Information on the hazardous chemicals industry: Who should be responsible for regulating LNG on-demand supply companies

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　　Should it be the licensing for hazardous chemicals or the licensing for gas operations that determines who is responsible for regulating LNG supply companies? With the worsening air pollution and the requirements of environmental protection policies, most areas in China, especially cities in the north, have begun the process of switching from coal to gas. Against this backdrop and in light of these business opportunities, the development of LNG (liquefied natural gas) on-demand supply services is also seeing rapid growth. However, this also presents regulatory challenges for the authorities in charge. It is undisputed that LNG used as an industrial raw material requires a license to operate as a hazardous chemical and is subject to supervision by safety regulatory agencies. But how should LNG used as fuel be classified? Does it fall under the category of urban gas, thereby requiring a gas operation license and supervision by housing and construction authorities? This issue remains unclear due to legislative gaps. 　　01 Doubts from safety supervision authorities 　Due to the characteristics of the LNG on-site supply business, such as low investment requirements, small company sizes, and modest technical demands, coupled with the advantages offered by relevant policies, LNG on-site supply companies have sprung up in most regions of China like mushrooms after rain. In one particular city, several enterprises were established in less than half a year, and this trend continued to accelerate, posing a significant challenge to the supervision efforts of the local safety authorities. As a result, these authorities issued notices to the relevant enterprises, stating that according to Article 2, Paragraph 2 of the \"Regulations on the Administration of Licenses for the Operation of Hazardous Chemicals\" and the \"Reply from the General Administration of Work Safety regarding Administrative Licenses Related to Hazardous Chemicals\" (Document No. An Jian Guan Si Ban Han Zi [2004] 124), the licenses for operating hazardous chemicals issued to LNG traders can only be used for dealing with LNG that is used as an industrial raw material. The authorities required these enterprises to provide proof of the intended use of the LNG by end-users; if it was to be used as fuel, then the license for operating hazardous chemicals would be revoked in accordance with the law, and the enterprise would need to apply again to the housing and construction department for a license to operate urban gas services. 　　As soon as this article was published, it caused a huge stir among various LNG trading companies, as the process of applying for permits to operate urban gas services is more complicated, and it is even more difficult to obtain such permits when a company does not yet hold a franchise to operate urban gas services. This document issued by the local safety supervision authorities, which appears to be based on relevant regulations, puts enterprises in a difficult dilemma. The key issue in resolving this dilemma is whether LNG used as fuel falls under the category of urban gas. For clarity, this article classifies enterprises that supply LNG on a point-to-point basis into two types: those in which the terminal facilities are built by the enterprises themselves, with the suppliers merely assisting with operations. Another approach is for the point supplier to be responsible for the entire operation process, and in this case a gas business license is required. The entity referred to below for companies is the first type, namely LNG traders. 　　02 Analysis of the Current Relevant Regulations in China Article 2, Paragraph 3 of the Regulations on the Management of Urban Gas clearly stipulates that the term \"gas\" as used in these regulations refers to gaseous fuels that are used as fuel and meet certain requirements, including natural gas (including coalbed methane), liquefied petroleum gas, and artificial gas. At the same time, LNG is classified as a hazardous chemical as listed in the Table of Hazardous Goods. In accordance with Article 27 of the Regulations on the Management of Hazardous Chemicals, **a licensing system is in place for the trading and sale of hazardous chemicals; without a license issued for such activities, no entity or individual may engage in the trading or sale of hazardous chemicals. At the same time, Article 71 of the Regulations on the Management of Hazardous Chemicals and Paragraph 2, Article 2 of the Measures for the Administration of Licenses for the Operation of Hazardous Chemicals clearly stipulate that business activities related to urban gas do not require a license for the operation of hazardous chemicals. At the same time, the **State Administration of Work Safety, in its Reply on Issues Related to Administrative Licenses for Hazardous Chemicals (Document No. An Jian Guan Si Ban Han Zi [2004] No. 124), also provided the following definition of \"urban gas\": Gas fuels such as natural gas, liquefied petroleum gas, and artificial gas (gas produced from coal or heavy oil), which are used for residential and industrial purposes in cities, fall under the category of urban gas. In accordance with Article 71 of the Regulations on the Safety Management of Hazardous Chemicals, these fuels are not subject to those regulations. However, natural gas, liquefied petroleum gas, and synthetic gas used for non-fuel purposes such as as chemical raw materials should be included in the scope of safety management for hazardous chemicals. 　　