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How Can China’s LNG Import Projects Overcome Price and Market Challenges? Source of the article: Energy Policy Research. Author: Hua Ben. Date of inclusion: October 11, 2007. Date of publication: | Font size: Large, Medium, Small. Abstract: In recent years, China’s demand for natural gas has been growing rapidly. According to relevant research, China’s annual natural gas consumption is expected to range from 227.54 billion cubic meters to 296.54 billion cubic meters over the next 20 years. Domestic production will be around 120 billion cubic meters per year, resulting in a deficit of approximately 107.54 billion cubic meters to 176.14 billion cubic meters ； There are currently three LNG import terminal projects that have been planned and are under implementation in our country, including the LNG import project in the Pearl River Delta region, the LNG project in the Yangtze River Delta, and the LNG import project in Fujian. According to incomplete statistics, the total scale of LNG import reception projects planned to be built in China’s coastal areas before 2015 was close to 70 million tons per year; various signs indicate that China’s demand for liquefied natural gas (LNG) is growing rapidly. In the face of the price and market challenges encountered by China in its imported LNG projects, Professor Hua Ben, director of the Natural Gas Utilization Research Center at South China University of Technology, discusses in his article the drastic changes in the international LNG market and the difficulties faced by LNG projects ； How should we view international oil and gas prices? ； The diversified natural gas market and price structure under China’s energy strategy ； Analysis of users and prices in China’s natural gas downstream market ； New ideas for the market planning of China’s LNC projects were proposed, among others. This article is excerpted from (Energy Policy Research, 2007.3). Keywords: Imported LNG, domestic market, planning approach. I. Dramatic changes in the international market and the challenges faced by LNG projects. Since the beginning of this century, China has pursued the import of LNG in order to adjust its energy structure and develop clean energy sources; as a result, more than a dozen LNG reception station projects have been planned. Alan Greenspan, the former Federal Reserve Chairman, advised the president to build 40 LNG receiving stations to meet the country’s growing demand for clean energy, which triggered a surge in purchases in the international market. Until the early 2000s, the international LNG market remained a buyer’s market. But by the spring and summer of 2005, this situation began to change. Driven by rising international oil prices, LNG prices have continued to climb, with its offshore price increasing from less than $3/MMbtu to $6/MMbtu. Rising oil prices have boosted demand for natural gas in the United States. As natural gas production in the North Sea declines year by year, the European market is eager to find new sources of LNG, resulting in an international LNG market that was previously dominated by East Asian countries such as Japan, South Korea, and Taiwan – accounting for 75% of total demand – now having a structure that includes LNG markets in the United States and Europe as well. Together with the 20-year and 25-year take-or-pay contracts signed by countries such as Japan and South Korea starting in 1985, which are now coming to an end, there was a rush to sign new contracts to replace those old ones between 2005 and 2010. These factors have contributed to the shift of the international LNG market from a buyer’s market to a seller’s market. When the offshore price of LNG rose from $3/MMbtu to over $6/MMbtu, the heat value ratio of natural gas to coal in China’s LNG projects reached 2.5 to 3, exceeding the internationally accepted threshold of 2.4 ； The cost of generating electricity through natural gas combined cycle power generation also exceeds the grid price that utility companies can offer. Guangdong and Fujian, which plan to use imported LNG for power generation accounting for 70%-80% of its downstream applications, have encountered difficulties. If the remaining 20%-30% is allocated for city gas to replace the previously used LPG, there is no problem ； However, if it replaces coal-based gas or refinery gas, users will face higher gas prices. Furthermore, the total amount of city gas is limited, at around 3 million tons per year; with most of it relying on city gas, it is likely difficult to absorb such a volume. Under these circumstances, the LNG project that was originally planned to be submitted for approval finds itself in a difficult dilemma. II. How to view international oil and gas prices Since the first oil crisis in 1973, international oil prices have been unrelated to costs. To date, the extraction cost of large oil and gas fields in the Middle East remains below 610 per barrel. $The high price of 50-60 per barrel is caused by the geopolitical and economic power struggles between the two major groups, the OECD and OPEC. The portion by which international