Policy analysis and suggestions for promoting direct supply of natural gas to large users



First, the connotation of large user direct supply

1.1 Meaning of Direct Supply by Large Users

Large user direct supply can be understood from the two levels of "large user" and "direct supply" :

(1) "Large users", mainly based on annual gas consumption as the division standard, is a natural gas consumption unit determined according to the level of regional economic development. Affected by location advantages, economic level, and gas industry, the scale and pressure of enterprise gas use are also different, so the "big user" standards are not the same everywhere. For example, the "large users" stipulated by Shandong Province refers to industrial concentration areas with annual gas consumption of more than 50 million m3, clean centralized heating, and cogeneration gas projects; The term "large users" in Guangdong refers to gas-fired power plants, distributed energy stations, refineries and large industrial users with annual gas consumption of more than 100 million m3.

(2) "Direct supply" refers to a supply mode in which gas users use pipeline natural gas to reach a certain amount, which can be directly purchased in the natural gas source market by themselves, transported to their own gas facilities through different pipeline routes, and limited to their own use. In the Notice of the National Development and Reform Commission on Rationalizing the Price of Natural Gas for Non-residential Use (Development and Reform Price (2015) No. 351), it is clear that direct supply users refer to users who purchase natural gas directly from upstream natural gas suppliers for production or consumption and no longer resell abroad, or referred to as "qualified users". This contains three layers of meaning: First, direct supply users and upstream suppliers are direct purchase-sales relationship, does not involve the construction of gas pipelines; Second, the purchase and sale resources are natural gas, which can be pipeline gas or liquefied natural gas, and can be domestic gas or imported gas. The third is "special gas and special purpose", which cannot be converted to other purposes.

At present, the "direct supply" mode is mostly related to the large gas users in the user structure of the interruptible users determined by the local gas special planning and the urban gas business enterprises (if there is no special explanation in this paper, it is regarded as having obtained the gas franchise right of a certain region). This mode is an operation mode of unified planning, unified construction, unified scheduling and unified operation of "one network" under the "X+1+X" operation mode of natural gas, and is a symbol of the maturity of the marketization of natural gas pipeline supply. In practice, in some places, when exploring the promotion of direct supply for large users, there has been repeated planning and repeated construction of special pipelines for direct supply, which has affected the order of gas supply and caused a waste of social investment, and is not the "direct supply" encouraged by the above national policies.

1.2 Background of Direct Supply by Large Users

Large user direct supply, mainly to reduce the intermediate links to achieve a win-win situation for upstream units and direct supply users. Under the current conditions of the gas source unit in China, the power to promote the direct supply of large users mainly comes from "three barrels of oil". The earliest reference to "large user direct supply" was issued by the Price Department of the National Development and Reform Commission at the meeting of the National Price Bureau held in Hangzhou on March 30, 2012, the Guiding Opinions on regulating the price Management of Urban Pipeline Natural Gas and provincial Natural Gas Transportation (Draft for comments) (hereinafter referred to as the "Draft"). The draft proposed: "Encourage upstream production enterprises to supply directly to urban gas companies and large users, reduce intermediate links, avoid layers of transfer, and reduce gas supply costs." At the end of February 2015, the National Development and Reform Commission issued the "Notice on Rationalizing the Price of Natural Gas for Non-residents" (Development and Reform Price (2015) No. 351), and decided to integrate the price of stock gas and incremental valve station after April 1, comprehensively rationalizing the price of non-residential gas, and at the same time pilot liberalizing the price of gas for direct users.

At that time, the background of the pilot liberalization of the price of direct supply to users is mainly: first, the upper, middle and downstream integration of enterprises such as "three barrels of oil" has signed the long cogas need to be digested, and it is believed that the terminal sales price affects the expansion of the natural gas market; Second, the production capacity of offshore natural gas, shale gas, coal bed methane, coal-to-gas and liquefied natural gas has gradually increased, and the supply and demand of international and domestic natural gas markets are relatively relaxed. The third is the establishment of Shanghai Oil and Gas Trading Center, which has market-oriented trading conditions; Fourth, the direct gas consumption of users is large, and the price negotiation ability is strong.

At present, the large user direct supply commonly talked about in the industry is derived from the National Development and Reform Commission's "Opinions on Accelerating the Utilization of Natural Gas" (hereinafter referred to as the "Opinions") in June 2017. The Opinions put forward that "improve the natural gas market and establish a mechanism for users to independently choose resources and gas supply paths." Where users independently choose resources and gas supply routes, they should conform to local urban and rural development plans and special plans for natural gas and gas development, and local people's governments should strengthen overall coordination and support."

1.3 Direct supply Mode for large users

The way of the implementation of large user direct supply must be related to whether the user's gas can be interrupted, the local gas special planning, the operation situation of urban gas business enterprises and the user structure. There are 2 modes:

(1) "Direct purchase + transportation" mode: large users sign natural gas purchase and sales agreements with upstream units, and purchase gas through the "one network" that has been built by local urban gas operators. It is represented by Chongqing, Guangdong and some parts of Fujian.

