Seemingly poor planning resulting in an insufficient heating gas supply has left many rural and urban residents of China in the freezing cold. Normally, the need for heating arrives in mid-November, but last year there was a significant delay in the heat supply, as administrative actions were dictated to start replacing coal with natural gas in order to comply with government plans to fight air pollution from coal combustion as a heating source.
Beijing, China’s capital, has been urging its provinces to shift from coal to natural gas for both residential heating and industrial processes, especially through last winter in an effort to drastically reduce the airborne particulate concentrations in southern regions as well as the capital.
The policy has had immediate impacts, with the industry-heavy provinces of Hebei and Shandong warning of natural gas shortages, and Hebei forcing some users to cut consumption.
Setting the Environmental Goal for meeting Air Quality Standards
The Beijing Government’s move last year to shift from coal to natural gas for heating was recommended by the Chinese Academy of Engineering, in its mid-term review of the “2013-2017 national action plan” to clean up air pollution, according to an interview with Lei Yu of the Chinese Academy for Environmental Planning. The decision involved the gradual phasing out of the burning of low-quality and polluting loose coal in rural homes in northern China and Beijing’s four southern districts – Fengtai, Tongzhou, Fangshan, and Daxing – and parts of Baoding and Langfang in Hebei.
The country’s legal framework for air pollution abatement stems fundamentally from the Law on Prevention and Control of Atmospheric Pollution 1987 (LPCAP). Although there are numerous additional policies to deal with Air Quality, the most recent significant one comes from the State Council’s Action Plan on the Prevention and Control of Atmospheric Pollution, published on September 10, 2013. The Plan sets 2017 as the achievement date for two major goals: a 10 percent reduction in concentrations of large particulate matter in major cities; up to a 25 percent decrease in concentrations of fine particulate matter in targeted regions
Domestic Gas Market Outlook
As a result of this strategy, a huge demand for gas has been suddenly created to replace coal for heating, for which China does not have the corresponding production capacity, and therefore, it will need to rely on growing imports of liquefied natural gas. There have been noticeable efforts on the country’s gas production to increase output, as it rose to a record 147.4 billion cubic meters (bcm) last year – 8.5% from previous 2016, according to the National Bureau of Statistics. However, the country faces mounting challenges of economic and geotechnical kinds.
The Asian giant is the world’s largest energy consumer, it was the world’s sixth-largest gas producer in 2016 after rising investments over the past 20 years. However, consumption is surging even faster, climbing 15 percent in 2017 to 237 bcm, according to the National Development and Reform Commission.
In spite the fact that its gas imports last year rose 28 percent, China’s 2018 gas output will need to increase 8 percent, or 12 bcm, as stated by The Sustainability Impact Assessment (SIA). At the same time, gas demand is expected to rise by 30 bcm, or 12.5 percent, to 270 bcm. In order for China to meet the demand, it will need to import as much as 114 bcm of gas through pipelines and LNG combined.
The trend of rising imports will continue, with SIA forecasting imports of 132 bcm will be required to meet 317 bcm of demand by 2020.
Economical and Geotechnical Constraints
The biggest Asian economy holds the world’s largest reserves of shale natural gas estimated at 5.4 trillion cubic meters, according to the most recent BP Statistical Review. However, much of that gas is considered recoverable at high costs.
China’s three biggest gas basins, the Ordos in northern China, the Tarim in the Xinjiang region in the west, and Sichuan in the southwest, make up 90 percent of the country’s output, each of them showing geological or technological difficulties; for example,
Tarim basin: the restriction here is the depth of the well to tap the gas at 8 km., and lack of fresh water for operations and working crews.
Sichuan basin: the gas produced from wells in the area contains high amounts of sulfur that must be stripped out before being sold.
The shale resources are also considered costly and are hamstrung by mountainous geology, water scarcity, and high land costs.
SIA Energy forecasts shale output will be just 15 bcm by 2020, less than one-tenth of China’s total production.