oil market prices exceed costs is shared between the resource-rich countries **and the multinational companies that extract oil. If the cost of crude oil is $8 per barrel, when it is sold for $48 per barrel, the profit of $40 is taken away in part by the resource-rich countries through resource taxes and export taxes, with the remainder going to the oil companies. In the 1990s, 65% of the world’s oil trade was sold to OECD countries**, and they still accounted for 60% by 2005. Rising oil prices are detrimental to oil consumers in the OECD**, but the major multinational oil companies such as Mobil, BP, Shell, Exxon, etc., are also controlled and monopolized by the OECD**, so the price increases benefit the shareholders of these companies. So whether prices rise or fall, apart from an increase in taxes for the resource-rich countries, it is always the developed countries that benefit. We just need to look at the New York stock market: when oil prices rise and oil-related stocks increase in value, it goes up as well ； As oil prices fall, non-oil stocks benefit, and they too will rise. Price increases are only detrimental to developing countries that import oil, which accounts for 40% of oil trade volume. According to the predictions of the International Energy Agency (IEA), there are three possible scenarios for oil prices in the future. Starting from the current level of around 60$ per barrel, the first scenario is that prices continue to rise, reaching 70-80$ or even 90$. The second scenario is that prices fluctuate and remain stable between 40-60$. The third scenario is that prices drop to 30-40$. Of course, no one can make accurate predictions about these three trends. However, it can be analyzed that the main factors determining the trend are: 1. The total amount of resources is definitely limited ； The question is exactly how much there is, and when it will run out ； Prices will surely soar as it approaches exhaustion ； 2. Technological progress. It is also possible to discover new oil fields and new extraction technologies, reduce the costs of developing deep wells, and curb price increases ； 3. Energy saving. Rising oil prices have spurred the development of alternative and new energy technologies, reducing dependence on oil and extending its extraction and usage period ； 4. Political and economic situation. Issues such as those in Iraq and Iran affect the political situation in the Middle East and around the world, which in turn influences oil prices. Overall, more people tend to favor the second possibility. In the second case, in the Middle East**, Indonesia, and Russia, the price at which domestic residents pay for gas has nothing to do with international market prices. Russia’s natural gas exported to the EU costs $230/1000m3 ； In China, it is $59 per 1000 m3. In developing countries lacking resources, those with good relations with resource-rich countries can also enjoy such advantages through political ties. Countries such as Belarus and Ukraine, which are part of the CIS**, have always received cheap natural gas from Russia. But when political differences arise, raising natural gas prices becomes a political tool. The domestic oil and gas prices in Venezuela are similar to those offered to friendly Latin American countries. In the third case, such as in developing countries like China, they have some resources of their own but are not wealthy enough, and thus must import from abroad. The relationship between domestic and international prices of natural gas is highly complex, as discussed in the next section. III. The Diversified Market and Price Structure of Natural Gas under China’s Energy Strategy (1) China’s Natural Gas Strategy: China’s energy strategy, formulated in 2004, consists of six points; regarding natural gas, it states that it is necessary to develop clean energy sources, protect the environment, ensure a stable supply, and achieve diversification of sources. According to the plans of the National Development and Reform Commission, by 2010 China will need 100 million toe (tonnes of oil equivalent) of natural gas, but the domestic supply will be less than 70 million toe ； By 2020, the demand will be 220 million toe, but the domestic supply will not exceed 120 million toe; thus, 100 million toe of natural gas will need to be imported. China, which serves as the \"world’s manufacturing hub\" by providing cheap and high-quality products worldwide yet has an energy per capita level that is only half of the world average, naturally imports oil and natural gas from abroad. Coal accounts for 70% of China’s primary energy mix. Imports of oil and gas are intended not only to meet the needs of the transportation and chemical industries but also to optimize the energy structure and improve the air quality in order to ensure sustainable development; this policy of developing clean energy will remain unchanged. (II) The structure of China’s natural gas market in the future: Over the next decade or so, China will develop a diversified natural gas market with 7 different sources. (1) The atmospheric gas fields in the west are the main source