The obstacle that coal-to-gas companies cannot avoid – peak-shaving production restrictions

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A hurdle that coal-to-gas companies cannot avoid – peak-shaving production restrictions. Author/Source: China Chemical Industry News. Date: May 11, 2016. Clicks: 36. This year, several coal-to-natural gas projects in China have been approved, received environmental impact assessments, or started construction, presenting a bustling scene. As one of the key approaches for demonstrating modern coal chemical industry in China, coal-to-natural gas has once again attracted widespread interest. The author would like to remind all relevant parties that when developing coal-to-natural gas projects, they must take into account the market’s capacity to absorb such output as well as measures for peak load management in advance. Otherwise, once the project is completed, it will be difficult to fully utilize its production capacity, resulting in a significant reduction in the company’s profitability. The author’s concerns are not unfounded. In fact, some of the companies in our country that were among the first to carry out coal-to-natural gas demonstration projects have encountered such a situation. For example, a coal-to-natural gas project in Inner Mongolia recently received a production restriction order from CNPC – as the summer peak-season approaches, CNPC’s pipeline network is no longer able to handle additional amounts of coal-to-natural gas product, and the company has been asked to limit its production. In fact, this coal-to-natural gas demonstration project, with a designed production capacity of 4 billion cubic meters per year, is planned to be built in three phases. So far, only Phase 1 has been completed and put into operation, accounting for just one-third of the designed capacity, namely 1.33 billion standard cubic meters per year. But even with just this capacity, production is required to be cut in half. If this project is fully built and put into operation, the peak-shaving pressure it will face is imaginable. As is well known, the most prominent feature of the natural gas market is that downstream demand experiences peaks and troughs as seasons change. Winter sees the highest market demand, reaching a peak and representing the peak period of demand, while summer has the lowest market demand, marking the trough period of demand. Taking the Beijing natural gas market as an example, the ratio between peak and trough demand for natural gas can be as high as about 10 to 1. At present, with the arrival of summer, demand for natural gas in the market has dropped sharply, so it seems reasonable to require coal-to-natural gas projects to limit their production. However, since coal-to-natural gas projects do not have their own means for peak shaving, they may face a situation in which the production facilities cannot operate at full capacity for most of the year. As far as the author is aware, both the coal-to-natural gas projects that have already been built in China and those currently under construction do not give sufficient consideration to the issue of peak shaving, and the actual production capacity of these projects may face constraints arising from such peak shaving requirements. There are essentially two ways to manage peak loads in coal-to-natural gas projects: one is to use the pipeline networks of CNPC and Sinopec for unified load management, and the other is for coal-to-natural gas companies to build their own LNG facilities in order to manage peak loads on their own. But the reality at present is that neither of these two peak-shaving methods is very reliable. The coal-to-natural gas demonstration project in Inner Mongolia mentioned by the author initially planned to build its own LNG peak-shaving facilities, but due to factors such as high investment costs and poor peak-shaving performance, it decided, after consultations with CNPC, to rely on the pipeline network to handle peak-shaving tasks. But the harsh reality is that CNPC’s gas transmission network is also unable to meet the peak-shaving needs of coal-to-natural gas projects. If the project builds its own peak-shaving facilities, not only will the excessive investment increase the company’s risks, but the effectiveness of such self-built facilities is also very limited, making it difficult to fulfill the peak-shaving functions required by coal-to-natural gas projects that produce billions of cubic meters of natural gas per year. As an emerging industry aimed at promoting development, the coal-to-natural gas technology in our country is still in the demonstration phase. Based on these demonstrations, there are still numerous issues related to technology, environmental protection, safety, pipeline networks, and the market. However, the author believes that among all the issues, the most pressing one at present is peak shaving; because if this problem cannot be resolved, the natural gas produced by enterprises will find it difficult to be delivered in its entirety, production capacity will not be effectively utilized, and the companies may end up suffering huge losses and ultimately fail. Clearly, coal-to-natural gas companies are unable to address the issue of peak shaving on their own; this requires top-level planning at the appropriate level, starting with reforms to the natural gas distribution network. By providing support for this emerging industry, policies should prioritize ensuring an adequate market supply for coal-to-natural gas products, thereby eliminating the concerns related to peak shaving for these companies and facilitating the healthy development of China’s coal-to-natural gas industry