As can be seen from the above provisions, for LNG point suppliers, whether LNG is ultimately used as fuel or not, it should not fall under the category of urban gas: (1) In terms of physical form, it is gaseous fuels that are subject to the \"Regulations on the Management of Urban Gas\" rather than the \"Regulations on the Management of Hazardous Chemicals\". LNG, on the other hand, is natural gas that has been purified; through compression and cooling, heat is removed from it, and nitrogen, carbon dioxide, solid impurities, sulfides, and water are eliminated. Subsequent throttling expansion results in a liquid form of natural gas at -162°C, and its physical state is clearly different from that specified in the Regulations on the Management of Urban Gas. 　　(II) From the perspective of the receiving equipment at the end point (such as gasification stations), if such equipment is built and operated by end-users themselves, then the commodity that the supply company purchases from upstream gas sources and transports to the end-users for their commercial use is always LNG. The end-users’ own use of LNG – whether directly or after it has been gasified – has no direct relationship with the supply company; their use of LNG is subject to separate regulations set forth in **laws and local regulations. As the author has learned, according to local regulations in Jiangsu Province, users who build their own gas stations must also comply with relevant regulations and obtain the necessary administrative approvals. 　　In this regard, the view expressed by the People’s Court of Yixing City in Jiangsu Province in its administrative litigation judgment with case number (2007) Yixing Chu Zi No. 0009 is also of some reference value. The court held that: \"Natural gas used for urban heating generally refers to the natural gas that, once it enters the urban supply system, can be supplied directly by the operating entities for use in residential and industrial purposes within the city limits.\" It is not equivalent to liquefied natural gas in road transport. In this case, the plaintiff is a transportation company whose main business involves the transport of hazardous goods. Since liquefied natural gas transported by road has not yet entered the supply systems of urban utilities, it cannot be considered urban gas. ” 　　03 Existing regulations still have shortcomings. In a society governed by the rule of law, the value of public law lies in restricting public power in order to protect private rights; its basic principles are that nothing is permitted unless authorized by law, and anything not prohibited by law is allowed. Therefore, the \"Regulations on the Management of Urban Gas,\" the \"Regulations on the Management of Hazardous Chemicals,\" and related provisions, as norms governing the use of public power to interfere with private rights, must be strictly complied with by the relevant authorities when applied. In cases where these provisions explicitly apply only to gaseous fuels and there are no specific regulations regarding LNG, it is not permissible to interpret these laws and regulations in an expanded manner without authorization. Therefore, for enterprises that supply LNG, regardless of whether the LNG they handle is used as fuel or not, if the gasification stations are built and operated by end-users, such LNG does not fall under the category of urban gas before it is gasified; as a result, there is no need to apply for a gas business license. It is sufficient to obtain a license for handling hazardous chemicals in accordance with the provisions of the Regulations on the Management of Hazardous Chemicals and the Measures for the Administration of Licenses for Handling Hazardous Chemicals. 　　However, it should be noted that there are still certain shortcomings in the legislative provisions. For the sake of public interest, the legislation requires pipeline gas suppliers to ensure a continuous supply of gas (Articles 17 and 18 of the Regulations on the Management of Urban Gas). In contrast, LNG point supply emphasizes economic convenience; whether the supplier has an obligation to provide a continuous supply depends on the mutual agreement between the parties, and the supplier is not obligated to deliver gas forcibly (Article 18 of the Regulations on the Management of Urban Gas stipulates that gas suppliers shall not refuse to supply gas to entities or individuals within the coverage area of the municipal gas network who meet the requirements for using gas). 　　Therefore, from the perspective of the legislative intent, whether it is the Regulations on the Management of Urban Gas, the Regulations on the Management of Hazardous Chemicals, or other relevant regulatory documents, they all appear to be inadequate when it comes to regulating LNG point supply; they fail to fully meet the new challenges arising in the gas industry and thus require urgent revision. After all, the cases mentioned in the text are not isolated incidents, and LNG supply companies are not the only ones facing such problems. For example, as for compressed natural gas (CNG), which is in the same gas form, how should supply companies deal with similar issues? This remains a question that deserves careful consideration.