Energy Bureau conducts investigation into Qinghua; Xinjiang’s coal-to-gas industry faces challenges due to price cuts and production restrictions

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The Energy Bureau conducts an inspection of Qinghua: Xinjiang’s coal-to-gas industry faces challenges due to price cuts and production restrictions. Author/Source: Date: 2017-05-26 Clicks: 25 On May 23, Li Ye, Director of Supervision at the Energy Bureau, Huang Jinzong, Deputy Secretary-General of the People’s Government of Xinjiang Uygur Autonomous Region, Liu Jianguo, Party Secretary and Executive Vice Governor of Ili Kazakh Autonomous Prefecture, Li Hua, Executive Deputy County Head of Yining County, and Zhu Shengli, Deputy County Head, among other officials, visited Xinjiang Qinghua Energy Group for an inspection. Meng Lingjiang, General Manager of Xinjiang Qinghua Energy Group, along with Deputy General Managers Luo Yinlong and Yang Lixian, accompanied the inspection. Meng Lingjiang gave a detailed report on the production and operation of Xinjiang Qinghua Group’s coal-to-natural gas project, as well as the difficulties the company is currently facing. Meng Lingjiang said, “Since it began operations in 2013, Xinjiang Qinghua has maintained a friendly and positive cooperative relationship with CNPC. However, CNPC’s unilateral decisions to reduce prices and limit production in 2015 had a significant impact on Xinjiang Qinghua, severely affecting the company’s revenue and cash flow. Currently, the rising cost of gas is making it increasingly difficult for the company to operate.” Xinjiang Qinghua is responsible for the **coal-to-natural gas demonstration project; if the difficulties faced by the company are not resolved in a timely manner, its development will be hindered. It is hoped that Director Li Ye will report the company’s challenges to the relevant ministries so that the issue of gas prices can be addressed as soon as possible.** ” The leaders of other coal-to-natural gas companies in Ili, such as Yitai Energy and Xintian Chemical, who accompanied the inspection, also said: “We are all facing the same difficulties as Qinghua, and we fully agree with the actual situation described by General Manager Meng Lingjiang.” ” **Li Ye, the director in charge of supervision at the Energy Bureau, said, \"After the investigation is completed, I will convene meetings to discuss the issues raised by everyone and submit relevant reports. In the meantime, enterprises must also make persistent efforts to overcome difficulties and ensure the stable and healthy operation of their businesses.\" ” The Qinghua coal-to-natural gas project is located in the Yidong Industrial Park of Yining County, Xinjiang Uygur Autonomous Region, and it is the first coal-to-gas demonstration project in Xinjiang to receive **approval. The total scale of the project construction is 5.5 billion cubic meters, with construction carried out in four phases. The first phase of this project, with an annual production capacity of 1.375 billion cubic meters of coal-to-natural gas, came online in November 2013. The first phase of the project performed well; the installation operated stably at high load levels, with the production capacity exceeding 80%, and the monthly output reaching nearly 100 million cubic meters. Nevertheless, it is estimated that the production cost of Qinghua’s coal-to-natural gas project is 1.6 yuan per cubic meter. After the National Development and Reform Commission reduced the maximum price for non-residential gas use by 700 yuan per thousand cubic meters starting from November 20, 2015, the profit margin was **reduced**. According to estimates by industry experts, taking a coal-to-natural gas project with a capacity of 4 billion cubic meters per year as an example, the construction cost is approximately 20.09 billion yuan. With a coal price of 200 yuan per ton, a catalyst cost of 55 yuan per thousand cubic meters, electricity costing 0.6 yuan per kilowatt-hour, water consumption of 6.3 tons per thousand cubic meters, and water costs of 5 yuan per ton, the final calculated production cost is 1.54 yuan per cubic meter. When coal-based natural gas is transported via pipelines, certain transportation costs as well as business tax and value-added tax must be deducted. In terms of selling prices, at present, the selling prices for gas transported through pipelines and liquefied natural gas produced via liquefaction, as well as gas produced from coal, are all higher than the local natural gas gate station prices, resulting in weaker competitiveness. At present, the production costs in the coal-to-natural gas industry remain high, and the issue of negative profits is prominent. In April 2017, Huo Qinghua, chairman of Qinghua Energy Group, along with representatives from the board of directors of Xinjiang Qinghua Energy Group, met with Zeng Cun, secretary of the Party committee of Ili Prefecture, and delivered a special report on the operation of the projects owned by Xinjiang Qinghua Energy Group, its future development plans, as well as the challenges it currently faces. The meeting decided: (1) To continue treating the second phase of Xinjiang Qinghua Group’s coal-to-gas project as the top priority in the autonomous prefecture’s efforts toward new-type industrialization, and to accelerate its completion as a landmark project for Ili’s modern coal chemical industry, in line with common directions and goals. (II) Regarding gas price issues, the Party committee of the autonomous prefecture, together with **, will continue to seek support from the people’s government of the autonomous region; at the same time, efforts will be intensified to coordinate with relevant authorities, and support from CNPC will be sought through the Central Office for Xinjiang Affairs and the **Energy Bureau. (III) Regarding the establishment of the clean energy fund, the Party committee of the autonomous prefecture will take the lead, with China Energy Engineering Group working in conjunction with the relevant departments of the autonomous prefecture to develop a specific plan. (IV) Regarding the coordination of continuing the policy of returning a subsidy of 0.2 yuan per cubic meter in the autonomous region, the autonomous prefecture will make active efforts on behalf of the local people to ensure that the policy under which the local share of value-added tax, income tax, and resource tax paid by Xinjiang Qinghua is fully refunded to enterprises as a form of incentive continues to be in effect. At the same time, all preferential policies established by the autonomous region will be implemented without compromise. (5) Regarding applications for subsidies in industries such as coal-to-oil and shale gas, the autonomous prefecture will actively seek support from the people’s government of the autonomous region, and make efforts to establish connections with the Central Xinjiang Office and the **Energy Bureau. (6) Regarding the issue of gas supply for the local market, it is fully in line with the actual situation of \"Gasifying Ili,\" and the autonomous prefecture provides full support. Xinjiang Qinghua can commission professional agencies to conduct market research on gas usage in Ili and develop gas utilization plans; if these meet the requirements of the \"Gasification of Ili\" initiative, coal-based gas produced by Xinjiang Qinghua can be given priority for use.