and gives Beijing another domestic source of gas that can serve as a buffer when LNG supply chains or pipeline routes are disrupted.
No other country has developed synthetic gas from coal at any meaningful scale.
‘China’s coal-to-gas program is a direct expression of its energy security doctrine,’ Wei Xiong, vice president, Gas and LNG Markets at Rystad Energy, said.
‘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.’
The shift is being reinforced by China’s 15th Five-Year Plan, covering 2026 to 2030, which strengthens CTG’s role in the country’s domestic gas supply architecture.
For LNG producers, the expansion is significant because it creates another source of gas that can compete with imported supplies. At 28 Bcm per year, CTG would remain a supplement to LNG rather than replace imports, but its growth could slow the pace of Chinese LNG demand growth.
The economics are already supporting the expansion.
Xinjiang has emerged as the centre of China’s CTG development because of its low-cost coal. Mine-mouth coal prices in the province averaged about 214 yuan ($30) per tonne between April 2025 and May 2026, less than 40 percent of the equivalent price in Inner Mongolia.
That advantage translates into lower synthetic gas costs. CTG produced in Xinjiang can reach eastern China at about $9.1-$9.6 per million British thermal units (MMBtu), generally below China’s average LNG import price.
Existing CTG facilities are operating at more than 90 percent utilisation, indicating that the plants are benefiting from demand and can compete with imported gas under current market conditions.
The expansion is also moving quickly. About 20 Bcm of additional CTG capacity per year is under development, much of it in Xinjiang. Rystad said project approval timelines in the region have fallen from three years or more to less than 12 months in several recent cases.
China is, however, attempting to balance energy security with the environmental costs of converting coal into gas.
New projects are facing project-specific carbon and environmental requirements. The CHN Energy Zhundong development, for instance, is designed to produce 2 Bcm of gas annually from 2027 and incorporates electrolytic hydrogen, wastewater recycling and planned carbon capture capacity of 550,000 tonnes per year.
The environmental challenge remains substantial. CTG production is carbon-intensive, while water availability is a constraint for projects concentrated in northwestern China. China has also yet to establish a uniform nationwide decarbonisation standard for new CTG projects.
The economics of carbon capture remain another uncertainty. While China has an established market for carbon capture utilisation, the commercial case for permanent geological storage is less developed.
‘Whether the economics of decarbonised CTG will prove bankable over the long term remains an open question, but for now the global security imperative is diminishing hesitation,’ said Eryu Wang, a CCUS analyst at Rystad Energy.
The implications extend beyond China’s domestic gas market.
As CTG capacity expands, LNG suppliers targeting China may face a slower growth trajectory in one of the world’s largest gas markets. The impact could extend to LNG pricing, long-term supply contracts and investment decisions by producers in Australia, Qatar and the United States.
‘CTG is one of China’s many hedges against a world where LNG supply is finite and politically sensitive,’ Xiong said.
‘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.’