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.

In contrast, China's natural gas market is still in the stage of non-competitive market, the development of late start, limited resources and reserves, geological and development conditions are complex, market vitality and competition is insufficient, and the legal and regulatory system is still to be improved. Therefore, under the constraint of carbon peak and carbon neutrality, natural gas should be given full play as the "ballast stone" of energy security and the "stabilizer" of power security, seize the opportunity of "stabilizing oil and gas and developing new energy", deepen and accelerate the pace of reform of the natural gas industry, rationally layout the natural gas industry, and enhance the reliability and flexibility of supply.

China's natural gas development suggestions

China's natural gas industry must not only meet the incremental demand for clean energy in economic and social development, but also promote the replacement of traditional high-carbon fossil energy stocks, but also build a new pattern of integrated development with new energy in a timely manner. According to the domestic and foreign natural gas supply and demand situation, the comparative advantage of natural gas in key areas, and the role of natural gas in the process of carbon peaking and carbon neutrality, considering multiple factors such as resources, environment, economy and safety, it is expected that China's natural gas demand can double to reach its peak (more than 6×1011 m3) in 2040. Domestic natural gas production will exceed 3×1011 m3, and it can rely on domestic independent production and overseas resources in the four strategic channels of northeast, northwest, southwest and sea to ensure adequate supply.

Natural gas has the characteristics of network continuous supply, the future development needs to clarify the top-level design, and continue to promote the coordinated development of "production, supply, storage and marketing". Joint promotion from the four aspects of expanding consumption scale, ensuring adequate supply, strengthening infrastructure, and improving the system and mechanism, effectively play the role of natural gas as a transitional energy "bridge", and provide basic guarantee for the construction of a clean, low-carbon, safe and efficient new energy system, and realize China's carbon peak and carbon neutrality.

(1) Strengthen top-level overall guidance, and clarify the positioning and thinking of natural gas development

It is suggested that in the carbon peaking and carbon neutral roadmap formulated by the state, the role and positioning of natural gas as the main energy and carbon neutral "bridge" of carbon peaking should be clarified. In accordance with the overall ideas of strengthening the domestic supply base, expanding multiple sources of gas supply, encouraging the development of gas and electricity peaking and natural gas vehicles, vigorously developing gas storage and pipeline infrastructure, and coordinating and improving fiscal and tax price support policies, we will give full play to the comparative advantages of natural gas, accelerate the development of the natural gas industry, and contribute to the realization of carbon peak before 2030. It will win time and space for the maturity of key new energy technologies and the growth of emerging industries, and provide the most favorable support for the ultimate realization of carbon neutrality by 2060.

(2) Give full play to comparative advantages and promote the leapfrog development of natural gas consumption

There are significant differences in the comparative advantages of natural gas in different fields of energy consumption, and there is practical demand for the leapfrog development of natural gas. Give full play to the green and low-carbon advantages of natural gas, practice the concept of green development, and continue to promote the "coal to gas" project in urban gas and industrial fields based on the prevention and control of air pollution, and help the sustainable development of urban and regional environment; Give full play to the green, low-carbon and price advantages of natural gas, focusing on long-distance freight transportation and urban transportation in cold areas, actively layout LNG and CNG filling stations, accelerate the pace of "oil to gas", and promote rapid carbon reduction in the transportation sector; Give full play to the low-carbon and flexible advantages of natural gas, focus on renewable energy production bases and power demand load centers, accelerate the planning and layout of peaking gas and electricity, and help the large-scale development of renewable energy and the safety of power grid transmission and distribution; We will give full play to the advantages of natural gas in low carbon and high efficiency, build cogeneration gas power plants according to local conditions, and promote efficient energy use in the region.

(3) Rational use of both domestic and international resources to ensure adequate and reliable supply of natural gas

Adhering to the concept of independent and controllable energy security under open conditions, we will build a solid foundation for domestic natural gas supply, introduce diversified overseas natural gas resources, and achieve sufficient supply both internally and externally. China should continue to increase its natural gas exploration and development efforts, pay equal attention to normal and non-natural gas, land and sea, and strengthen the deep, deep sea, unconventional (" two deep and one non ") oil and gas exploration and development of major scientific and technological research; Build four production bases in Sichuan-Chongqing area, Ordos Basin, Xinjiang and sea area, and strive to reach 3×1011 m3 domestic output.

For the acquisition of international natural gas resources, adhere to the concept of diversification, simultaneously promote investment and trade, attach equal importance to land and sea, and coexist with long-term cooperation and spot, strengthen the supply base from Central Asia to Russia, expand channels in the Middle East and East Africa, consolidate the development of four major natural gas import channels in the northwest, Northeast, Southwest and sea areas, and rely on diversified resource sources and diversified trade modes to diversify import channels. Achieve an adequate and reliable supply of natural gas.

4. Promote infrastructure construction and improve the efficiency and level of security

In view of the characteristics of seasonal imbalance and continuous supply in natural gas consumption areas, the optimization of natural gas pipeline network layout and transmission and distribution capacity building will be strengthened in accordance with the idea of infrastructure networking and regulation of redundant facilities, so as to form a national natural gas pipeline network connecting internal and external, connecting land and sea, and interconnecting. Coordinate the layout of LNG receiving stations, build LNG receiving stations in accordance with the principle of demand-oriented and moderately advanced, and avoid the inefficient and disorderly pattern brought about by local investment impulse. Increase the construction of peak load balancing capacity of gas storage, actively promote the construction of gas storage groups in Northeast, North and Southwest China, and determine the peak load balancing capacity matching consumption in accordance with moderate redundancy standards. Continue to promote the construction of the "production, supply, storage and marketing" system, strengthen the construction of intelligence and digitalization, and realize the efficient and safe operation of the system with multi-link linkage.

Since the greenhouse effect generated by the largest component of natural gas (CH4) is still 21 to 28 times that of CO2 after 100 years, it is necessary to actively innovate at the level of technology, equipment and management, clarify standards and responsibilities, and strictly control the amount of gas emitted or leaked during production, transportation and use to ensure the maximum efficiency of natural gas.

(5) Strengthen the construction of policy mechanisms to promote the rapid development of the natural gas industry

Give full play to the guiding and promoting role of policy mechanisms, establish and optimize land use, sea use, safety and environmental protection policies compatible with domestic natural gas exploration and development, and continue unconventional natural gas fiscal subsidies and preferential tax policies. The peak load balancing cost will be included in the system cost, and the peak load balancing gas price and peak load balancing electricity price reflecting the peak load balancing cost will be improved as soon as possible, and the construction and layout of gas storage and gas load balancing power station will be promoted through the two-way force of policies and markets.

Strengthen the "gas instead of oil" in the transportation sector, and "coal instead of gas" in the industrial and gas sectors. We will adjust the pricing mechanism for natural gas, encourage industrial parks and large users to directly supply natural gas, and significantly reduce the price of natural gas for industrial and power generation. Through the multi-point power at the policy level, it helps the leapfrog development and safe and stable supply of natural gas, and provides a solid guarantee for China's carbon peak and carbon neutrality.