Natural gas

On August 30, the **Natural Gas Utilization Policy** formulated by the National Development and Reform Commission was officially promulgated and implemented with the approval of the State Council. I. The necessity of formulating policies (1) Alleviating the imbalance between natural gas supply and demand. With the continuous and rapid economic and social development in our country, demand for natural gas has increased significantly. Domestic natural gas production is not sufficient to meet this demand, resulting in a prominent imbalance between supply and demand. At the same time, as international natural gas prices continue to rise, it becomes more difficult to utilize resources from abroad, which will further exacerbate the supply and demand imbalance for natural gas. Formulating and implementing policies for natural gas utilization can effectively curb unreasonable demand and promote a balanced supply and demand relationship for natural gas. (II) Optimize the structure of natural gas use. The structure of natural gas usage in our country is unreasonable, with an excessively high proportion allocated to chemical industries. Especially due to the relatively low price of gas, there is strong enthusiasm in natural gas-producing areas and their surrounding regions to develop natural gas-based chemical industries; in some places, projects related to methanol and fertilizers, which have low added value and short industrial chains, are developed indiscriminately. It is necessary to guide the rational use of natural gas resources, optimize the structure of its consumption, and fully leverage the benefits of these resources. (III) Promote energy conservation and emission reduction. Coal accounts for nearly 70% of China’s primary energy consumption. An energy consumption structure dominated by coal leads to high carbon dioxide emissions, placing significant strain on the environment. The rational use of natural gas can optimize the energy consumption structure, improve the atmospheric environment, and enhance the quality of life for people. It is of great significance for achieving energy conservation and emission reduction goals and building an environment-friendly society. II. Scope of Application and Regulatory Authorities (1) Scope of application of the policy. This policy is primarily aimed at guiding and regulating the downstream utilization of natural gas, and does not cover aspects such as financing and tax policies for projects related to the downstream use of natural gas. The natural gas referred to in this policy denotes natural gas commodities, excluding gas injected and extracted from underground gas storage facilities. All activities related to the use of natural gas within our country must comply with this policy. This policy also applies to natural gas and liquefied natural gas (LNG) imported through pipelines. (II) Utilize management entities. **The Commission for Development and Reform is responsible for the national management of natural gas utilization. The Development and Reform Commissions of various provinces (autonomous regions, municipalities) work together with the relevant competent departments to be responsible for the management of natural gas utilization within their respective administrative regions. III. Guiding Ideology and Basic Principles (1) Guiding ideology. In line with the requirements of the scientific development concept and the construction of a socialist harmonious society, and with the aim of improving the environment and enhancing the quality of life for the people, efforts should be intensified in terms of regulation and guidance, demand-side management should be strengthened, the structure of natural gas usage optimized, and resource utilization efficiency improved, so as to promote the healthy and orderly development of the natural gas market. (II) Basic principles. Adhere to a unified national approach, **carry out comprehensive planning for the utilization of natural gas, while taking into account the legitimate needs of natural gas-producing areas ； Adhere to differentiated treatment, clarify the priority order for natural gas utilization, ensure that natural gas is used first for urban gas supply, and promote the scientific and orderly use of natural gas ； Adhere to giving priority to conservation and improve resource utilization efficiency. IV. Areas and Sequence of Natural Gas Utilization (I) Areas of Natural Gas Utilization The areas of natural gas utilization can be categorized into four main types: city gas, industrial fuel, natural gas power generation, and natural gas chemicals. (II) Sequence of natural gas utilization: By taking into account various factors such as the social, environmental, and economic benefits of natural gas utilization, and based on the specific needs of different users, natural gas utilization is classified into priority, permitted, restricted, and prohibited categories. Category 1: Priority category – Urban gas: 1. Gas used for cooking and domestic hot water by residents in towns and cities (especially large and medium-sized cities) ； 2. Gas usage in public service facilities (airports, **government agencies, staff canteens, kindergartens, schools, hotels, restaurants, shopping malls, office buildings, etc.) ； 3. Natural gas vehicles (especially dual-fuel vehicles) ； 4. Users of distributed CHP and CHP-COP systems ； Category 2: Permitted categories – Urban gas: 1. Gas for centralized heating (referring to the central areas of the urban core) ； 2. Gas for individual heating systems ； 3. Central air conditioning ； Industrial fuel: 4. Projects that use natural gas in place of oil and liquefied petroleum gas in industrial sectors such as building materials, machinery and electronics, light textiles, petrochemicals, and metallurgy ； 5. Projects that use natural gas in place of coal gas in industrial sectors such as building materials, mechanical and electrical engineering, light textiles, petrochemicals, and metallurgy, and which offer good environmental and economic benefits ； 6. Users that can be interrupted in industrial sectors such as building materials, machinery and electronics, light textiles, petrochemicals, and metallurgy ； Natural gas power generation: 7. In areas with important electricity demand centers and an adequate supply of natural gas, build projects for using natural gas for peak-shaving power generation. Natural gas chemicals: 8. Natural gas hydrogen production projects with low gas