Natural gas development high on energy agenda

A safety inspector checks the equipment of a natural gas station in Fuyang, Anhui province, on Feb 6. The importance of natural gas in China's energy mix should be prioritized, the president of China National Petroleum Corp said. [Photo/China Daily]

The future importance of natural gas in the country's energy mix should be prioritized, and policies should be introduced to boost its development, according to the president of China National Petroleum Corp, the nation's biggest energy company.

Zhou Jiping, a member of National Committee of the Chinese People's Political Consultative Conference, said the use of energy source has gained far bigger prominence in recent times, as China struggles with its ongoing battle against carbon emissions.

He also said meetings were held about natural gas pricing mechanism reform being accelerated this year.

Zhou said China's air pollution issues are a direct result of excessive energy consumption during urbanization process.

"Similar problems occurred in developed countries in the past, and raising natural gas's share of the energy mix, in some cases making it the primary part of it, was a key solution," he said.

The most recent official figures show that natural gas accounts for about a quarter of a country's energy consumption in the developed world.

Zhou noted that Japan raised its natural gas use from 1 percent to its current 20 percent through widespread projects to replace its use of coal with natural gas.

At present, natural gas only accounts for about 5 percent of China's total energy consumption, while coal - the main cause of high carbon emission - takes up about 68.8 percent.

China consumed 147.1 billion cubic meters of natural gas over the past year, a rise of 13 percent year-on-year.

It imported 42.5 billion cubic meters, a 31.1 percent rise, according to official figures.

China will cap its energy consumption at 4 billion metric tons of standard coal, and power use of 6.15 trillion kilowatt-hours in 2015, in order to reduce carbon emissions, according to the State Council.

Energy consumption per unit of GDP will be cut by 16 percent compared with 2010 levels while energy efficiency will be raised by 38 percent.

To realize the targets, the government is encouraging the use of non-fossil fuels.

In 2012, non-fossil fuel consumption took up 9.1 percent of the energy mix in China, up 1.1 percent year-on-year, according to the Energy Research Institute under the National Development and Reform Commission.

Natural gas consumption accounted for 5.5 percent of the mix, according to the institute.

The 12th Five-Year Plan (2011-15) said the country will raise its non-fossil fuel consumption to 11.4 percent of its primary energy use by the end of 2015, with natural gas accounting for 7.5 percent.

Against this backdrop, energy firms are shifting their core business from oil to natural gas.

CNPC, China's largest oil and gas developer, plans to increase its natural gas output to about half of its oil and gas equivalents in 10 years, and overseas acquisitions are playing a key part in that process.

According to a report by Shenyin & Wanguo Securities, the natural gas industry will be CNPC's most important investment area in the next five years.

Currently, it owns 80 percent of China's natural gas pipelines and about 70 percent of the country's natural gas output.

It also owns exclusive importing rights for natural gas from Central Asia.

In the recent years, CNPC has accelerated its steps in overseas resources market.

In December, PetroChina Co Ltd, the listed arm of CNPC, announced the acquisition of BHP Billiton Ltd's share of a liquefied natural gas project in Australia for $1.63 billion.

The deal involves an 8.33 percent interest in the East Browse Joint Venture and a 20 percent stake in the West Browse Joint Venture, both located off the western Australian coast.

Analyst Wang Hui at chem365.net, an online information provider for the petrochemical industry, said the deal helped the company diversify its businesses.

Also in December, PetroChina acquired 49.9 percent of a shale gas project owned by Canadian company Encana Corp in Alberta for $2.14 billion.

Lin Boqiang, director of the Xiamen-based China Center for Energy Economic Research, said the weak global economy has provided Chinese energy companies with good opportunities to expand overseas.

However, there are still significant issues existing in the natural gas industry in China, the most pressing of which is finding the right pricing mechanism.

Zhang Laibin, the president of the China University of Petroleum, said: "The government-controlled natural gas pricing system is based on cost, and does not take market competition into consideration - it is not flexible enough to encourage expansion of production."

He added that pricing reforms aimed at creating a more market-oriented industry will provide a far more balanced energy consumption model, and mean far higher efficiency.

Zhang said China needs to improve pipeline construction and other infrastructure constructions such as gas storage.

One of the most significant developments on that front came last month, when Russia agreed to provide China an annual supply of 38 billion cubic meters of natural gas, during a high-level meeting between officials from two countries in Beijing.

According to Platts, the international commodities information provider, Russia and China may reach a basic agreement on natural gas supply by the end of this month, in time for the planned visit to Moscow by President Xi Jinping.

dujuan@chinadaily.com.cn