Development Trends and Prospect of China Natural Gas Industry

MARKET POTENTIALDevelopment Trends andProspect of China NaturalGas IndustrySun Huil, Li Wei?, Yang Yi, Zhuang Tao2(1. PetroChina Planning and Engineering Institute, 2. PetroChina Natural Gas Pipeline Company)China natural gas industry maintained a vigorous technical recoverable gas reserves being 594.55 billiondevelopment trend in 2010. Either domestic natural and 287.5 billion cubic meters respectively. Newlygas production or natural gas import has witnessed proven gas in place declined by more than 100 billiona significant increase; natural gas pipelines and cubic meters as compared with 2009. By the end of 2010.other infrastructure have been upgraded; natural gas China's cumulative proven gas in place were 9.3 trillionconsumption has kept rising, and consumption mix has cubic meters, and remaining technical recoverable gasbeen optimized increasingly; natural gas price reform has reserves were 3.9 trillion cubic meters, attaining a yeartaken big stepon-year growth of 3. 7%. Domestic newly proven gas inplace was based on China National Petroleum CorporationReview of China natural gas industry in 2010(hereafter as CNPC). In 2010, CNPC newly proven gasNatural gas reserves continued to grow; breakthrough in place was 570.I billion cubic meters, which accountedmade in deepwater explorationfor more than 90% of national total, and they were mainlyChina's natural gas reserves continued to grow in distributed in Tarim and Ordos Basin2010, with newly proven gas in place and newly proven China continued to make a breakthrough in deepwater省人民政府中国石油天然气集团公湖南工程”战略合作框架协议签约湖室·长沙2011年9月中国煤化工On September 8, the ceremony for the opening of the Xiangtan- Loudi-Shaoyang NaturalTYHCNMHGangtan CityCNPC President Jiang Jiemin attended and gave a speech on the ceremonyCHINA OIL GASMARKET POTENTIALexploration for natural gas in 2010, discovering the third West-East Gas Pipeline, the Sichuan-East China Gasdeepwater natural gas field-Liuhua 29-1 gas field-in Pipeline, the Second West-East Gas Pipeline(westSouth China Sea in succession to Liwan 3-1 and Liuhua section), the Shaanxi-Beijing Gas Pipeline, and the34-2 gas fields. 57 million cubic feet of natural gas could Zhong County-Wuhan Municipality Gas Pipeline as thebe produced in Well Liuhua 29-1-1during drillstem test. backbone, and the Lanzhou-Yinchuan Gas Pipeline, theHuaiyang-Wuhan Gas Pipeline, and the Hebei-NanjingNatural gas production grew rapidlyGas Pipeline as interconnected pipelines. The natural gasChina natural gas production has maintained a high- pipeline network has connected Sichuan, Changqing,speed growth in recent years, amounting to 95.21 billion Tarim and Qinghai gas provinces as well as Middle Asiacubic meters in 2010 rising from 22. 3 billion cubic meters and domestic major consumption markets together. By thein 1998, and annual growth rate reached 12.9%. China end of 2010, China has built 45,000 kilometers of naturalnatural gas production in 2010 rose by 11.08 billion cubic gas pipelines in length within its bordersmeters as compared with 2009, and the grow rate was Throughput of natural gas pipelines got more flexible13.2%, which was obviously higher than 8.6% in 2009. after being interconnected. On August 31, 2010, theCNPC was still the largest natural gas producer Sichuan-East China Gas Pipeline Project was officiallyin China in 2010. Meanwhile, China Petrochemical put into operation, and a multi-source supplyingCorporation(hereafter as Sinopec Group)and China framework was formed in Delta Region of YangtzeNational Offshore Oil Corporation(CNOOC) have made River. On October 26, 2010, China's first transnationaltremendous development, either of which natural gas natural gas pipeline-Trans Asia Gas Pipeline- was put intoproduction topped 10 billion cubic meters for the first production, with cumulative transmission of natural gastime. In 2010 CNPC natural gas production was 72.53 from Turkmenistan being 4.38 billion cubic meters perbillion cubic meters(containing 284 million cubic meters year. On November 18, 2010, Zhongwei-Huangpo sectionof CBM), rising by 4.21 billion cubic meters than in 2009 of the Second West-East Gas Pipeline was completed andand taking up 76.2% of