consumption and good economic efficiency ； 9. Projects for producing nitrogen fertilizers using natural gas that is not suitable for export or cannot be utilized by users in categories 1 and 2 mentioned above ； Category 3: Restricted types – Natural gas power generation: 1. Projects for generating electricity using natural gas in areas that are not important load centers ； Natural gas chemical industry: 2. Expansion projects of existing ammonia synthesis plants that use natural gas as raw material, and projects to convert ammonia synthesis plants from using coal to using natural gas ； 3. Carbon-1 chemical projects that use methane as a raw material, with primary products including acetylene, chloromethane, etc ； 4. New ammonia synthesis projects using natural gas as a raw material, except for those listed in item 9 of Category 2 ； Category 4: Prohibited types – Natural gas power generation: 1. Construction of base-load natural gas power generation projects in the areas where thirteen large coal production bases are located, including Shaanxi, Inner Mongolia, Shanxi, Anhui, etc ； Natural gas chemicals: 2. New construction or expansion of natural gas-to-methanol projects ； 3. Project for producing methanol using natural gas instead of coal. (III) Gas project management policies. For existing gas-using projects, the current supply status should be maintained; in particular, for fertilizer production projects that have been approved for construction, a long-term and stable supply must be ensured. In areas where there is a severe shortage of natural gas but the conditions permit, these projects can undergo conversion from using gas to coal. For gas projects that are under construction or have been approved, if a long-term supply and use contract has been signed between the supplier and the user, the terms of that contract shall apply ； Those whose gas supply source has not been determined must do so within a specified time frame. All newly approved gas utilization projects shall be governed by this policy. The use of natural gas in its source regions should also strictly adhere to industrial policies. V. Promoting the efficient use of natural gas (1) Improving the efficiency of natural gas utilization. While strictly adhering to the aforementioned sequence for natural gas utilization, the use of advanced technologies and equipment is encouraged to maximize its efficiency. (II) Improve the natural gas commercialization rate. Natural gas production companies should strive to improve the quality of their natural gas product, increase the volume of gas supplied to external markets, and enhance the recovery and utilization of associated gas from oil fields by adopting energy-saving measures. At the same time, the gas produced for use within oil and gas fields should also be utilized in a scientific and rational manner to avoid waste. (III) Make good use of industrial gas. It is necessary to make good use of the gas generated during industrial production; gas dumping must be prohibited to avoid further waste of energy. VI. Safeguard Measures (1) Ensure a balance between supply and demand. **The Development and Reform Commission is responsible for regulating the total volume of natural gas consumption, striving to achieve a basic balance between supply and demand, and promoting coordinated and orderly development of resources, transportation, and the market. (II) Formulate utilization plans and programs. Provinces (regions, municipalities) should, on the basis of fully taking into account energy conservation and emission reduction goals, carefully formulate plans for the utilization of natural gas. In accordance with the principle of acting in line with available resources, they should make arrangements for gas usage based on the actual supply situation, so as to ensure a balance between supply and demand and avoid shortages caused by human factors. Natural gas utilization plans should be forward-looking and long-term in nature, taking full account of the inevitable trend toward alignment between domestic and international gas prices, so as to avoid a rush to launch natural gas utilization projects driven solely by short-term interests ； At the same time, research should be conducted on replacing oil with natural gas and liquefied petroleum gas, as well as on the use of related facilities, in order to avoid economic losses. (III) Strengthen demand-side management. The relevant provinces (regions, municipalities) should strengthen demand-side management, optimize the gas usage structure, and plan gas consumption growth in a rational manner to ensure a secure supply of gas for residents, public welfare facilities, and key users. For users who violate regulations regarding gas use, measures such as cutting off gas supply should be considered and implemented when necessary. (IV) Improve supply capacity. **Encourage increased efforts in the exploration and development of natural gas resources, as well as the import of natural gas, in order to boost supply capacity and meet market demands as much as possible, thereby alleviating the supply-demand imbalance. (5) Ensure a stable gas supply. The suppliers and consumers of natural gas should clarify their respective responsibilities regarding peak shaving and secure gas supply. **Encourage the construction of peak-shaving facilities and the establishment of a natural gas reserve mechanism for megacities. (VI) Reasonably regulate prices. Deepen the reform of natural gas prices, improve the mechanism for determining natural gas prices, gradually clarify the relationship between natural gas prices and those of alternative energy sources, and fully leverage the role of natural gas prices in regulating supply and demand. (7) Strict project management. In the context of tight natural gas supply and demand, **strict controls will be imposed on the approval and registration of natural gas-based power generation and petrochemical projects** ； It is explicitly prohibited to build LNG projects using natural gas produced from large and medium-sized gas fields as raw material. VII. Other (1) This policy shall come into effect as of the date of its issuance. Anything that conflicts with this policy shall prevail. (II) This policy is adjusted in a timely manner in light of changes in the supply and demand situation of natural gas, to ensure the healthy and orderly development of the natural gas market. (III) This policy is interpreted by the **Commission for Development and Reform.