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China's Pollution Problem Fuels Natural-Gas Use 

Raymond Chan 

Perspective on Asia 


CIO Equity Asia Pacific Raymond Chan discusses why Chinese officials are looking for cleaner energy sources—specifically natural gas, which should benefit city gas distributors and companies that build pipelines.
Anger is growing in China's cities about untenable levels of air pollution. China is still heavily dependent on coal as its major energy source, causing mounting pollution and carbon emission problems that have forced the Chinese government to look for alternative, cleaner energy sources.

Promoting natural gas consumption is one viable solution and China has been actively promoting many energy sources: natural gas as a substitute for coal and heavy oil for industrial use; liquefied petroleum gas for residential and commercial uses; and diesel and gasoline for vehicular use. China's natural gas consumption has grown fivefold in the past decade, yet it still accounts for only around 5% of China's total energy consumption. This is among the lowest levels in the world and far below the world average. The government has set clear targets to increase the role of natural gas as a primary energy source, aiming to double its use by 2020.

This is key to reducing China's heavy reliance on coal. China plans to build pipelines and liquefied natural gas terminals for gas imports. Increasing the gas supply will also mean new uses, including vehicles and heating. Power generation will also continue to be a major driver of gas consumption.

As a result, we have a positive outlook for city gas distributors, which should benefit from a strong compound annual growth rate over the next few years. We believe this is a structural growth story, and these names are well-represented in our portfolios.

The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.

A Word About Risk: Equity portfolios are subject to the basic stock market risk that a particular security or securities in general, may decrease in value. Investing in non-U.S. securities may entail risk as a result of foreign economic and political developments; this risk may be enhanced when investing in emerging markets.

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