national total. Sichuan-East China put into production, and natural gas from Middle Asia wasGas Project was put into operation and Puguang gas field transported to Central China for the first time, moreover,was developed, on this basis, natural gas production of the Second West-East Gas Pipeline was thus connectedSinopec Group reached 12.36 billion cubic meters in 2010, with the Huaiyang-Wuhan Municipality Gas Pipelinerising by 4.03 billion cubic meters than in 2009 and taking On December 8, 2010, Zaoyang-Xiangfan section ofup 13.0%of national total CNOOC reversed the situation Zaoyang-Shiyan branch line of the Second West-East Gasof decline in 2009, with natural gas production rising by Pipeline was put into operation, so the Second West-East2.7 billion cubic meters tremendously and attaining 10.17 Gas Pipeline was connected with the Zhong Countrybillion cubic meters, 10.7% of national total. Moreover, Wuhan Municipality Gas Pipeline. On December 31natural gas production of Shaanxi Yanchang Petroleum 2010, Yulin-Liangxiang section of the Third Shaanxi-(Group) Co., Ltd was about 150 million cubic meters in Beijing Gas Pipeline was put into production, so the2010capability of supplying natural gas to Beijing and BohaiChangqing, Chuanyu, and Tarim gas provinces were Rim was reinforced On the same day, the Yulin-Jinan Gasstill Chinas major gas fields, each of which annual natural Pipeline was officially put into operation, so Daniudi gasgas production topped 20 billion cubic meters. Among field was connected with Zhongyuan Oilfieldthem, annual production of natural gas of Sulige gas field In addition, China had many large-scale natural gas(Changqing gas province)topped 10 billion cubic meters, pipelines under construction in 2010, including Huangpo-and production capacity reached 13.5 billion cubic meters, Guangzhou section of the Second West-East Gas Pipeline,based on which it became the largest gas field in China. the Phase II of Sino-Kazakh Gas Pipeline Project, theOverseas Section of Sino-Myanmar Oil and Gas Pipeline,Throughput capacity of natural gas pipelines the Liangxiang-Xishatun Section of the Third Shaanxi-enhancedBeijing Gas PipelingNow a state-level backbone natural gas pipeline the Qinhuangdao中国煤化工e1aiannetwork has been developed initially, which takes the Qingdao-Weihai GCNMHGChifengCHINA OIL&GAS 37No3.2011MARKET POTENTIALSNG Export Pipeline, etctons per year, and the second-period would be expandetoward 5-6 million tons per year. Tangshan LNG terminalLNG projects constructed step by step; natural gas was located in Caofeidian Industrial Zone in Tangshanimport increased considerablyCity, Hebei Province, and was granted and registeredLNG projects were constructed step by step in China by NDRC in October, with the capacity of the first andin 2010, and three LNG terminals were newly built second as well as forward period being 3.5, 6.5, and 10throughout the year, i.e. Zhuhai LNG terminal, Qingdao million tons per year. It was started on March 23, 20LNG terminal, and Tangshan LNG terminal, wherein and planned to be completed in July 2013Zhuhai LNG terminal was granted and registered by the Construction of Jiangsu, Dalian, and Zhejiang LNGNational Development and Reform Commission(NDRC) projects progressed smoothly in 2010. Jiangsu and Dalianin March and started on October 20 officially. It was LNG terminals and wharfs were completed in December,located in Zhuhai Gaolan Island and was planned to be wherein Jiangsu LNG project was put into trial operationput into production in 2013, with the capacity of the first on May 24, 2011. It was CNPC's first officially operatedand second period being 3. 