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Reconsidering Some Key Issues Regarding the Shift from Coal to Gas in Our Country Author/Source: Date: 2017-05-02 Clicks: 26 It is both necessary and urgent to promote the use of natural gas as a substitute for coal in the field of coal utilization. Recently, the price ratio between natural gas and coal has eased, and with environmental protection policies in place, the situation regarding the shift from coal to natural gas is improving. However, gas prices remain a major concern for users switching from coal to gas. Strengthening regulation of regional transmission and distribution prices and promoting the rationalization of end-use gas prices should be the focus of China’s natural gas marketization reform. Compared to the forced \"coal-to-gas transition\" driven solely by subsidies, energy substitution driven by market forces will be more stable and sustainable. As an important measure to improve air quality in our country, the transition from coal to gas has been a topic of intense discussion among various sectors of society. In recent years, there have been diverse opinions regarding the necessity of switching from coal to gas. Some even argue that such a switch not only fails to address air pollution but may even exacerbate foggy conditions. What is the truth? Furthermore, plagued by economic considerations, the advancement of coal-to-gas conversion in most regions of our country relies on environmental protection policies, with weak intrinsic market momentum; however, the market situation seems to have changed recently. The author conducted further exploration on related issues. Firstly, the role of switching from coal to gas in improving China’s atmospheric environment is beyond doubt. As is well known, the use of coal for direct combustion in industries and heating systems is a major source of air pollution in China. The amount of pollutants emitted from 1 ton of coal burned in this way is more than 10 times that produced by large boilers such as those used in power plants. Moreover, since these small coal-fired boilers are scattered across various locations, it is more difficult to control and supervise them. So what is the emission reduction effect of replacing coal boilers with gas boilers? According to the **newly revised Boiler Emission Standards for Air Pollutants in 2014**, the emission limits for particulate matter, sulfur dioxide, nitrogen oxides, and mercury and its compounds for newly installed gas boilers are 60%, 83%, 33%, and 100% lower respectively compared to those for newly installed coal-fired boilers. Actual monitoring data also show that after switching from coal to gas, emissions of dust, sulfur dioxide, and nitrogen oxides can be reduced by 90%, 90%, and over 20% respectively, which plays an important role in reducing severe pollution episodes and lowering the average concentration of PM2.5. If distributed natural gas energy sources, which offer higher energy efficiency and cleaner usage methods, are used to replace open-fired boilers, the advantages in terms of energy savings and emission reduction will be even more significant. More importantly, the drawbacks of coal are not limited to its use at the end-stage; during extraction and transportation as well, it has a significant negative impact on water resources, the atmospheric environment, human health, and ecosystems. This is an objective reality that cannot be avoided when using coal, and it is also the reason why developed countries such as the UK and the US have chosen to shift to gas as an energy source. Of course, the issue of nitrogen oxides generated by natural gas combustion also needs to be addressed. Based on practices in typical regions, retrofitting gas boilers to reduce nitrogen emissions can fully meet the relevant emission standards. Beijing is a model city in actively implementing the substitution of coal with natural gas; currently, natural gas accounts for 28% of Beijing’s total energy consumption. So, what has been the impact of air quality improvements in Beijing over the past few years? In 2016, the PM2.5 concentration in Beijing was 72.5 micrograms per cubic meter. Since 2013, the average annual decline in this concentration has been 6.8%; in 2016 alone, the concentration dropped by 9.9% compared to the previous year, and the proportion of days with good air quality increased by 3.1%. In addition, the air quality in key areas identified in the Action Plan for Air Pollution Control, such as the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Pearl River Delta, has also seen significant improvements; compared to 2013, the improvement rate is around 30%. As Chen Jining, Minister of the Environmental Protection Department, stated publicly in January this year, compared with developed countries, the pace of improvement in our environmental quality is not slow, and the direction and measures taken to address air pollution in our country are correct. Secondly, the core issue of switching from coal to gas remains cost-effectiveness, which has improved significantly recently. Based on industrial gas prices in typical cities in Jiangsu, which range from 2.7 yuan per cubic meter to 2.8 yuan per cubic meter (at discounted rates due to the shift from coal to gas), and with coal prices at around 600 yuan per ton, the heat value ratio of gas to coal is approximately 2.6. Even taking into account the fact that gas boilers are about 30% more efficient than coal boilers, the fuel costs for enterprises using gas boilers are still approximately 70% higher than