(2) "Direct purchase + new construction" mode: large users sign separate natural gas purchase and sales agreements with upstream units, and build gas pipeline facilities through joint ventures with multiple investment entities, and use gas from separate openings in the gas pipeline network. Represented by parts of Jiangsu Province.

The author believes that the first model can be coordinated with the gas franchise system, which is in line with the national "X+1+X" reform direction, and is the future trend of market-oriented reform and development of the industry; However, the second mode contradicts the national reform ideas, the "one network" planning of pipe network facilities and the "Urban Gas Management Regulations", and must properly handle the relationship between the government, large users, upstream units and local urban gas operators, and should use the rule of law thinking and rule of law to promote the direct supply of large users and release the reform dividend.

Second, "direct supply" policy analysis

2.1 Relevant policies at the national level

Since 2013, the National Development and Reform Commission has introduced some policies to encourage the direct supply of natural gas by large users in promoting the market-oriented reform of natural gas prices.

2.2 Relevant policies at the local level

Third, the analysis of "direct supply" mode

3.1 Conflict analysis between owner-built "direct supply pipeline" and "gas franchise system"

Since the implementation of the gas franchise system, it has played a positive role in regulating the investment, construction and operation management of urban gas infrastructure, and promoted the development of urban gas market to a certain extent, which can be described as "great contributions". The owner's self-construction of "direct supply pipeline" in the area where the pipeline has been covered and the franchise has been granted conflicts with the current national regulations, is not encouraged by the national policy, and violates the urban pipeline gas franchise system, as analyzed below.

First, the state only encourages the direct purchase and sale of natural gas between upstream and downstream, rather than referring to the repeated planning and construction of gas pipelines. "Opinions on Accelerating the Utilization of Natural Gas (draft for comment)" pointed out: "Improve the urban gas franchise policy, open up the direct supply of large users." At the time of the original discussion, because the expression contained the intention of allowing natural gas suppliers to repair pipelines and exclusively supply natural gas for the city's industrial large users, it violated the "one grid" special gas planning of the unified urban planning layout, and also damaged the interests of the urban gas business enterprises, and was clearly opposed. Therefore, the expression of "direct supply" cannot be found in the final official Opinions. According to the requirements of planning laws and regulations, the construction of gas facilities should comply with urban and rural planning and urban gas special planning to avoid repeated planning and investment waste.

Second, the gas franchise agreement stipulates the investment and construction rights of urban gas business enterprises to gas facilities other than the owner's exclusive property rights. In the "Model Text of Pipeline Gas Franchise Agreement" (GF-2004-2502) published by the former Ministry of Construction, it is clear that urban gas business enterprises legally granted by the government enjoy the exclusive right to operate pipeline gas business within the scope of franchise, and have the right to invest, construct and operate pipeline gas within the scope of franchise. The right is exclusive and unique.

Third, urban gas operators are responsible for the investment, construction, operation, maintenance and management of gas facilities according to gas planning, which is a statutory duty entrusted by the state. According to the Regulations on the Administration of Urban Gas, urban gas operators shall assume the responsibility for the operation, maintenance, rush repair and renovation of the gas facilities outside the exclusive part of the owner within the user's building zoning. The newly revised Regulations of Jiangsu Province on Gas Management in 2020 stipulate that pipeline gas operators shall invest and construct gas facilities in accordance with urban gas development plans. The newly revised Regulations on Gas Management of Hebei Province in 2019 stipulate that within the coverage of the pipeline network built by urban gas business enterprises in line with the special gas planning, independent gas supply facilities built by gas enterprises without authorization, including point supply stations and direct supply pipelines, are illegal. Fourth, the government's support for urban gas business enterprises to construct pipeline gas facilities other than the owner's proprietary facilities within the building division is the embodiment of compliance with regulations and keeping promises. When the government is unable to invest and operate the huge gas infrastructure, it establishes a project company by introducing social capital to grant franchise rights. Only when the government guarantees the right, can the investment enterprises recover the costs within the time limit stipulated in the franchise agreement according to the economic calculation model in the original feasibility study report, and can they continue to provide good public service products for the local government.

3.2 Conflict analysis between large user direct supply and urban gas operation enterprises

When upstream gas source units or large users build gas pipelines to supply gas within the scope of urban gas operation enterprises, they violate the pipeline gas franchise agreement signed between the government and urban gas operation enterprises, and violate the rights and interests of investors. First, large users are of great significance to the gas structure and stable gas supply of urban gas business enterprises. The gas facilities built according to the special planning of urban gas have advanced and huge investment. Affected by the current price mechanism and structure, on the one hand, urban gas business enterprises need to rely on large users to maintain survival and ensure basic operations; on the other hand, large users play an important supporting role in balancing the gas load of urban pipe network, optimizing the gas structure and improving the gas volume. Second, urban gas business enterprises need to rely on large users to increase the scale of gas consumption to maintain normal operation. Among the operating costs of urban gas, residents have dispersed gas points, many gas terminals, low unit gas consumption, difficult safety management, and the highest operating gas supply cost, especially in inspection, charging, customer service, maintenance, emergency, peak load balancing and other aspects of investment costs are much higher than industrial and commercial users.