5 and 7 million tons per year LNG terminal, with the capacity of the first and second asrespectively. Qingdao LNG terminal was granted and well as forward period being 3.5, 6.5, and 10 million tonsregistered by NDRC in July and was started on September per year; Dalian LNG project was put into production in10 officially. It was the first LNG project of Sinopec July 2011, with the capacity of the first and second periodGroup and was located in Qingdao Dongjiakou Port. The being 3 and 6 million tons per year. Zhejiang LNG projectcapacity of the first-period of the project was 3 million was started on December 18, 2009 and planned to be putinto production in 2012, with the capacity ofthe first period being 3 million tons per yearand that of the second period being expandedto 6 million tons per year.China has started three LNG terminalsby the end of 2010, i.e. Shenzhen DapengLNG terminal(with the first-period capacitybeing 3.7 million tons per year), Fujian LNGterminal (with the first-period capacity being2.6 million tons per year), and Shanghai LNGterminal(with the first-period capacity being3 million tons per year). Six LNG terminalshave been granted and registered and wereunder construction (Jiangsu, Dalian, Tangshan,Qingdao, Zhejiang and Zhuhai), with totalcapacity of the first period being 19.5 milliontons per yearChina did not carry out new LNG import in2010, except that Sinopec Group and AustraliaPacific LNG(APLNG) signed a FrameworkAgreement for purchase and sale of LNG(HOA). Based on this, Sinopec Group willimport 4.3 million tons of LNG from APLNGfrom 2015 to 2035. By the end of 2010,China's LNG import was still kept at 25.15million tons per year.中国煤化工 considerablCNMHns(about 13.1billwhich was 1.7CHINA OIL GASNo.3.2011MARKET POTENTIALtimes higher than that in 2009(rising by 3. 824there is no requirement on the price fall. At the same time,tons). China totally imported 17.48 billion cubicit is required to keep automobile-used natural gas priceof natural gas, including the 4.38 billion cubic meters rational, and the proportion of the highest natural gasof natural gas imported from Turkmenistan through the retail price to the highest 90 gasoline retail price shouldpipeline, and natural gas import topped 10 billion cubic be no less than 0.75:1 all over the country within twometers for the first time, rising by 9.7 billion cubic meters yearsas compared with 2009This price adjustment was designated to represent thescarcity of natural gas, to promote resource saving, toNatural gas market kept growing fast and natural gas rationalize the price relations between natural gas andconsumption topped 100 billion cubic metersother alternative energy, and to guide rational distributionChina's domestic apparent consumption of natural gas of natural gas resources. However, the price adjustmentreached 109.77 billion cubic meters in 2010, rising by was incomplete to some extent, and it did not solve the20.2 billion cubic meters than that in 2009, and the growth "high buy low sell"problem of central Asian naturalrate was higher than 2009. The proportion of natural gas gas. It only pointed out that the import price of centralconsumption to primary energy consumption rose by Asian natural gas was temporarily based on the price of0.4% or so and reached 4.5% in 2010. Natural gas was domestic natural gas used for the same consumers in thestill the primary energy growing the fastest in China, and light of less import of central Asian natural gas in 2010. Itthe reason why it grow so fast was that domestic natural means that China should improve natural gas price reformoduction increased and natural gas import was in the futureexpandedIn mainland China, 30 provinces and municipalities Sichuan-East China Gas Pipeline put into commercialas well as autonomous regions had access to natural gas operationconsumption; Southwest China, Bohai Rim, Yangtze River The Sichuan-East China Gas Pipeline covers eiglDelta Region, and Southeast Costal Area were still major provinces and municipalities including Sichuan Provinceareas of natural gas consumption in 2010, of which natural Chongqing Municipality, Hubei Province, Jiangxigas consumption took up more than 60% of total, wherein Province, Anhui Province, Jiangsu Province, ZhejiangSichuan Province was the largest natural gas consumer in Province, and Shanghai Municipality, with a total lengthChina and consumption reached 12 billion cubic meters or of 2170 kilometers and annual gas transmission capacitysO, Jiangsu Province, Guangdong Province, and Beijing of 12 billion cubic meters. It was completed and putwere 8 billion cubic meters or so, ranking the second, into production on March 29 and put into commercialthird, and fourth respectivelyoperation on August 31, 2010. The Pipeline is a State-Natural gas utilization domains were expanded