those for coal boilers. Our country is currently in a period of economic structural transformation. Traditional manufacturing sectors such as glass, ceramics, and textiles are facing issues of overcapacity and a significant decline in profit levels. Companies are more sensitive to fuel costs, and some are even forced to revert to using coal-fired boilers. The shift from coal to gas for residential heating also faces the same problems. Taking rural households in North China as an example, the coal consumption per household per heating season is 3.5 tons; at a coal price of 600 yuan per ton, the cost of using coal for heating in winter is approximately 2,100 yuan. If heating is done using a gas wall-mounted boiler, with a gas consumption of 1,300 cubic meters per heating season and a gas price of 2.5 yuan per cubic meter, the cost of heating fuel will be approximately 3,200 yuan. Even without considering the cost of equipment purchase, the annual fuel cost for each household will increase by more than 1,000 yuan. However, the market is not static. In fact, with the reduction in prices at natural gas gate stations at the end of 2015, and a significant rise in coal prices in the second half of 2016, the price ratio between natural gas and coal has quietly improved. From January to April this year, the average price of thermal coal in the Bohai Rim region was 595 yuan per ton, representing a 29.3% increase compared to the average price of 460 yuan per ton for the whole of last year. The price ratio of gas coal with equivalent calorific value (price at Shanghai port / thermal coal price index in the Bohai Rim region) was around 2.3; whereas this ratio remained above 3.5 for much of 2015 and 2016, at times even exceeding 4.5. The easing of the price gap between bituminous coal and gas has strengthened the determination of many companies to switch from coal to gas. In January this year, in Jiajiang, Sichuan – the ceramic capital of western China – 58 ceramic enterprises signed agreements with the local gas company to resume gas supply. It should be noted that over the past few years, driven by economic interests, almost all ceramic enterprises in the region have switched from burning natural gas to using water gas. This round of transition from coal to gas is driven, on the one hand, by **mandatory environmental policies**, and on the other hand, by the fact that the significant economic disparity between natural gas and coal has narrowed considerably. This battle for the resurgence of clean energy, driven by both policy and market forces, is encouraging. Data from the National Development and Reform Commission show that in the first quarter of this year, China’s natural gas consumption amounted to 63.6 billion cubic meters, representing a 9.6% increase on a year-on-year basis – a rate higher than that seen throughout last year. It is expected that this rapid growth trend will continue in April and May, helping to reverse the sluggish market conditions observed in the second quarter of last year. This is attributed, on the one hand, to the steady improvement in the domestic economic situation, and on the other hand, to the tangible effects of the shift from coal to gas. Once again, in addition to its environmental benefits, the shift from coal to gas brings many additional advantages. The author once visited a cable manufacturing company in Jiangsu that had implemented the switch from coal to gas. Although fuel costs increased after this switch, the overall environment of the factory was completely transformed, and cost savings of 760,000 yuan per year were achieved in areas such as land use, labor costs, waste disposal fees, boiler maintenance, and electricity expenses. For some companies with low fuel consumption, the savings in non-fuel costs after switching from coal to gas can even offset the increase in fuel costs. Some companies back down at the mere mention of rising fuel costs, but they should actually do a detailed cost analysis. Based on a comprehensive analysis, at the current stage of social development in our country, it is both necessary and urgent to introduce natural gas as a substitute in the field of scattered coal use. Recently, the price ratio between gas and coal has eased, and with environmental protection policies in place, the situation regarding the shift from coal to gas is improving. However, natural gas prices remain a key concern for users switching from coal to gas. In August 2016, the **National Development and Reform Commission issued a notice on strengthening supervision over local natural gas transmission and distribution prices in order to reduce the cost of gas for enterprises; this measure has a positive impact on regulating the terminal prices of natural gas in China. Regions such as Zhejiang, Guangdong, Jiangxi, and Shanghai have already reduced their regional transmission and distribution prices to varying degrees. However, in some areas of our country at present, the transmission and distribution prices are unreasonable, there are numerous levels in the gas supply chain with price increases at each level, and there is still room for a downward adjustment in the gas prices for non-residential users. The author believes that strengthening regulation of regional transmission and distribution prices and promoting the rationalization of end-use gas prices should be the focus of China’s natural gas marketization reform. After all, compared to the \"coal-to-gas transition\" forced through subsidies, energy substitution driven by market forces will be more stable and sustainable.