Beijing plans gas-fired future to solve problem

China will reduce its consumption of coal and gradually increase the use of natural gas during the next few years, according to the Airborne Pollution Prevention and Control Action Plan (2013-17), which was released by the State Council on Thursday.

Total energy consumption is measured in tons of coal, irrespective of the method of generation. In 2011, China's total energy consumption was 3.48 billion metric tons of coal, out of which coal consumption contributed 68.4 percent, while natural gas contributed just 5 percent, according to the National Bureau of Statistics.

In 2012, the country consumed nearly 2.5 billion tons of coal, more than all other countries combined, according to the Ministry of Environmental Protection.

The central government has decided to reduce the amount of coal being burned to less than 65 percent of total energy consumption by 2017, while consumption of natural gas will rise to 7.5 percent of the total by 2015.

The country will employ a number of measures to achieve the reduction in coal use, including increasing the use of non-fossil energy. Coal consumption is expected to decline in areas such as the Beijing-Tianjin-Hebei cluster, the Yangtze River Delta region and the Pearl River Delta region, often known as the "three key districts".

Supplies of natural gas, coal gas and coalbed methane will also be increased. Between 2011 and 2015, 44,000 kilometers of natural gas pipelines will be built, raising the annual receiving capacity of coastal-based liquefied natural gas terminals by more than 50 million tons, according to the 12th Five-Year Plan on Energy Development (2011-15).

Natural gas pipeline capacity will rise by 150 billion cubic meters by 2015, covering the three key districts, and urban residents will have priority use of the power generated by the newly added supply.

China's huge coal consumption has resulted in serious air pollution. In Beijing, coal use contributed about 20 percent of a primary pollutant called PM2.5 - particles up to 2.5 microns in diameter, small enough to enter the lungs and blood stream. However, that figure rises to approximately 30 percent if emissions of sulfur dioxide and nitrogen oxide - which can produce PM2.5 during the burning process - are taken into consideration, said Jiang Kejun, senior researcher at the Energy Research Institute of the National Reform and Development Commission.

About 50 percent of the coal burned in China is used for homes, small-capacity boilers and small businesses, according to Chai Fahe, vice-president of the Chinese Research Academy of Environmental Sciences.

"These pollution sources are always close to the ground, and have very poor pollution-control technologies," he said.

Chai emphasized the importance of "efficiency control", or the way the coal is burned, in addition to controlling the total amount of fuel being burned.

Some environmental scientists and industry experts have suggested that the current price of coal - which averaged 565 yuan ($94) to 575 yuan per ton of thermal coal with a calorific value of 5,500 kcal/kg at Qinhuangdao Port by the end of July - is too low and doesn't include the costs of reducing carbon dioxide emissions, controlling air pollution and restoring public health.

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.

According to estimates provided by Du and his colleagues, Beijing's municipal government will have to provide the plant with subsidies of 700 to 800 million yuan per year just to keep it running once it switches to gas-fired power generation units.

"Beginning last year, we paid just 68 percent of the cost of natural gas to Beijing Gas Group. Otherwise, our plant would have closed," he said.

Last winter, the plant sold heat produced by coal-fired units to the local thermal power group for 33 yuan per gigajoule, while heat produced using gas sold for 79 yuan. When the plant jettisons its coal-fired power generating units in 2016, the price it charges for on-grid electricity will rise to 0.63 yuan per kWh from 0.49 yuan. In the end, the prices of electricity and heating for residential users will rise for sure, he said.

"Reform of the price of natural gas is not a one-step process. On the contrary, it should move forward in small, quick steps to avoid damaging sustainable consumption," said energy scientist Chen Weidong.

In the long run, as the pipeline network is expanded to cover more regions, steep rises in the cost of natural gas will cease, according to Zhou of the China Energy Research Society.

"It's just that for now, the cost must rise to allow industry to develop, but it will reach a balanced stage later on. Then we will be able to discuss the possibility of lowering the cost," he said.

Zhao Xu contributed to this story.