of natural gas in China, concentrated in several major basins such as Tarim, Junggar, Ordos, Sichuan, and Songliao. It will be delivered to the user areas via large main pipelines, primarily the West-to-East Gas Pipeline. (2) Medium and small gas fields cannot be ignored. China’s natural gas resources are characterized by low abundance, scattered distribution, and small scale; gas fields with reserves of 100 billion cubic meters, found in countries such as Russia, Qatar, and the Middle East, are considered large-scale gas fields in China. Due to their limited total reserves, it is not economical to build pipeline networks to connect these medium and small gas fields to the main natural gas pipeline network. There are two approaches for development: one is to consume locally through small-scale local pipeline networks ； Second, local liquefaction is employed, along with transport by tankers, to participate in the operation of the domestic LNG market. (3) Coalbed methane. China has 30 trillion cubic meters of coalbed methane reserves, which will constitute an important source of CH4 for the country. Apart from the large-scale resources, the development of coalbed methane presents similar challenges to those associated with the development of small LNG fields: either the gas needs to be connected to nearby users through pipelines, or it must be liquefied on-site and transported using tankers. The coalbed methane field that a foreign company is currently developing in Guizhou plans to be brought into the onshore LNG market through liquefaction. (4) Offshore natural gas. The gas fields discovered in China’s East China Sea and South China Sea can be transported to the mainland via pipelines for those located closer to the land, such as Pinghu–Shanghai ； For longer distances, FBSO can be used, namely offshore floating liquefaction ships, which liquefy the gas at the wellhead on the sea surface and then transport it to the receiving station. (5) Imported pipeline gas. This includes the two pipelines already agreed upon with Russia, with a capacity of 60 to 80 billion cubic meters per year each, as well as the gas pipeline under negotiation with Kazakhstan and Turkmenistan, with a capacity of around 70 billion cubic meters per year. (6) LNG projects imported by sea. In addition to those that are already in operation in Guangdong, projects in Fujian and Shanghai have been approved by the National Development and Reform Commission; there are also several other projects that are currently in the planning and preparation stage. Based on estimates of natural gas demand versus domestic production, the gap is expected to be between 30 and 50 billion cubic meters in 2010, and nearly 100 billion cubic meters by 2020; part of this gap will require the import of tens of millions of tons of LNG each year. (7) Biomass gas. Biological fermentation and/or gasification to produce gas from straw and waste materials has developed in China’s vast rural areas over the past decade, with a considerable volume generated. Some estimates suggest that hundreds of billions of cubic meters of this gas can be produced each year. Although this source of gas is relatively scattered and is mainly used for local consumption, it is also connected to the pipeline network in areas nearby to balance production and consumption. (III) The relationship between international LNG market prices and domestic prices in China. Most of China’s natural gas resources are located in the less developed western regions, while the main consumption areas are found in the developed coastal regions in the southeast. This separation between production sites and consumption areas gives rise to a complementary pricing relationship. When the West-East Gas Pipeline was put into operation, the cost of transporting gas over the 3,000-plus kilometers from Xinjiang to Shanghai in the east was approximately more than 1 RMB per m3. The cost of transporting liquefied natural gas from Guanghui in Xinjiang to Fujian over a distance of more than 4,000 kilometers via land-based diesel tankers was also over 1 yuan per m3 before the rise in oil prices in 2005 (at current oil prices it is over 2 yuan per m3). The CIF price of the 25-year take-or-pay LNG contract signed between China and Australia in 2002 was approximately 1 RMB per m3. **The price set by the National Development and Reform Commission for natural gas supplied at downstream gate stations is 1.45 yuan per m3. The CIF price plus the costs for gasification, pipeline transportation, and receiving stations happens to be exactly the same as the price of gas delivered from the west to Shanghai, which is 1.45 yuan per m3. However, the current international LNG market price has risen from $3/MMbtu to $6/MMbtu, while China **has not significantly increased the resource tax on domestic oil and gas extraction. Thus, the coincidental relationship between the price of the aforementioned domestic eastward transported \"western gas\" and the price of imported LNG changes. As a result, there have been continuous calls from within the country ； The three major oil companies are asking the National