Demonstration enterprises for coal-to-gas production should be given a pass”

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Leniency should be shown toward coal-to-gas demonstration enterprises / Author/Source: China Chemical Industry News / Date: 2017-07-26 / Clicks: 22 Recently, 13 departments including the National Development and Reform Commission, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, and the Ministry of Finance formulated the \"Opinions on Accelerating the Utilization of Natural Gas,\" calling for faster adoption of natural gas and explicitly urging the advancement of coal-to-gas industry demonstrations. At present, in China, coal-to-natural gas, which is still in the demonstration phase, is treated at the same price as naturally extracted natural gas, making it difficult for the highly vulnerable coal-to-natural gas industry to survive. According to media reports, recently, when the **Energy Bureau visited the Qinghua coal-to-natural gas demonstration project in Xinjiang, Qinghua Company complained that, due to rising gas prices, it is facing increasing difficulties in its operations. As far as the author knows, it’s not just Qinghua; all the coal-to-natural gas projects that have been put into operation in China are losing money. For example, since its commissioning, the Datang Keqi Coal-to-Natural Gas Pilot Project, China’s first such project, has also faced increasing operational pressures due to two significant price cuts on natural gas at the distribution stations. If this loss-making situation in the coal-to-natural gas industry continues, not only will the projects that are already in operation struggle to survive, but it will also severely dampen the enthusiasm for future projects. Appropriate policy support for coal-to-natural gas demonstration projects can be provided through two approaches: one is to offer certain price subsidies to coal-to-gas projects, in line with the support policies given to new energy sources such as solar and wind power, which differ from those for coal-fired power, in order to offset the losses incurred during the demonstration period and help these projects grow and develop over time ； Second, the **pricing department sets prices for coal-to-gas projects using a ‘cost-plus’ approach, ensuring that such projects are profitable and enabling their sustainable development. 　 The lack of a national gas transmission network has made the gas transmission infrastructure one of the bottlenecks restricting the development of coal-to-natural gas production. Our country should accelerate the reform to diversify the entities operating gas pipelines, break the existing monopoly structure, speed up the construction of natural gas pipelines, and establish a national gas supply network as soon as possible. On the basis of cost supervision and review, the transportation price for natural gas pipelines is scientifically determined. In the reform of natural gas prices, the sources of gas and sales prices are left to the market, while **regulation is applied to the pipeline transmission and distribution costs, which fall under the category of network-type natural monopolies, in order to enhance market competition at both the gas supply and sales ends. Meanwhile, given that coal-to-natural gas is still in the demonstration phase and its production volume is extremely low at present, the total output in 2017 accounted for less than 1% of China’s total natural gas consumption. Therefore, **for a certain period of time, it is necessary to coordinate with the gas pipeline companies that are still in a monopolistic position, so that they will accept all the coal-based gas produced, without any further restrictions on production volume.** Once again, the issue of funding channels requires **policy support**. In our country, whether it is the several coal-to-gas demonstration projects that are already in operation or those currently under construction, they almost all adopt a phased construction approach, meaning that planning is done once but construction takes place in stages. This makes it difficult to construct the project’s utility facilities in phases, resulting in an extended overall construction period and higher construction costs. The main reason for this phenomenon is the large scale of funding required for the projects, making it difficult for companies to raise sufficient funds for construction in a short period of time. Therefore, on the one hand, **financial institutions should be actively supported in directing financing toward coal-to-gas projects ； On the other hand, coal-to-gas projects broaden the scope of financing targets, seeking funds from the entire society through internet platforms. Promote it through methods such as PPP partnerships with ** and social capital.