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China economy

Why winter heating crisis will not stop China’s dash for gas

Analysts do not expect this winter’s shortages to derail the effort to tackle the country’s notorious pollution problems with a cleaner source of fuel

PUBLISHED : Saturday, 16 December, 2017, 8:00pm
UPDATED : Tuesday, 03 July, 2018, 7:22pm

China’s plan to burn less coal and to use more natural gas will only accelerate despite a serious gas supply shortage in this winter, analysts have said.

A renewed push from the Chinese leadership to clean up Beijing’s toxic air drove local cadres across northern China to rush to ban coal this winter , but natural gas shortages left many residents shivering in freezing temperatures.

It even promoted China’s Ministry of Environment to issue an urgent notice telling people to burn coal for heating if necessary.

The shortage of natural gas quickly spread from northern China to more southerly parts of the country as the authorities in Henan, Hubei and Hunan imposed limits on natural gas usage at industrial and chemical plants to ensure there was enough fuel to keep millions of homes warm.

Natural gas price shot up as a result of surging demand. According to China’s national bureau of statistics, the price of liquified natural gas (LNG) in the first 10 days of December reacged 6,967 yuan per tonne (US$1,053) – a 23.6 per cent increase compared with the last 10 days of November.

China’s supply problems have also had a knock-on effect by pushing up fuel prices around the globe.

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However, under the Chinese government’s plans this is just the beginning of the country’s embrace of natural gas. It aims to increase the proportion of its energy produced by natural gas to reach 10 per cent by 2020, rising to 15 per cent in 2030.

China, now the second biggest natural gas importer in the world, will account for at least a quarter of all global natural gas consumption growth between 2015 and 2040, according to a report by the US Energy Information Administration published in October 2017.

“The current supply shortage is a temporary issue, and it won’t change China’s long-term plan of using more natural gas in the energy mix,” Bai Jun, an executive director with Institute of International Energy, a think tank affiliated with the National Development and Reform Commission, said.

Bai said China was expected to build more LNG import terminals and gas storage facilities to boost imports and also seek to improve its domestic supplies.

China’s quest for stable natural gas supplies and growing reliance on imports to feed its domestic demand is key element to its diplomacy. The country was still a net exporter of gas 10 years ago, but now relies on imports for 35 per cent of its domestic consumption – a figure expected to rise to 50 per cent by 2020.

As a result, Beijing has worked to maintain close relations with Turkmenistan, Uzbekistan and Kazakhstan to pipe central Asian natural gas into China and is building a pipeline to import supplies from Russia.

Beijing has also shown support for Myanmar – even during the recent international outcry about the Rohingya crisis – in a sign of the importance it attaches to a gas pipeline that runs through the country linking a terminal in the Bay of Bengal with Kunming in southwestern China.

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When Donald Trump visited China last month, the US President and his Chinese counterpart Xi Jinping held a signing ceremony for deals worth a total of US$250 billion – the biggest of which was a plan to import gas from Alaska.

Xi, who has just started his second five-year term as the Communist Party’s leader, has made environment protection, including air quality improvement, one of the top three priorities.

China, the world’s biggest emitter, has made clean energy a national policy, and natural gas, which produces less carbon and pollutants in burning, is a key part of this.

Lin Boqiang, director of the research centre of China energy economics at Xiamen University in Fujian, said: “Local governments at provincial and city levels have rushed to answer Beijing’s call to tackle air pollution.”

The push from Chinese government for gas helped the country’s natural gas consumption to expand by about 15 per cent in 2017.

This winter’s gas supply shortages were a seasonal and short-term problem, said Lin, and China “has no choice but to speed up its efforts to shift to clean energy”.

Han Xiaoping, chief information officer at Beijing-based industry consultancy China Energy Net Consulting Co, said the gas “supply shortages”were not a long-term cause for concern because they were the result of a man-made peak in demand and inadequate logistical facilities rather than a drying up of supplies.

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“The global supply of natural gas is adequate, and China can readily buy the gas,” Han said. “Beijing won’t stop its push towards gas because it’s a matter of necessity to solve air pollution.”

The Chinese government is also working on ways to improve its supply infrastructure.

A plan issued by the National Development and Reform Commission in July said China should develop underground natural gas storage facilities of 14.8 billion cubic meters by 2020 and 35 billion cubic meters by 2030 – up from about 5 billion cubic meters at the end of 2015.

But for now many places in northern China are still unable to make the government-mandated switch from coal to gas.

“New gas heating systems are not ready here yet . Rich families, restaurants and inns have to use air conditioning units or liquid gas cannisters while the poor and elderly in villages have secretly kept their stoves and are still using coal,” a woman who runs a small inn at Quyang county in Hebei province said.

In addition, many rural families can’t afford to use natural gas for heating and cooking, she said.

A man living in Zhaotun village in Xianghe county in Hebei province said that he had spent 30,000 yuan (US$3,500) on coal last winter to keep his little inn warm, but the bill will more than double this winter after the fuel is changed to natural gas.

“Now I have to pay 600 yuan for gas per day, or 18,000 yuan per month,” he said.