Development and Reform Commission to raise natural gas prices; some people are criticizing the excessive import of LNG and calling for a reduction in such imports, and so on. As mentioned above, the production cost of LNG has not increased; the price rise is the result of international political and economic struggles. Gas-producing countries adjust resource taxes and export taxes to maintain a balance between domestic prices and international prices. Under such circumstances, how can China balance the huge difference between the price of domestically produced natural gas and imported LNG? The most feasible measure, one that is also most conducive to resource conservation and sustainable economic and social development, is to gradually establish a resource tax system covering energy as well as other mineral resources. Different tax rates are determined based on specific factors such as the geographical location, scale, and abundance of domestic resources ； Adjust tax rates according to changes in international market prices ； At the same time, a subsidy mechanism should be established based on the level of economic development, income levels, and particularly the capacity to bear costs of vulnerable groups. This is done to balance the prices of imported LNG with those in different regions of the country, as well as the price differences among various consumer groups. China should impose export taxes to restrict the large-scale export of energy ； Resource taxes are levied to regulate and curb the unreasonable use of energy, while encouraging its efficient use. The establishment of this important mechanism will surely be put on the agenda soon. (IV) Price relationships of various types of natural gas in the domestic market. Currently, there is a misunderstanding regarding the relationship between the FOB (Free On Board) price of LNG and the price at distribution stations; it is believed that when the FOB price rises from $4/MMbtu to $6/MMbtu, an increase of 50%, the price at domestic natural gas distribution stations will also rise by 50%. This view is incorrect. The literature provides an analysis of the changes in terminal prices for LNG, with the FOB price rising from $4/MMbtu to $6/MMbtu. When the costs associated with the downstream stages after export, including shipping, gasification, investment depreciation and management fees for receiving stations, as well as the profits of LNG project companies, increase to 0.62 yuan/m3, the price at the terminal will rise from 1.78 yuan/m3 to 2.37 yuan/m3, representing an increase of around 33%, which is much lower than the 50% increase in the FOB price. Under the structure of China’s natural gas market, the price level at which the aforementioned small gas fields and coalbed methane are transported by land after being liquefied is clearly determined by the pipeline transport price of gas from large gas fields and the price of LNG imported via sea to the delivery stations, as well as by the market structure for domestic natural gas consumers in China that results from these two prices. If developing small gas fields and coalbed methane through liquefaction to enter the domestic LNG land transport market yields higher profits than producing fertilizers on-site, then they will not be utilized locally. Of course, the price for the local use of small fields in impoverished areas will not and should not be too high. The price at which imported LNG along the coast is gasified and then delivered to various users through pipelines should be determined by cost and efficiency factors. All of this is determined by factors such as market economic relations, regional economic development, and the harmonious stability of people’s lives. The price of imported pipeline gas is essentially a balance of interests between China and the resource-exporting countries. Russia, a resource exporter, hopes that China will purchase at the price of $230 per 1,000 m3, which is the price used for exports to Europe. China is a large developing ** with a vast territory. The southeastern coastal region of China is capable of purchasing LNG at international market prices of $6/MMbtu (approximately 2.4 yuan/m3). However, the Xinjiang region in northwestern China cannot afford pipeline natural gas at the European price of 230 dollars per 1,000 m3 (1.84 yuan per m3). Because the gate station price for transporting it via pipelines to the east would exceed 3 yuan per m3, which is also unaffordable for Shanghai. Natural gas trade between Russia and China can take place only when a price that is acceptable to both parties is reached. In short, whether it is imported LNG, imported pipeline gas, or natural gas developed locally and transported to the east, the pricing should be determined by the level of economic development in different regions and their geographical locations, taking into account the costs associated with the development and transportation of various gas sources, as well as a balance of economic interests and the overall interests at stake. (V) The impact trends of economic development and exchange rate changes on natural gas prices: Over