level pipeline and the first one of Sinopec Group with gasincreasingly in China; the proportion of urban fuel gas transmission capacity surpassing 10 billion cubic meters,rose gradually; the population using natural gas increased which enables the natural gas sales area of Sinopec Groupcontinuously; distributed energy, LNG heavy-duty trucks to be expanded to Yangtze River Delta Region and makesand other domains using natural gas were paid more and the Group achieve leapfrog developmentmore attention. In 2010, natural gas consumption in urbanfuel gas industry accounted for about 30% of national Coal enterprises permitted to exploit CBM for the firsttotal, and the population using natural gas was about 170 timemillionIn May 2010, Shanxi Jincheng Coal Industry Groupwas approved by the Ministry of Land and Resources toHotspot of China natural gas industry in 2010 exploit CBM in Chengzhuang and Sihe Blocks in ShanxiNatural gas price adjustment took one step forward Province and thus became China's first coal enterpriseOn May 31, 2010, NDRC issued and was determined granted with CBM exploitation licento increase the price by 230 yuan per thousand cubic Disputes about CBM exploitation license and miningfrom June I and cancel price"dual-track, and to license during the中国煤化工 ion haincrease the fluctuation rate of price and prescribe that the been the key factoCNMHGindustrex-factory benchmark price could rise by 10% at most and development all the time. The significance of JinchengVA OIL GAS 39No3.2011MARKET POTENTIALCoal Industry Group being granted with CBM mining development of natural gas industry.license was that it was intended to settle the disputesAll provinces and municipalities had such goals ofGranted with the CBM mining license, Jincheng natural gas utilization as follows: the coverage rate ofCoal Industry Group realized the integration of CBM urban gas pipelines would be 98% in Jilin Province inexploration license and mining license, which inevitably 2015; the coverage rate of urban pipelines would exceedexerted demonstration effect on other coal mining 95% in Shandong Province within 35 years; the coverageenterprises, and meanwhile promoted State-owned key rates of prefecture-level cities and counties were expectedenterprises and local ones to coordinate and cooperation, to be 75% and 40% respectively before the end of 2012 inand thus accelerated the development of China CBM Hebei Province, achieving the goal of extending city gasindustryfacilities to key towns: 119 counties(cities and districts)of Shanxi Province were planned to realize gasification byChina cut back on examination and approval of SNG the end of 2015: Beijing Municipality would set up fourgas-fired thermo power centers by the end of the"12thNDRC issued the Notice on Regulating Activities Five-Year Plan"period and achieve the goal of heatingRelated to Natural Gas Industry Development on June without coal within five rings in general2, 2010, which required that SNG and support items bepolicies were released. Local government should Five- Year Plan periodgagranted and registered by NDRC before definite industrial Prospect for China natural gas industry in "12thstrengthen project management and were prohibited" 12th Five-Year Plan period is still a golden period forfrom grant and register with SNG projects without China natural gas industry developmentauthorization. In regard to the projects granted and China natural gas industry will continue to developregistered before the Notice was released, Development rapidly during the" 12th Five- Year Plan"period, alongand Reform Commissions at all levels should select and with the industrialization and urbanization as well ascheck up clearly, prohibit the projects without resources, higher requirements on low-carbon development in Chinatechniques and funds from being constructed, and report Natural gas utilization capacity will top 200 billion cubicqualified ones to NDRC for approvalmeters in China till 2015. with the construction of State-At present China has granted and registered four SNG level natural gas pipelines and the implementation ofprojects, with total capacity of 15. 