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News 11 December 2007
The
gas industry in China is remarkably similar to the electric
power sector, in that there are abundant reserves of gas, but
much of it is undeveloped and its extraction and distribution
require a massive investment, which must inevitably be reflected
in tariffs.
Also, although the gas network is
being developed there are
periods, as is the case today, when supplies need to be
rationed.
In China, gas prices, like electricity
tariffs, are regulated by the government, which aims to keep them
low so as to contain inflation.
Similar to the setting of electricity
tariffs, gas price regulation is largely an opaque process managed
by a number of government agencies.
The well-head price is approved by the
National Development Reform Commission (NDRC) and is adjusted
annually, based on a basket of competing energy commodities.
Pipeline transmission costs, which are a significant component of the end-user tariff, are adjusted every three years. This long interval between price reviews creates the possibility of relatively large increases. For example, recent reviews in Jiangsu raised the tariff from ¥2.8 per m3 to ¥3.2m3.
Local governments regulate the final end-user prices, and these seem to be based on social objectives as well as a consumer’s capacity to pay. Fertilizer plants are charged lower tariffs because of their importance to the agricultural sector, while industry pays the highest tariff, with the tariff for residential consumers somewhere in the middle. The highest gas tariffs are in Guangdong, where industrial consumers pay ¥4.0 per m3.
In early 2006, seven cities in Henan, in
central China, had their gas supplies reduced because demand
exceeded supply.
Most of the shortages were the result
of inadequate infrastructure, and supplies were secured only through
the long-distance road transport of gas.
In the absence of sufficient pipeline
capacity, gas supply to Hunan required road transport by gas
tankers, which involved hauls of up to 2,000 km.
Gas shortages are particularly severe in
Shanghai-- in 2005 the city was said to have a deficit of more than
300 million m3.
Two thirds of Shanghai’s 1.87 billion m3
annual gas requirement comes from China’s West-East pipeline and the
rest comes from the Pinghu gas field in the East China Sea.
The 4,200-km West-East pipeline links the
gas-rich Xinjiang Autonomous Region in China’s northwest to
Shanghai.
Along the way there are several branch
lines, including one that feeds Beijing.
The West-East pipeline, which cost
¥43.5 billion and was completed in 2004, has a design capacity of 12
billion m3.
Work is in hand to increase the line’s
capacity to 17 billion m3 by the end of this year.
Work on China’s West-East gas pipeline
The Shanghai Municipality pays ¥0.84 per m3
for the transport of gas through the West-East pipeline.
The shortage of gas has prevented a new
1,170-MW gas-fired power station in Shanghai from operating at full
capacity.
The plant’s economics anticipated
operating for 3,500 hours per year, and with this estimate being
above the break-even rate of 2,500 hours, the investors expected to
cover their capital and operating outlays.
However, because of a shortage of gas,
the ¥3,300 million station is operating at an annualised rate of
around 700 hours.
The plant’s owner, Huaneng Power
International, is reported to be paying ¥1.4 per m3 for
its gas.
With such a low tariff, the supply
authority has little incentive to find additional supplies, as it
can sell all the available gas to residential and commercial users
at rates which are at least twice the tariff it charges Huaneng.
The West-East pipeline also supplies some of
Beijing’s gas requirements and with preparations for the 2008
Olympics in full swing, the authorities show little interest in
diverting gas to Shanghai.
Having won the right to stage the
Olympics with plans to hold an environmentally-friendly and green
event, Beijing wants to replace the city’s old and heavily-polluting
coal-fired power stations with less-polluting gas-fired generators.
Expansion of the West-East pipeline will help
to relieve Shanghai’s gas shortages, but the expansion will not be
completed until late 2008.
Shanghai’s shortages will also be
reduced by a new 1,600-km pipeline from Puguang, in the southwest
(in Sichuan Province), which is scheduled for completion in 2008.
The Puguang field has reserves exceeding 200
billion m3 and is expected to have an output of 4 billion
m3 by 2008 and 8 billion m3 by 2010.
In
the middle of November, the authorities in Beijing raised the price
of natural gas to industrial users by as much as one-third or ¥0.4
per m3. The price increase varied according to
transport costs and in Chongqing the price increased by ¥0.424 per m3
to ¥1.66 per m3, while in nearby Chengdu the
increase was ¥0.43 per m3 with consumers
paying ¥1.67 per m3.
The price increase does not apply to fertilizer plants who are
significant consumers of natural gas. On the other hand
motorists have had to pay much more than the average ¥0.4 per m3
increase.
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