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What Caused China’s Squeeze on Natural Gas?

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What Caused China’s Squeeze on Natural Gas?

A program to ban coal heating and switch to gas left households in the cold. What happened?

What Caused China’s Squeeze on Natural Gas?
Credit: PIxabay

Air quality has improved significantly in Beijing this year but an overzealous program to ban coal heating and switch to gas ran into trouble earlier in December. Severe shortages of natural gas – estimates vary from 4.8 billion to 11.3 billion cubic meters – left thousands of rural people shuddering in the cold.

This included students in a Hebei primary school, who were forced to study outdoors in the sunshine to keep warm. And in another report, construction workers in Shanxi were detained for burning coal to keep warm.

These stories have sparked a debate over whether the coal-to-gas switch is a case of a good policy that’s been poorly implemented, or the wrong approach to helping China reduce its greenhouse gas emissions and clean up its air.

Runaway Ambition

The decision to gradually phase out the burning of low-quality and polluting loose coal in rural homes in northern China was recommended by the Chinese Academy of Engineering in its mid-term review of the “2013-2017 national action plan” to clean up air pollution, according to an interview with Lei Yu of the Chinese Academy for Environmental Planning.

The review concluded that Beijing “needs greater efforts” if it was to meet the 2017 PM2.5 target. The document, dated July 2016, recommended “increasing natural gas supply in Beijing-Tianjin-Hebei area and replacing industrial coal use and domestic loose coal burning with natural gas or electricity.”

In September 2016, the Ministry of Environmental Protection jointly issued a policy document with the governments of Beijing, Tianjin, and Hebei to intensify air pollution control measures. It urged Beijing’s four southern districts – Fengtai, Tongzhou, Fangshan, and Daxing – and parts of Baoding and Langfang in Hebei province to replace loose coal heating with gas or electricity.

But at the end of 2016, Beijing’s PM2.5 levels were 73 micrograms per cubic meter (µg/m3), still much higher than the annual mean target of 60 µg/m3 and with only one year left. This is one explanation for why the goals were revised in 2017 to substantially increase ambition.

Efforts to replace coal with gas were accelerated in March when several ministries and provincial governments jointly issued a document urging the “2+26 cities” (this includes Beijing, Tianjin, and 26 other cities in Hebei, Shanxi and Henan provinces) to adopt “clean heating.” Each city was set a target to replace coal stoves in 50,000 to 100,000 homes with gas boilers or electric heaters by the end of October.

In August, the target was upgraded again. The Ministry of Environmental Protection issued a document that the “2+26 cities” should finish retrofitting at least three million homes by the end of October. This was even higher than the 2.8 million homes at the upper limit of the March target.

Even before targets were revised, efforts to reduce air pollution had paid off. In Beijing, which is notorious for its winter smog, average levels of tiny particles known as PM2.5 dropped in the first 11 months to 58 µg/m3, below the 60 µg/m3 target, although still much higher than the World Health Organisation’s guideline of 10 µg/m3. Neighboring Tianjin and most of the cities in Hebei province are also expected to meet the target.

Local governments have pursued the heating switch enthusiastically. Both Shandong and Liaoning provinces developed plans for retrofitting clean heating systems. In Hebei province, achievement was said to be 30 percent higher than the original plan.

In interviews with Caixin media, Lei Yu estimated that over four million homes were retrofitted in the switch from coal. Most local governments opted for gas over electricity, according to figures published by local governments, likely due to lower costs. Also, electric heating retrofits would put additional pressure on power infrastructure. Beijing said over one million homes in suburbs shifted to electricity for heating, which has increased the maximum load on the city’s power grid by about 10 percent.

However, the shift to natural gas has greatly enhanced demand, and exposed problems with how the heating switch has been implemented. An official at the National Development and Reform Commission said part of the problem is that local level officials exhibit a “sheep-flock” mentality. This can lead them to deliver on targets without consideration of nationwide impacts.

In replacing coal stoves with cleaner heating systems, there are also cases where local officials have arbitrarily demolished existing systems without first securing new sources of heating. Needless to say, rural villagers left without proper heating have complained.

