Beijing plans gas-fired future to solve problem

As air pollution has become a serious problem in China, and attracted unwelcome attention worldwide, it's inevitable that coal will be replaced by natural gas. However, the low price means major State-owned oil companies are unenthusiastic about exploring for natural gas, said Yang Fuqiang, senior advisor on climate and energy at the Natural Resources Defense Council.

For example, it costs 3.5 yuan per cubic meter to import natural gas from Central Asia to gas stations in Beijing, but the stations can only sell the gas to residents at a government-regulated price of 2.05 yuan per cu m. The loss of 1.45 yuan per cu m is covered by government subsidies, according to Yang.

"Low prices have become a key impediment to the exploration of natural gas. Who would want to invest when it's so difficult to cover the costs?" he said.

Supplying natural gas requires huge front-end investment for large-scale pipeline construction, and costs will increase as the sources of gas become more diversified, especially with the development of unconventional gases, said Zhou Dadi, vice-chairman of the China Energy Research Society.

He said the most significant bottleneck to the supply of natural gas is infrastructure construction, which has failed to keep pace with the rising demand for the fuel.

"This problem has led to a situation where anyone who invests will lose money," said Zhou.

Chen Weidong, chief energy scientist at the Energy Economics Institute of China National Offshore Oil Corp, said he learned from China National Petroleum Corporation that it loses an average 1.4 yuan on every cubic meter of natural gas it imports from Central Asia and an average 2 yuan on every cubic meter of liquefied natural gas.

Although imported natural gas loses money and domestically produced natural gas makes minimal profit, oil rakes in huge profits. It costs less than $50 on average to produce a barrel of oil in China, but each barrel sells at $100, said Chen.

"If the government could raise the price of natural gas to make it profitable, oil companies would increase their efforts to explore for it," he said, adding that China lags behind Western countries in terms of the strategic development of natural gas.

To ensure supplies of natural gas and promote energy saving and the reduction of emissions, the National Development and Reform Commission increased the wholesale price of natural gas for non-residential users from July 10. At gate stations, where trunk pipelines connect with local gas distribution networks, the average price of natural gas rose by 15 percent to 1.95 yuan per cubic meter.

However, the operators of some thermal power plants are worried that the costs of raw materials, facilities and operations will increase significantly when they replace their current coal-fired power- and heat-generating units with natural gas-fired ones.

"It costs 25 yuan per gigajoule to generate heat by burning coal, but almost 70 yuan by burning natural gas. We certainly cannot afford such a big hike in costs. Either the government or the public will have to pay for the transformation," said Du Chengzhang, vice-president of Huaneng Beijing Thermal Power Plant.

Similarly, the fuel cost of generating electricity will also rise to more than 0.4 yuan per kilowatt-hour from 0.25 yuan, excluding expenditure on water, labor and facilities, he added.