The challenge of natural gas development in China under the constraint of carbon peaking and carbon neutrality

(1) The terminal price of natural gas is high, and the price comparison advantage is not prominent

Natural gas has a low price advantage in power generation and chemical industry, which is the key factor restricting the development of natural gas. The competitiveness of natural gas in the field of conventional power generation is weak, and more than 70% of the power generation cost of gas-fired power plants comes from the fuel cost, and the price of natural gas has become a decisive factor in the efficiency of gas-fired power plants. In 2019, the average natural gas acquisition cost of gas-fired power plants in China's coastal provinces and Beijing and Tianjin areas is about 2 to 2.5 yuan /m3, and the highest is 3 yuan /m3 in peak season. According to estimates, the average cost of gas and electricity in China is 0.5~0.6 yuan /kW·h, higher than the average cost of coal-fired power plants 0.23~0.31 yuan /kW·h. In 2020, affected by the novel coronavirus pneumonia epidemic and the oversupply of natural gas market, the global price of natural gas has dropped, and the cost of gas-fired power plants has also dropped to 0.3 to 0.5 yuan /kW·h, but it is still higher than the electricity cost of coal-fired power plants.

As an industrial fuel, natural gas has obvious advantages in environmental protection, but its economy is weak in the production of steam in glass, ceramic and industrial boilers. Natural gas, as a chemical raw material for synthesis of ammonia and methanol, does not have an economic advantage compared with coal. For example, the cost per ton of ammonia synthesized from natural gas is 35% higher than that from anthracite, and the cost per ton of methanol produced from natural gas is 66% higher than that from anthracite.

(2) Natural gas infrastructure is not yet perfect, and there are hidden concerns about scale development

Although China's natural gas infrastructure is developing rapidly, there are still some structural contradictions, which are reflected in the lag of peak load balancing facilities, the lack of peak load balancing capacity, the lack of mutual connectivity of pipelines, and the existence of barriers in the "last one kilometer", which makes the development of natural gas scale have certain hidden dangers. At present, the total natural gas storage capacity of natural gas peak regulation in China only accounts for 7.2% of the total natural gas consumption, which is far lower than the international level (15%-20%), resulting in winter "gas shortage" in some parts of northern China.

The instability of gas source drives up the gas price in non-priority supply areas and restricts the large-scale application of natural gas. For example, affected by the "gas shortage" and the rise in natural gas prices, the sales volume of natural gas heavy trucks fell significantly in the first half of 2018. China's natural gas cross-regional trunk pipeline network, provincial long distance pipeline and city pipeline are respectively constructed and operated by National Petroleum and Natural Gas Pipeline Network Group Co., LTD., provincial natural gas companies, and city gas companies. The market players are diversified and the mutual connectivity is not enough, especially the direct gas supply source for large industrial users in cities is subject to many constraints. It has a direct impact on gas supply security and consumer markets.

(3) The price mechanism has not been straightened out, and it is difficult to develop benefits

In recent years, China has completed the integration of the prices of existing gas and incremental gas, residential gas and industrial gas, and initially established a pricing mechanism combining government control and market regulation, and the scope of market-oriented pricing has been increasing. However, in the specific links of natural gas peak regulation and gas power plant peak regulation pricing, the price mechanism needs to be further improved, such as the lack of competitive peak regulation electricity price leads to the slow development of gas peak regulation.

According to the Notice on Natural Gas Prices issued by the National Development and Reform Commission in 2013, the price of natural gas can vary according to the type of generator (cogeneration or peak regulation) and cannot exceed 0.35 yuan /kW·h above the benchmark coal power price. Because the natural gas price mechanism is not flexible, it cannot give full play to the advantages of gas-fired peaking power plants. At present, the utilization rate of gas-fired peaking power plants is lower than 40% as a whole, and even lower than 20% in some parts, which increases the power generation cost of gas-fired peaking power plants and restricts their scale development.

(4) The development of natural gas needs to speed up under the constraint of carbon peak and carbon neutrality

After 200 years of development, the US natural gas market has entered the stage of comprehensive retail competition, with the characteristics of highly open market, perfect legal and regulatory system, transparent market information, complete market pricing, and fair access to third parties, forming obvious market competitive advantages. The initial use of the U.S. terminal market relied on power generation and urban gas, promoted the replacement of industrial coal, transportation diesel and power generation in the later period, and completed the large-scale application of natural gas.