the past nearly 30 years since the reform and opening up, China’s economy has achieved significant growth, and its role in international economic trade has risen markedly. The more developed areas along the southeast coast have much greater tolerance for oil and gas prices than they did 20 years ago. In 2005, when oil prices soared, China imported 146 million tons of oil, three times the amount imported by India. China’s population is only 30% higher than India’s. This reflects the demands of China’s manufacturing and transportation sectors, as well as its capacity to bear such demands. Of course, there are also factors such as **macroeconomic regulation** that transfer part of the high oil prices to the three major oil companies, thereby reducing the burden on consumers. But in any case, the more the economy develops, the greater the ability to bear oil prices. Since the RMB exchange rate reform last July, the ratio of the US dollar to the RMB has dropped from 8.26 to around 7.7. As the RMB appreciates, the price ratio between imported international LNG and domestic natural gas will further decline. This factor will also enhance China’s ability to withstand international LNG prices. IV. Analysis of Users and Prices in China’s Natural Gas Downstream Market (I) Three Types of Regional Markets for Natural Gas in China From a geographical perspective, China’s natural gas consumption is distributed across three distinct types of markets. The first category consists of regions in the west where the economy is highly underdeveloped, and these are also the areas closest to natural gas sources, such as Xinjiang, Gansu, Guizhou, Qinghai, Inner Mongolia, and Shanxi. They use local natural gas resources, and short-distance pipeline transportation ensures that the gas reaches consumers, so the price of gas should be relatively low. **It is necessary to impose a resource tax to curb the waste resulting from excessively low natural gas prices ； The second category includes areas along the southeast coast and regions such as Beijing and Tianjin, which are relatively economically developed; their per capita GDP reaches several thousand dollars, giving them a greater ability to afford natural gas prices ； Environmental pollution caused by economic development is also extremely severe, resulting in great pressure to adopt clean energy. When the amount of gas transported from the east to the west is insufficient, LNG must be imported. **Mr. Xu Dingming, deputy director of the Office of the Energy Leadership Group, mentioned in a speech not long ago that there are two approaches to introducing LNG: the Guangdong model, which is company-driven, and the Shanghai model, which is driven by local authorities. The latter relies primarily on its macro-control functions to introduce LNG projects into operations in order to absorb higher gas prices. For regions along the southeast coast, whether it is importing LNG or using offshore gas or gas transported from the west, the cost will be relatively high. The different costs of these three types of gas, as well as the prices between them, need to be balanced through **macroeconomic regulation ； The third type of market consists of regions that are in a transitional position in terms of geographical location and level of economic development, such as Henan, Hunan, Hubei, and Jiangxi. These regions are not very far from the sea nor from sources of resources. The potential scale of these markets, as well as their ability to bear gas prices, lie between those of the first two types of markets. These are the geopolitical factors that must be taken into account when exploring downstream markets and setting prices for downstream customers. (II) The guiding principle behind the substitution in the LNG downstream market as determined by China’s energy strategy: In 2005, coal accounted for 69% of China’s primary energy mix, while natural gas accounted for less than 3%. In this sense, the fundamental goal of developing natural gas is to improve the environment by reducing pollution caused by coal combustion. But this is a paradox. With the current heat value ratio of natural gas to coal already at 2.5 to 3, natural gas cannot compete directly with coal. Research shows that introducing LNG as an indirect substitute for coal in downstream markets can be summarized into the following 5 aspects; in addition to the need to build natural gas combined cycle power plants appropriately to serve as peak-shaving units in the power grid and supply electricity at higher prices, other considerations also exist. (1) As a substitute for LPG: At present, many cities along the southeast coast are using LPG in large quantities as city gas in order to address air pollution problems. In 2005, China consumed approximately 20 million tons of LPG, of which about 7 million tons were imported, with the remainder being mainly products of domestic refineries. With high oil prices, the price of LPG is very high; therefore, it is competitive to introduce LNG as a substitute for LPG. (2) Fuel (oil or coal) to replace industrial or commercial steam boilers: In large cities in developed