New policies in the natural gas sector will be introduced in large numbers

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New policies related to natural gas are set to be introduced in large numbers. It is understood that the \"Opinions on Accelerating the Utilization of Natural Gas\" (hereinafter referred to as the \"Opinions\") have completed their consultation phase and are expected to be issued in the near future. Regions such as Hebei, Henan, and Shandong **have also begun to formulate or have already issued guidelines for price reforms that include natural gas, as well as specific development plans for the utilization of natural gas. Amidst the tightening regulations on air pollution control and the imminent implementation of energy sector reforms, new policies regarding natural gas will be introduced in large numbers this year. Compared to previous efforts, this series of policies more explicitly outlines measures for natural gas reform. For example, in 2017, efforts will be made to establish pricing mechanisms for natural gas transmission pipelines; subsidies and fiscal incentives for switching from coal to natural gas or from oil to natural gas will be considered, and pilot projects for reforming the oil and gas industry will be promoted in regions such as Chongqing, Jiangsu, Shanghai, and Hebei. As an efficient clean energy source, natural gas is far less attractive than it used to be. Public data shows that, affected by factors such as a slowdown in economic growth and insufficient price advantages, the growth rate of China’s natural gas consumption began to decline sharply in 2014, reaching a new low in 10 years in 2015. Following two price reforms in 2015 and the gradual commissioning of coal-to-gas projects in various regions, the apparent consumption of natural gas in 2016 was around 224 billion cubic meters, representing a year-on-year increase of 9.3%, with the growth rate rising by 3.8 percentage points compared to the previous year. According to the plan, China’s natural gas consumption is set to reach 360 billion cubic meters during the 13th Five-Year Plan period, accounting for 10% of its total primary energy consumption. In the view of relevant ministries and many industry professionals, achieving this goal is quite difficult and requires considerable effort. “Difficulties aside, the economy is now recovering from its lowest point, and thanks to a series of implemented policies, especially those related to environmental protection and reform, I believe it is still very possible to achieve the goal. ”Chi Guojing, secretary-general of the China Urban Gas Association, told reporters. The “Opinions” are one of them. The document calls for accelerated progress in the large-scale, efficient, and scientific use of natural gas in four key areas: urban gas supply, industrial fuel use, gas-powered power generation, and transportation fuels. Pilot projects for distributed energy systems using LNG as a fuel source are to be carried out in areas not covered by gas pipelines. The use of natural gas as a substitute for coal is to be included in environmental performance assessments, with efforts encouraged to combine the use of natural gas and wind energy, as well as solar energy, in order to promote the integrated development of natural gas and renewable energy sources. According to reporters, in recent years the central government has urged local authorities to make significant efforts to optimize the energy structure and prevent air pollution. Currently, seven working groups composed of various departments are monitoring progress in areas such as energy conservation and emission reduction, as well as the use of natural gas across different regions. This year, provinces in the Beijing-Tianjin area, including Henan, Shandong, Hebei, and Shanxi, will implement a number of mandatory measures to shift from coal to natural gas usage. According to the Guidelines on Accelerating the Development of Natural Gas Utilization issued by Shandong recently, by 2020, natural gas consumption is expected to reach around 25 billion cubic meters, accounting for more than 7% of total energy consumption; in 2015, this figure was only 3%. Henan has also set out to promote the use of natural gas vigorously, aiming for it to account for 7.5% of total energy consumption by the end of the 13th Five-Year Plan period. Hebei has set an even higher target of 10%, aiming to achieve this through three approaches: expanding the use of gas by residents, developing natural gas heating, and promoting the \"gasification\" of key areas. It is worth noting that reform is key to achieving all this, especially institutional reform. Chi Guojing explained that the main factor restricting the development of natural gas is price; firstly, at the current stage, without taking environmental costs into account, the price of natural gas is certainly higher than that of coal. Secondly, the marketization level of the industry is still insufficient; the pricing and supply mechanisms are not able to reflect changes in the supply and demand structure in a timely manner, which all hinders the development of downstream markets. In 2016, in line with the principle of \"controlling the middle part while liberalizing the two ends,\" reforms to natural gas prices were carried out first. More than a dozen documents were issued over time; the prices at the distribution points for non-residential users, which account for 80% of total consumption, are now determined by market forces. A new pricing mechanism for natural gas transmission was established, stipulating that prices related to storage facilities should also be set through market competition. According to the **National Development and Reform Commission, this year efforts will be made to establish pricing standards for natural gas main pipelines, and to accelerate the standardization of pricing for pipeline networks at the provincial level and below. At the same time, a pricing mechanism for clean energy heating in the northern regions will also be studied and introduced. In addition, the Guidelines propose subsidies for the transition from coal to gas and from oil to gas; for example, by drawing on the support policies for new energy vehicles, subsidies for purchasing natural gas vehicles and fuel subsidies can be provided. “Both the central and local governments will provide relevant subsidies; policies at the central level are currently under discussion, and the specific amounts have not yet been determined. ”According to people familiar with the matter. Recently, the Hubei Provincial Price Bureau released a draft for guidelines on the management of prices for natural gas transportation and distribution, setting the overall return on investment at 8% and 6% respectively. It also proposed implementing seasonal price adjustments and enhancing price transmission. “More natural gas price policies will be introduced this year, and the successive provincial-level policies will continue to put pressure on the valuation of gas operators. ”Liu Zhicheng, an analyst at BOC International Securities, said. What is even more noteworthy is that the reform of the natural gas system shows promise of breaking through. The \"Several Opinions on Deepening the Reform of the Oil and Gas System\" may be issued later. The Energy Bureau stated that this year it will work on formulating supporting documents related to exploration and extraction, as well as pipeline operation, and will develop plans for comprehensive reform pilots and specific reform initiatives, aiming to carry out these pilot projects in a proactive and cautious manner. The Guidelines further specify that, within the framework of the overall plan for reforming the oil and gas system, orderly support should be provided to provinces and cities such as Chongqing, Jiangsu, Shanghai, and Hebei to carry out pilot projects related to the natural gas system. It is worth mentioning that on January 12 this year, the second **-level platform, the Chongqing Petroleum and Natural Gas Trading Center, was established following Shanghai. Jing Chunmei, an associate researcher at the China Center for International Economic Exchanges, believes that Chongqing combines the functions of a natural gas production site, a consumption hub, a pipeline network junction point, and a financial center – making it an important pillar of the Belt and Road Initiative. It can work in tandem with the Shanghai Petroleum and Natural Gas Trading Center, with one focusing on the east and the other on the west, complementing each other while developing in a differentiated manner, thereby contributing to the market-based reform of China’s oil and gas sector. (Author: Wang Lu) Source: Economic Reference News