The difficulty in selling coal-to-natural gas is due to three “networks””

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Coal-to-natural gas: Difficulty in selling the gas stems from three ‘barriers’ Author/Source: China Chemical Industry News Date: 2018-02-02 Clicks: 182 Recently, the official website of the National Development and Reform Commission announced that antitrust investigations have been launched against several natural gas companies, including those affiliated with PetroChina. This might bring a glimmer of hope to coal-to-natural gas companies struggling to sell their product. 　　Gas is available but hard to sell due to three \"networks\". There are \"three networks\" for domestic natural gas, and it is these networks under different ownerships that make it difficult to develop coal-to-natural gas production. 　　The Datang Inner Mongolia Keqi coal-to-natural gas project is the **first demonstration project to be approved, constructed, and put into operation**. In line with the planning objectives for this project as approved by the National Development and Reform Commission, the natural gas produced by the Keqi coal-to-natural gas project is supplied directly to Beijing, the capital city, serving as its second source of natural gas. 　　A business manager at Zhongxin Nenghua Technology Co., Ltd. explained that after the project is completed and put into operation, the natural gas products produced must pass through three gas transmission networks to reach their destination markets: the first is a gas pipeline built by the company itself, stretching 317 kilometers from the production site in Keshiketeng Banner to Bashikying in Hebei Province ； Second, it must pass through the Shaanxi-Beijing Line 4 pipeline network operated by PetroChina, which spans a total distance of approximately 90 kilometers from Bashkeying to Beijing Gas Group in Beijing ； Third, it must reach the end-users through the pipeline network of Beijing Gas Group. 　　The aforementioned individuals said that although, at the beginning of the project construction, Datang signed relevant agreements with Beijing Gas Group, stipulating that Datang’s gas pipelines could be connected directly to Beijing Gas Group’s pipeline network, during the construction phase itself, the Beijing municipal authorities signed a strategic agreement with CNPC whereby CNPC would be the sole supplier of natural gas in Beijing. 　　Under this agreement, the natural gas required by Beijing can only be supplied by CNPC; the natural gas products of other companies are not allowed to enter the Beijing market directly. In other words, Beijing’s natural gas market is completely monopolized by CNPC. Based on this, Datang Keqi’s coal-to-natural gas project was required to be rerouted via CNPC’s Shaanxi-Beijing Line 4. 　　In fact, encountering three screening processes is a common phenomenon in coal-to-natural gas projects. 　　“Our situation is almost the same as that of Datang Keqi’s coal-to-natural gas project; we also have to go through three filtration systems. ”A relevant official from Xinjiang Qinghua Coal-to-Natural Gas Company also expressed the company’s difficulties. 　　It is reported that for these three networks, in addition to the company’s own gas pipelines, a fee has to be paid for each pipeline passed. Taking the coal-to-gas project in Keqi as an example, when the natural gas passes through CNPC’s pipelines, a fee of 0.12 yuan per cubic meter is charged; once it enters Beijing Gas Group’s pipeline network, the fee rises to as much as 0.6 yuan per cubic meter before it can reach the end-users. It is evident that the fees associated with transporting coal-derived natural gas are extremely high. 　　It is difficult to allocate resources in a market without pricing power. As learned from several coal-to-natural gas companies, these firms also face significant challenges when it comes to setting prices for their products. 　　“The total cost of producing natural gas from coal in Datang Keqi is approximately 2.5 yuan per cubic meter, but the price at which it is sold to CNPC is 1.78 yuan per cubic meter, resulting in a loss of 0.72 yuan per cubic meter sold. ”A relevant official from Sino-New Energy Chemicals said. 　　Datang expressed its willingness to find customers on its own for sales, hoping that CNPC would agree to transport the product through its pipelines by charging only a handling fee, but moving forward with this plan proved to be very difficult. 　　Industry seeks reform to foster development. Due to severe losses incurred by the Datang Keqi coal-to-natural gas demonstration project and the two Xinjiang Qinghua coal-to-natural gas demonstration projects as a result of pipeline network and price monopolies, with no hope of resolving these issues, the vast majority of coal-to-natural gas projects have either stopped being built or were never planned in the first place. Even those projects that are already in operation are considering switching to the production of other downstream products. 　　“We are considering installing peak-shaving facilities; we plan to undertake projects such as the production of 800,000 tons of methanol per year at the Keqi coal-to-natural gas project.” A supervisor from the Planning Department of Sino-Singapore New Energy Chemicals said. 　　Cui Jun, a senior analyst at the CCIC Information Research Institute who has been closely following the developments in coal chemical projects, said that according to China’s policies regarding coal chemicals, there are currently 19 new and planned coal-to-gas projects in the country, with a total capacity of 83.8 billion cubic meters. Adding to this, the total capacity for coal-to-gas production that was approved in previous years is 15.5 billion cubic meters; thus, China’s overall coal-to-gas production capacity amounts to 99.3 billion cubic meters. If this capacity is gradually brought online, it will help **alleviate the shortage of natural gas resources in China. However, due to the currently low price of natural gas in our country, companies incur losses as soon as they start operations; as a result, some coal-to-gas projects have seen their construction delayed or their product portfolios adjusted. 　　Tang Hongqing, a technical advisor for synthetic oil technologies at the Chinese Academy of Sciences and an expert in the coal chemical industry, said that given China’s large population, natural gas is far from sufficient; therefore, developing coal-to-natural gas production appropriately is the right choice. However, to enable the development of coal-to-natural gas or other unconventional natural gases, reforming the gas transmission network is not only necessary but also urgent. 　　According to a source close to the **National Development and Reform Commission**, the relevant departments of this commission are also making vigorous efforts to advance this matter, but they say that since it involves the interests of various parties involved, a decision and push from the State Council are required.