Third, the current price system needs to rely on the increase of industrial and commercial gas to subsidize the loss of residential gas prices. We are a socialist country, and the price of residential gas has been strictly controlled by the government, unable to reflect the actual cost, and the price has been inverted for a long time [4]. In order to ensure the supply of residents and social stability, urban gas business enterprises have to use non-resident users gas price income to subsidize the loss of resident gas supply.

Therefore, the "direct supply" mode of self-built pipeline will have adverse effects on urban gas operation enterprises: first, it breaks the integrity of gas franchise, resulting in damage to the interests of urban gas operation enterprises, and affects the enthusiasm of social capital to participate in public infrastructure construction projects; Second, in order to compete for large users leading to vicious market competition, repeated construction of pipelines, in violation of the overall layout planning of gas facilities; Third, the profitability of urban gas business enterprises is reduced, the lack of sufficient funds to maintain pipe network facilities, can not ensure the safety and stability of users of gas, but also hurt the people's livelihood, forming an unstable factor.

3.3 How should the government deal with the relationship between the "direct supply" model and urban gas operators

Due to the adjustment of the natural gas industry policy, the state encourages large users to purchase gas directly from upstream resources, which is in direct conflict with the granted franchise rights. So what should local governments do? First of all, the government should keep its promise, according to the relevant national laws and regulations, give priority to urban gas business enterprises to invest in the construction of gas pipelines, and prohibit the use of gas without authorization to build direct supply pipelines that do not meet the planning requirements. Secondly, the procedures should be carried out according to the relevant national regulations, taking into account the interests of both sides of gas supply and consumption, and urban gas business enterprises can be required to open the function of pipeline transportation, reasonable accounting of gas transmission costs, and reduce gas consumption costs.

In recent years, the state has issued a series of laws and regulations to protect the legitimate rights and interests of franchise operators, local governments change the agreement or break the agreement, should give the franchise operators corresponding compensation. Where an enterprise initiates an administrative lawsuit, the people's court shall accept and support it according to law. For example, Article 7 of the "Opinions on Improving the Property Rights Protection System to Protect Property Rights according to Law" (issued by the CPC Central Committee and The State Council on November 4, 2016), Article 31 of the "Regulations on Optimizing the Business Environment" (issued by The State Council on October 22, 2019), and the "Measures for the Management of Infrastructure and Public Utilities Franchise" (six ministries, including the National Development and Reform Commission, June 1, 2015) Article 36, Article 21 of the Provisions on Several Issues Concerning the Trial of Administrative Agreement Cases (Interpretation [2019] No. 17, issued by the Supreme People's Court on November 12, 2019), the main contents are as follows: (1) Vigorously promote the construction of law-based government and government integrity, local governments at all levels and relevant departments should strictly honor the policy commitments made to the public and administrative counterparts in accordance with the law, earnestly fulfill the various types of contracts signed with investment entities in the activities of attracting investment, government-social capital cooperation and other activities, and shall not break the contract under the reasons of government change, leadership change, etc. Those who infringe upon their lawful rights and interests due to breach of the contract shall bear legal and economic responsibilities; (2) If it is necessary to change policy commitments and contract agreements due to national interests and social and public interests, it shall be carried out in accordance with legal authority and procedures, and compensate market entities for their losses accordingly according to law; (3) Where citizens, legal persons or other organizations bring administrative lawsuits concerning the "government franchise agreement", the people's court shall accept them according to law.

Iv. Relevant Suggestions

4.1 According to the special planning requirements of urban gas, unified planning and construction of the city's "one network" to avoid repeated construction and investment waste

It should adhere to the principle of adapting to local conditions, economic rationality and resource conservation, and promote the direct supply of large users according to the old situation and the old method and the new situation and the new method under the premise of following the special planning of urban gas. For example, according to the local gas supply structure, energy structure, economic level, pipe network coverage, new district development and other aspects, priority can be given to the use of existing pipelines, land resource conservation, reasonable selection of regional promotion, to avoid repeated investment in construction, and to avoid increasing resource investment such as operation, management and maintenance.

4.2 Adhere to the pipeline gas franchise system, give full play to the scale advantage to give large users special gas price policy to support economic development

For the urban public utility industry, the franchise system is the least government investment, the most reasonable and effective, the best way to use social capital to solve the urban infrastructure services, should be unswervingly adhered to. Urban gas business enterprises should embrace industry reform, give full play to professional and efficient service advantages, strengthen internal management, reduce gas source and unit gas supply costs, expand gas supply scale, improve the load rate of pipe network, introduce differentiated special gas price policies to reduce the cost of large users of gas, and support the development of the real economy.

4.3 Focus on accelerating the construction of gas facilities, improve the city's gas supply security capacity, and strengthen the confidence of large users in continuous gas use

The government should strengthen the supervision of upstream exploration and development, gas planning, infrastructure construction and urban gas concession operators, strictly supervise the price of gas transmission and distribution and the implementation of gas planning, focus on the construction of natural gas transmission and distribution and storage facilities, improve the ability to ensure supply, create conditions for stable and safe gas supply for large users, and strengthen the confidence of large users in long-term use of natural gas.