China's natural gas capitalizes on opportunities



With the continuous advancement of technological innovation and policy reform, China's energy industry is undergoing an unprecedented transformation towards diversification, clean, digital and market-oriented direction. As a high-quality, efficient, green and clean low-carbon energy source, the promotion and application of natural gas has attracted much attention in the context of China's energy transformation. In June 2017, 13 ministries and commissions including the National Development and Reform Commission jointly issued a document, proposing to "gradually cultivate natural gas into one of the main energy sources of China's modern clean energy system". The proposal of the main energy has further clarified the position of natural gas in the energy structure and encouraged the confidence in the development of the industry.

However, it is worth noting that in the process of promoting the application of natural gas in China, there are still a series of challenges, including high end-user gas prices, insufficient marketization, low corporate awareness, and lagging supporting policies. In order to promote the sustainable use of natural gas, Pricewaterhousecoopers Strategy, with the support of Shell, has released the "Natural Gas Utilization Opportunities in China" report. According to the report, under the current reform progress, the downstream consumption market of China's natural gas industry has a greater development prospect, but due to the objective differences between regions and industries, the consumption of natural gas should be promoted in an orderly and focused manner, according to local conditions and industrial conditions. Seek the optimal development strategy and application scenario in the following aspects (this report does not cover the application of natural gas in the field of transportation) :

The first step is to recognize the enormous value of natural gas in reducing the environmental and social costs of traditional coal burning: In the case of comprehensive consideration of externalities, if the government's development goal of 10% of primary energy accounted for by natural gas in 2020 is successfully achieved, it will help reduce social and environmental costs of about 85 billion yuan, equivalent to 0.1% of domestic GDP in 2015, about 0.6% of annual fiscal expenditure, and 5.2% of environmental protection and health expenditure.

Secondly, the promotion and application of natural gas should focus on the market segments with high added value, which can be concentrated in industrial and commercial users with high energy consumption, concentrated consumption areas, and large demand for energy conservation and emission reduction, cogeneration and natural gas distributed energy.

The conversion of coal to gas in the industrial field is suitable for industries with large market scale, high financial affordability and low natural gas permeability, such as food, textile, paper and so on: The current penetration rate of natural gas in the industrial field is less than 24%. As an efficient industrial fuel, the value of natural gas is not only reflected in the field of emission reduction, but also has significant advantages in reducing policy risks, saving land costs, increasing production and reducing equipment failures. At the same time, business model innovation, represented by liquefied natural gas (LNG) point supply, can provide industrial users with more choice and flexibility.

Urbanization will promote natural gas to replace gas and liquefied petroleum gas (LPG) as the basic civil fuel: limited by the lack of infrastructure construction and other factors, China's residential natural gas penetration rate and per capita consumption are significantly lower than the level of developed markets; With the rapid improvement of China's urbanization rate, the continuous improvement of infrastructure and the continuous popularization of civil environmental awareness, natural gas has sufficient space for development in the civil field with its clean, safe, convenient and efficient characteristics.

The smart energy system with natural gas distributed cogeneration as the core will usher in rapid development: the natural gas distributed system is suitable for industries with high energy efficiency, large installed capacity and high demand for unit emission reduction, and the data center, industrial park, transportation center and other industries are its ideal application scenarios. With the promotion of energy data analysis and energy Internet concept, the comprehensive distributed energy system with natural gas cogeneration as the core will become an important energy solution for industrial and commercial users, thereby improving the market competitiveness and comprehensivity of the overall energy system.

Coal power plants are at great risk of investment being stranded, and natural gas can tap its potential as a peak load load for renewable power generation: Many planned coal power plants in China have been suspended due to environmental and overcapacity concerns, and in response, most provinces have set high renewable energy targets to encourage renewable energy development. Compared with coal, natural gas can better meet the system flexibility and peak regulation needs of renewable energy.

As mentioned above, the promotion and development of natural gas in China has a wealth of application scenarios and significant systemic advantages. However, it should be noted that the downstream application of natural gas is still faced with high cost, insufficient market competition and low awareness of various uncertainties, and the pace of supporting policies or too fast or lagging has deepened these uncertainties. Therefore, this report argues that future downstream gas industry policy recommendations need to focus on the following areas:

No matter which market segment the development of natural gas focuses on, it is necessary to reflect the clean, efficient, safe and flexible value of natural gas in the market pricing mechanism, and realize the internalization of external costs. The contribution of natural gas to reducing emissions and improving system efficiency needs to be reflected in price comparisons with other alternative energy products such as coal.

Provide tax, equipment and gas price subsidies to encourage the transition from coal to gas in promising industries and regions; It also makes pipeline and distribution pricing transparent, encourages the development of sound standards and processes for innovative business models such as LNG supply, and encourages competition in energy supply.

Strengthen market education, promote successful cases of coal to gas transition to increase market awareness, and provide capacity building support to enable end users to make better decisions on electricity use.

We expect that the implementation of the above points will be able to promote the marketization process of the entire natural gas industry, so as to further promote the goal of the "13th Five-Year Plan" natural gas development. We hope to take this opportunity to promote the attention of various fields to natural gas, discuss the future of the natural gas industry and seek new cooperation opportunities, and make our own contribution to the reform of China's energy market and the green cause.