coastal areas, the atmospheric conditions no longer permit the use of coal; therefore, oil boilers have been replaced with natural gas, whose cost is still affordable. Users who are still using coal find it economically unfeasible to switch to natural gas. The fundamental solution is to develop distributed heat (cold) power generation systems (DES/CCHP). Clean natural gas first passes through a gas turbine or internal combustion engine, which converts 30%-40% of the chemical energy in the natural gas into electricity with an efficiency of nearly 100%; the exhaust gases generated are then used to produce steam. This allows the cost of steam to be reduced to the same level as that produced by coal-fired boilers. The low-temperature thermal energy from the combustion exhaust gases of highly pure natural gas can also be further utilized for absorption refrigeration or hot water production, enabling the overall energy utilization efficiency to exceed 80% ； It achieves all three goals of economy, environmental protection, and high energy efficiency. (3) Replacing inefficient electricity use: The Ministry of Construction estimates that 80% of energy used in construction in China is spent on heating, air conditioning, and domestic hot water. Especially in the southeastern coastal areas, 80% of the energy used for building operations comes from electricity (with a small amount coming from gas, which is also an unreasonable practice of using high-energy sources in low amounts); moreover, a considerable portion of this electricity is imported from thousands of kilometers away, having lost 10% of its energy along the way. Calculations show that the ultimate clay utilization efficiency for generating electricity with coal in the west to heat water in the east is only a little over 20%. By adopting the urban combined cooling, heating, and power supply (DES/CCHP) technology, it is not only possible to achieve economic, environmentally friendly, and highly efficient outcomes, but it also helps to alleviate the pressure caused by insufficient peak load on the urban power grid during summer. China’s building sector consumes 600 million tons of standard coal per year, accounting for over one-quarter of the total energy consumption; therefore, there is significant potential for substitution in this area. (4) Replacing light hydrocarbons and heavy oil, which are by-products of petroleum processing and used as fuels, China’s petroleum processing capacity has reached 300 million tons per year, with approximately 20 million tons per year of these by-products being used as fuel for the boilers and heaters in refineries and petrochemical plants. At current and future international market prices, natural gas is cheaper than them. Because they can be directly cracked or pyrolyzed to serve as chemical raw materials ； Natural gas, on the other hand, is more suitable as a fuel. (5) Replacing gasoline and diesel as vehicle fuels: Among all clean alternative vehicle fuels, natural gas is the cheapest, most environmentally friendly, and most readily available. However, what makes it more complicated than other alcohol-ether alternative fuels is that it requires different engines, gas stations, and fuel tanks, thus necessitating the development of new industrial chains as a result. It must be noted that all these industrial chains are technically mature and highly economical overall. Moreover, it can drive the development of a new manufacturing sector and create a new source of economic growth. Currently, China has the largest number of heavy trucks in the world, with a potential for LNGV fuel substitution of tens of millions of tons per year. China can also become a global LNGV manufacturing hub by developing the LNGV industry chain. (III) Price strategies for downstream market users: Regarding the pricing for these various types of market users, in line with the goal of maximizing social benefits, four principles can be identified: (1) Cost-based principle: High gas supply costs result in high prices ； (2) Principle of energy utilization efficiency: Priority is given to users with high efficiency, along with low-cost supply (principle of social benefit) ； (3) The affordability principle in determining the price of substitutes: For example, users who replace expensive diesel or light hydrocarbons with natural gas can afford higher prices, whereas this is not the case when replacing cheaper coal ； (4) Market development orientation principle: For potential large-scale users who are highly sensitive to natural gas prices, accelerate market development by adopting a strategy of low profits but high volume sales. According to these principles, the users in the aforementioned 5 downstream markets should each enjoy different appropriate prices; see the reference. V. New Approaches to Market Planning for China’s LNC Projects In China, the aforementioned 5 LNG downstream markets are not only extremely vast, with a potential capacity of hundreds of millions of tons per year, but they also have the ability to absorb international LNG market prices. This is not surprising. In fact, in the distribution of