Alex Wang, an assistant professor at UCLA School of Law who researches China’s environmental governance, said one downside of such campaign-style clean-up efforts is the risk that “policies are implemented in inappropriate, even abusive, ways as local governments clamor to meet political targets.”

Is Natural Gas the Right Choice?

The squeeze on natural gas supplies has since forced the Ministry of Environmental Protection to backtrack on its ambitious targets, allowing coal burning in areas where retrofitting work is incomplete.

While local governments and major gas operators in the country are scrambling to build out gas infrastructure and secure supplies for household use, some are asking whether gas is the answer given China’s extensive coal reserves and limited domestic gas and oil resource.

Ni Weidou, a member of the Chinese Academy of Engineering, and professor of thermal engineering at Tsinghua University, is one of the leading proponents of allowing coal to dominate China’s energy consumption, leaving cleaner alternatives to play an “auxiliary role.” Ni said China should continue to improve coal efficiency through “clean coal” technologies.

“The hundred-billion tonnes of coal reserve in Shanxi and Inner Mongolia are the fundamental guarantees of energy consumption for the country,” he said in a recent public speech.

Du Xiangwan, also a member of the Chinese Academy of Engineering, disagrees. He said China’s determination to take on a low-carbon development path has “foretold the demise of coal.”

While replacing loose coal in rural areas is critical to reducing air pollution, it is unrealistic for all regions to solely rely on natural gas for heating due to China’s limited reserves and limited imports.

“Beijing’s [gas] supply is secured because it is [the] capital city, but it is impossible for all other areas to follow suit. Other alternatives, such as recovering industrial waste heat and tapping geothermal heating, should also be encouraged. This requires local governments to find the best solutions based on local conditions,” he said.

Lin Boqiang, director of the China Centrer for Energy Economics Research at Xiamen University, said the switch to natural gas remained the “right choice” in the short-term to improve quality.

“Internationally, the global supply of natural gas is still abundant and is likely to remain so until 2020,” he said.

Natural gas constitutes around 7 percent of China’s total energy supply. The severe shortage this winter is because government policy stoked a rise in demand that could not be met in time, according to Lin, especially after a few years of sluggish demand in the gas market.

“Three state-owned oil giants [referring to major gas operators CNPC, Sinopec, CNOOC] and some industry think tanks did not believe the growth rate for this year could reach 15 percent to 16 percent. They were also caught off guard by the sudden surge in demand. When they finally sensed the change around the middle of 2017, it was already too late,” Lin explained.

Fitch Ratings estimates that China’s natural gas squeeze will be temporary only. Shortages will ease as winter demand drops off, while an increase in imports and improvements in storage infrastructure should steadily address seasonal shortages in coming years.

Shale Gas

Besides adjusting to short-term changes and pushing forward with energy market reforms so that pricing of gas better reflects demand, Lin also advised China to foster its emerging shale gas sector to secure supplies in the mid- to long-term.

He said experience from the United States shows that concentrated investment in shale gas has helped to facilitate research and development, technological know-how and substantial costs reductions, helping to bolster U.S. energy security and exports.

China has a substantial shale gas reserve of 21.8 trillion cubic meters, of which 122 billion cubic meters is technologically recoverable, according the Ministry of Land and Resources. However, environmental researchers have warned reserves are mostly in dry regions where water-intensive fracking could further exacerbate water scarcity.

Unlike in the United States, where the shale gas industry is strongly opposed by environmental groups following methane leaks and groundwater pollution, the main challenge to China’s fracking industry so far is geology. The country’s shale gas reserves are more dispersed and buried deeper than in the United States, posing greater technological challenges. Nonetheless, the country’s top two operators, state-owned CNPC and Sinopec, are displaying “growing operation confidence,” according to energy research consultancy Wood Mackenzie.

China has become the world’s third-largest shale gas producer and its production in 2016 registered a 76.3 percent increase from a year earlier, to 7.9 billion cubic meters, said the Ministry of Land and Resources in July. It will have to increase production rapidly though to meet an annual production target of 30 billion cubic meters by 2020.

Li Jing is a freelance writer covering environmental and climate issues.

This post was originally published by chinadialogue and appears with kind permission.