Who Funds Overseas Gas Projects? Comparing Development Finance from China and Major Multilateral Development Banks

With the recent end of public finance for coal power, many multilateral development banks (MDBs) are working to move financing activity away from other fossil fuels, including natural gas. But in the past, as MDBs moved away from certain types of energy projects, China emerged as the largest public financier and, in some cases, the lender of last resort for overseas hydropower and coal development.

While recent high-level commitments from China have ended most future support for overseas coal development, could a shift away from natural gas financing by MDBs be jeopardized if China’s policy banks move to fill the gap?

A new policy brief explores recent lending and commitments from China and eight major MDBs for overseas natural gas projects from 2008-2021, comparing the scope of policy frameworks and the scale and composition of development finance.

Figure 1: Chinese Policy Banks and Selected MDBs Commitments to the Gas Sector, 2008-2021 

Main findings:

• China is unlikely to fill an MDB gas finance gap: Domestic drivers in China will likely limit Chinese development finance for overseas gas, meaning China is unlikely to fill a gap in gas finance left by the MDBs. However, given a lack of policy clarity, the door is still open for China to engage in overseas gas development.
• Total amount of financing: Between 2008-2021, Chinese policy banks and the eight MDBs committed nearly $112 billion to gas infrastructure projects. Overseas gas lending hit a peak in 2016, when the MDBs and Chinese policy banks financed more than $16.2 billion, driven mainly by Chinese financing of a single project. This was followed by an overall decrease in new lending from 2017-2021.
• Comparing MDB and Chinese policy bank finance for overseas gas: The eight MDBs financed more gas-related infrastructure than Chinese policy banks – around $63.7 billion compared to $47.8 billion from the Chinese policy banks. In addition, MDB financing was more constant than Chinese financing, which varied year-to-year.
• The largest gas lender: The largest MDB in asset size, the European Investment Bank, was the single largest gas lender among the eight MDBs, financing $37.5 billion between 2008-2021.
• Geographic breakdown: Most of the finance from the MDBs and the Chinese policy banks went to European and Central Asian countries, representing 77 percent of disbursements from 2008-2021. The Middle East and North Africa were a far second destination region, receiving 9 percent of financing, only from the MDBs.
• Varying subsector focuses: Chinese policy banks and the MDBs focused on different gas subsectors. Almost 47 percent of Chinese policy bank overseas lending was directed to exploration and extraction projects. The MDBs, on the other hand, centered just over half of their disbursements on transport, distribution and storage. MDBs provided a small amount of lending for energy efficiency projects, while Chinese policy banks did not finance energy efficiency projects at all. This likely related to the varying levels of commitments and policy frameworks, with most of the MDBs restricting upstream gas development related to exploration and extraction.
• In the power generation subsector: The MDBs financed over $17 billion in gas power plants, while Chinese policy banks provided just $3 billion. Chinese policy banks financed more gas chemicals-related projects ($4.9 billion) than power generating projects from 2008-2021.
• Comparing commitments and policy frameworks: Chinese policy banks and the MDBs share some similarity in the lack of policy frameworks for overseas gas financing, especially relative to coal.

Overall, the authors find the policies of MDBs and Chinese policy banks will be critical in shaping the trajectory of natural gas financing in the years to come. But unlike coal, there is no common approach among the major MDBs on natural gas financing, whether upstream or downstream, and China has not specified a clear stance on overseas natural gas development.