Viability of gas-fired power plants questioned as firm fails to clinch deal with PetroChina in Lanzhou Meiya Power has abandoned a 2.8 billion yuan project in Gansu province, citing a shortage of affordable natural gas, in a sign that China's natural gas-fired projects could turn into white elephants. Meiya last week decided to give up on the two-phase, 1,200MW project in Lanzhou after failing to clinch an agreement with PetroChina on gas supply from its west-east pipeline project, chairman Colin Tam told the South China Morning Post yesterday. The company has a 70 per cent stake in the project with the rest held by a local government firm. Mr Tam said Meiya would suffer losses of US$3 million to US$4 million as a result of its failure to take delivery of equipment from General Electric as well as expenses for feasibility and environmental impact studies. 'The project was all ready to go,' he said, adding that the company had also been hampered by the government's tight grip on gas and power prices. 'PetroChina did not expect demand from residential users to be that great given its relatively high price,' he said. 'To them, residential demand is the priority. 'Price is also a big issue, as there is no mechanism to link power price to gas price in order to allow gas-fired power plant operators to earn a reasonable profit.' Residential users pay proportionally lower gas bills than power firms, which have to compete with power plants fired by cheaper coal. A PetroChina spokesman said the company should not be blamed since gas prices and the rationing of supply to various industries were decided by the central government. The development dealt a blow to the plan of the government of Lanzhou - one of the mainland's most polluted cities - to cut air pollution by replacing coal with gas. It is also bad news for equipment suppliers such as General Electric, which won US$900 million worth of contracts in 2003 to supply 23 sets of gas turbines to mainland power companies. Two sets were for Meiya. A spokesman for GE's partner, Harbin Power Equipment, said the company had delivered 14 sets of 250MW gas turbines to power firms with secured gas sources but admitted the gas shortage would affect future turbine sales. The viability of gas-fired power plants has been questioned amid rapidly increasing prices for oil and gas. The China Electricity Council recently warned that about 4,000 MW of gas-fired power plants in preparation or being built in east China were not expected to secure enough gas by the time they were supposed to come on stream. Cheap overseas gas is hard to come by as developed nations are snapping up dwindling resources and domestic supply is limited. Huaneng Power International has been negotiating with PetroChina since 2003 to buy gas from the west-east gas pipeline to feed its 70 per cent-held 1,170MW power project in Shanghai. The Huaneng spokeswoman said the gas purchase price, volume and the project's power tariff were still uncertain, although the plant is due on stream in June. Mr Tam said some recently completed projects in east China were unable to obtain enough gas even to carry out trial operations, meaning that plant owners would face hefty expenses to start plants when gas became available.