Date
19 October 2017
Smoke rises from chimneys and facilities of steel plants on a hazy day in Benxi

POLICY WATCH: Gas shortage and the clean-fuel challenge

Amid mounting public anger over dangerous pollution levels in the country, Chinese authorities have in recent years been coaxing industries to switch to cleaner fuels and reduce the use of coal, the “dirty fuel” that had met most of the nation’s energy needs in the past decades. 

The efforts have yielded mixed results so far, with some firms taking heed of the government policy goal while a vast majority continued with their old practices as they sought to avoid new investments on clean-energy systems. Now, those skeptics have a fresh argument to support their case for a status quo — a shortage of gas supply.

As the world’s second largest economy grapples with a gas shortfall, observers fear industrial users — which face the brunt of the supply shortage — will set aside new-energy initiatives and stick to using coal. Even the firms that had migrated to cleaner fuel earlier could revert to burning coal to keep their operations going, they say, outlining the challenge the government faces in continuing with its clean-energy drive.

Authorities are expected to ration gas supply for industrial users while placing top priority on ensuring supply for urban heating in the winter season. The move could force some industries to reverse course and burn more coal.

China’s natural gas supply situation this winter and next spring is grim, and leading gas suppliers are urged to keep their production at high level while stepping up imports, the National Development and Reform Commission (NDRC), the country’s top economic planning agency, said in a Nov. 4 statement.

The world’s largest energy consumer is facing a supply gap of up to 10 billion cubic meters of natural gas, the most severe in years. Natural gas demand rose 13.5 percent to 120.8 billion cubic meters in the first nine months of this year, with the demand growth 4.3 percentage points higher than production, official data showed. The shortage is 10 percent higher this winter than in 2012.

The NDRC has urged leading producers to boost output and construction of terminals to import liquefied natural gas (LNG). It has also called for increased imports and closer cooperation with Central Asian countries to ensure stable gas supply.

Meanwhile, to keep demand in check, the government intends to ban construction of new natural gas-fired power stations and strictly control demand growth from chemical fertilizer makers and other industrial users, while prioritizing supplies to residential users and public transport during the winter.

China Petroleum and Chemical Corp (Sinopec) has vowed to ramp up production capacity and import volumes this year but it would take several years or even a few decades for the nation to have sufficient supply to meet demand after many cities switched to natural gas to cut coal use and tackle air pollution.

Sinopec said on Nov. 6 that it would supply 7.583 billion cubic meters of natural gas to the market over the winter and spring, up 10.5 percent or 720 million cubic meters from the same period last year.

The recent price hike in natural gas is expected to provide limited impetus for producers to increase supply, which would further hamper Beijing’s efforts to encourage supply growth. As of July 10, the government-set average wholesale price of natural gas was raised to 1.95 yuan (32 US cents) per cubic meter from 1.69 yuan per cubic meter.

The price increase is insufficient given that it only applies to commercial and industrial customers, which account for 80 percent of total demand. And state-owned energy companies will continue to suffer from expensive imports of LNG.

The government had earlier set out an ambitious target to double natural gas use to 230 billion cubic meters by 2015 from the 2010 level, but slow increase in domestic production coupled with insufficient pipeline and storage capacity will leave the country increasingly dependent on imports and prone to shortages.

The clean-fuel goals, therefore, will remain a daunting challenge in the years ahead. 

– Contact the reporter at [email protected]

RC

 

Freelance journalist

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