By Logan, Jeffrey; Chandler, William
The China Business Review , Vol. 25, No. 4
To realize China's natural gas potential, Beijing should remove key barriers to foreign investment
Though coal still accounts for nearly three-quarters of its total energy needs, China stands on the brink of dramatically increasing its use of alternative energy sources, including natural gas. Chronic energy imbalances and shortages, the cost of rising petroleum imports, extensive environmental damage caused by coal combustion, and improved natural gas-based power-generation technologies all stand to expand the role of natural gas in China's energy structure.
Natural gas currently accounts for less than 2 percent of the PRC's primary energy consumption, but government planners project domestic production of natural gas to triple by 2010, rising from the current level of roughly 22 billion cubic meters (cu m) to 60 billion cu m per year (see Table). China's Ninth Five-Year Plan (9th FYP, 1996-2000) calls for natural gas production to rise to 25 billion cu m and for 70 percent of urban households to use gas fuel by 2000. By 2015, international forecasters expect PRC annual output of natural gas to reach approximately 113 billion cu m. And the US Department of Energy (DOE) estimates that natural gas will account for 4 percent of China's total primary energy use by then. Greater use of China's stores of coalbed methane (CBM), gas extracted from coal deposits, imported liquefied natural gas (LNG), and gas transported through international pipelines, could easily double or triple these projections.
Consumption rates, meanwhile, have risen steadily since the 1970s, and promise to accelerate. But a coordinated effort between Beijing and foreign firms to speed up the development of natural gas would go a long way toward spurring natural gas consumption in China. A number of impediments in China's natural gas sector have slowed foreign participation. Representatives from DOE, the Natural Resources Defense Council, and four multinational natural gas companies with deep commitments in China, participated in a workshop hosted by Pacific Northwest National Laboratory (PNNL) in Washington, DC, in mid-1997. With the goal of identifying barriers to foreign investment, the workshop recommended that the PRC raise natural gas prices closer to international market prices; permit foreign access to prime exploration plots; and improve transparency in the industry, among other measures.
MAKING A CASE FOR NATURAL GAS
Indeed, conditions in China-particularly its distribution of energy resources-call for rapid moves to expand the use of natural gas. Most of the country's high-quality, low-sulfur coal is situated in the north and must be transported by rail or ship to consumers in the east and south. Coal shipments currently take up more than half of China's railroad capacity, overloading an already outdated transportation infrastructure. China's abundant hydropower resources are concentrated in the southwest, also far from east-coast consumers. And wind and solar power generation facilities typically must be located in sparsely populated areas, making transmission to consumers costly.
Despite Beijing's efforts to conserve energy, dramatic economic growth and uneven resource distribution cause power shortages in many regions of the country. A combination of new energy supplies, efficiency improvements. and easing demand as a result of factory closings have helped reduce the frequency of power shortages. Nonetheless, continued economic growth of over 7 percent well into the next decade would require substantial quantities of energy. Beijing plans to add more than 16 gigawatts of annual electricity capacity through 2010.
Though coal and oil will continue to supply the bulk of China's energy needs, natural gas is targeted to become a larger source of energy, especially in the urban residential and industrial sectors and as a fuel source for vehicles. Rapid growth in the number of vehicles on China's roads, combined with stagnating oil production, forced China to become a net oil importer in the early 1990s (see p. …