1 billion cubic meters gasification projects in all provinces and municipalitiesper year, wherein Datang Chifeng LNG Project is the Then natural gas could be available for more than 300fastest. Total capacity of all SNG projects have reached cities at prefecture-level or above, i. e. more than 95%250 billion cubic meters per year, wherein the capacity prefecture-level cities, including capital cities such asof Inner Mongolia SNG Project have reached 140 billion Lhasa. Meanwhile, natural gas utilization will be furthercubic meters per year and most of them have been upgraded, which will be dominated by urban gas andreported to NDRC for approvalndustrial fuelActually speaking, SNG is just one of the fivedemonstrative projects of national chemicals industry and 12th Five-Year Plan period is critical to rationalizingis faced with such problems as high water consumption natural gas pricing mechanismand high CO, emissions. The Notice on Regulating Ex-factory price of natural gas is relatively lower thaIActivities Related to Natural Gas Industry Development is international level, in particular, the phenomenon of "highdesignated to regulate the development of SNG industry buy low sell" has appeared, as more central Asian naturaland to promote it to achieve prosperous developmentgas of soaring price is imported. At the same time, therewill be more and more districts employing multi-sourceThe 12th Five-Year Plan" for natural gas utilization gas-supply framework. In that case, how to find out break-The year of 2010 is the last year of the"llth Five-Year even point of price for both the seller and the buyer andPlan period and as well a year working out the"12th to develop more scientific and rational natural gas pricingFive-Year Plan". Many provinces laid emphasis on natural mechanism are中国煤化工 solved duringgas utilization, which would definitely boost vigorous the"12th Five-CNMHG40 CHINA OIL& GASNo.3.20l1MARKET POTENTIALMore emphasis to be laid on peak regulation and it is suggested that China rationalize peak regulationconstruction of gas storage facilitiesresponsibilities and enable upstream and downstreamAlthough gas peaks went through smoothly in winter firms take on responsibilities together. For example,2010, natural gas insufficiency in 2009 enables people to following standard international practices, upstream gasrealize the importance of gas storage facilities for peak suppliers are responsible for seasonal peak regulation, andregulation. As natural gas consumption grows, China's gas distributors(city gas companies) and consumers arerequirement on peak regulation gets higher during responsible for daily and hours peak regulation. Multiplethe"12th Five-Year Plan" period. However, China's means of peak regulation are encouraged to be developeddevelopment of facilities for peak regulation and gas including CNG and LNG through policy guidancestorage lags far behind pipeline construction, and workinggas volume of underground gas storages only takes up Referencesabout 2% of natural gas consumption, which is far lower [J Xia Lihong, Liu Xinru, Hao Hongyi. Review ofthan the 10%-15% of other countriesChinas Petroleum Industry in 2010 [J]. InternationalDuring the"12th Five-Year Planperiod, while Petroleum Economics, 2011, (4)enhancing throughput capacity of gas pipelines, China [2] China's Natural Gas Production from 2002 to 2010should pay special attention to the construction of []. International Petroleum Economics, 2011,(4)facilities for peak regulation and gas storage. A variety of B3] Pu Ming, Ma Jianguo. Progress of China's Oilflexible policies are suggested to be adopted to promote and Gas Pipeline Development in 2010[]. Internationalthe construction of underground gas storages, for instance, Petroleum Economics, 2011, (3)different price systems could be adopted for natural gas[4 China National Petroleum Corporation. 2010produced from underground gas storages, underground Annual Report [RJ. 2010gas storages could be constructed by more companies[5 China Petrochemical Corporation. 2010 Annuain different capital forms and stock rights. Meanwhile, Report [RJ. 2010回,国煤化工China imported 20.2 billion cubic meters of natural gas from January to June this year, doubiconsumption of natural gas woas 84.2 billion cubic meters and rose by 21.7% as compared withTHERNMHGCHINA OIL GASNo.3.2011