users in the global natural gas downstream market, power generation and urban domestic use each account for about 1/4, while industry and urban commercial and industrial users make up the other half. It just so happened that prices rose at a time when China was importing large amounts of LNG, so it wasn’t possible to rely primarily on power generation to utilize most of the gas supply in the early stages. How can the above five principles for natural gas substitution be put into practice to replace traditional LNG-based power generation and urban gas use in planning? Clearly, aside from the first principle, which involves replacing the urban LPG market, the remaining four are new approaches that need to be developed. In fact, isn’t it also new to build combined-cycle power plants with a total capacity of several million kilowatts alongside each LNG project? The only difference is that only a few power plants need to be constructed, whereas the development of DES/CCHP systems for industries (industrial parks) and cities, as well as the replacement of LNGV fuel in the petrochemical industry, involves the construction or renovation of many enterprises and numerous projects. The key issue is whether the development of these new downstream market customers can be carried out and completed simultaneously during the 3–5 year period from planning, signing contracts to the completion and operation of LNG receiving stations. On this matter, it is necessary to take into account the \"Chinese characteristics\" of the specific context. (1) China has a large population and dense population density, with a continuously rising standard of living, which makes it suitable for the development of large-scale urban DES/CCHP systems ； With rapid industrial development and growing economic strength, it is now capable of carrying out renovations and upgrades ； (2) China is entering a new stage of development: industrial structure adjustment/shift, the relocation of industries to industrial parks and rural urbanization, the implementation of the Scientific Outlook on Development, a shift away from the \"three highs and one low\" development model, and significant efforts to improve the environment – all of these represent excellent historical opportunities for promoting an energy-efficient economy that includes DES/CCHP ； (3) The achievements of the past nearly three decades show that one of the characteristics of China’s socialist market economy is its ability to mobilize strong social forces to carry out reforms that would take many years to achieve under a traditional market economy, within a relatively short period of time. From another perspective, developing industrial and urban DES/CCHP systems, optimizing the energy structure of the petrochemical industry, and advancing LNGVs are all equally important as importing LNG – in fact, they are even more crucial – as part of the energy strategy goals of \"improving energy efficiency, optimizing the energy structure, and ensuring energy security\" that must be achieved. However, to carry this out in tandem with imported LNG projects, **it is necessary for various departments to coordinate more closely, to develop a comprehensive development plan for the natural gas industry that takes into account plans related to industrial development, industrial transformation, urbanization, the environment, transportation, and energy supply, and to formulate appropriate incentives and preferential policies in detail. A people-oriented system that is free from departmental divisions and capable of integrated coordination **can achieve this. This is also a driving factor and opportunity for promoting **institutional reform at present. Natural gas prices are closely related to oil prices. The historical record of the gradual shift from a linear price formula to an S-curve price formula for natural gas over the 20-year period from 1985 to 2005 shows that long-term contract prices for natural gas fluctuate in line with oil prices, but with a time lag and on a smaller scale ； Overall, it is lower than oil prices, especially since the beginning of this century. After experiencing significant fluctuations in oil and gas prices over the past two years, the relationship between natural gas and oil prices is likely to remain similar in the future, though uncertainty will increase. The domestic prices of natural gas in different countries do not always move in line with international prices. There are three scenarios. In the first scenario, countries with developed economies such as the United States, Europe, and Japan have strong currency values; their per capita GDP is high, allowing them to afford international oil and gas prices more easily. For example, a price of 20 cents per cubic meter for natural gas represents only 1/20 of the cost of a meal at McDonald’s, which is 4 dollars. But for China, 20 cents per cubic meter is equivalent to 1.6 yuan, which is 1/5 of the cost of a fast-food meal that costs 8 yuan. This is the difference in consumers’ ability to afford the same price, influenced by the level of economic development and currency exchange rates.