China has been pushing hard to curb air pollution. Among the key initiatives aimed at achieving this goal is replacing coal with natural gas for energy needs.
Authorities have set a target to help 3 million households in north China shift from coal-powered heating to gas.
As local government officials are keen to impress the top leaders, it turns out that nearly 5 million households in the region have actually completed the conversion projects.
There is, however, a problem: gas supply just can’t keep up with the demand.
During the current winter season, gas supply is reportedly 20 percent less than demand, and tens of thousands of people face the prospect of being left without heating in freezing weather.
As a stop-gap measure, authorities have eased the restrictions and allowed rural and suburb residents in north China to burn coal for heating. Also, some coal-fired power plants are allowed to resume operation to supply electricity for commercial and industrial use. Both measures have seemingly gone against the objective of the coal-to-gas conversion initiative.
Share prices of gas distribution and pipeline companies reacted somewhat negatively to the news. However, gas shortage could well be a positive catalyst for them in the long run.
First of all, the anti-pollution policy is here to stay. The coal to gas conversion projects simply won’t reverse. Gas demand can only go up in the future.
On the supply side, there is inarguably a bottleneck. Chinese policymakers have imposed tight grip over retail gas price for fear of increasing the burden on gas users, leading to a strange situation where revenue from gas sales sometimes fails to cover the costs. Leading oil and gas giants are hence reluctant to expand the supply.
To address this problem, it is quite possible that restrictions on retail price will eventually be relaxed in order to encourage oil companies to ramp up gas imports. That will benefit midstream pipeline owners in the long run.
This article appeared in the Hong Kong Economic Journal on Dec 12
Translation by Julie Zhu
[Chinese version 中文版]
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