How to Solve China’s Unbalanced Gas Supply Distribution Problem

With rich coal but poor oil and gas, China relied on imported natural gas heavily. The import-dependence degree of gas in 2017 was 38.85%. China’s gas import could be divided into two sectors: piped gas import and LNG import. The piped gas import means the import resources from Central Asia and the Myanmar resources from China-Myanmar Pipeline. And the LNG import means the imported LNG through the 17 terminals in the east coast, and it’s mainly from Qatar and Australia. Via pipeline, truck and inland water transportation, the imported and domestic gas is sent to all over China. However, the efficiency and reliability of gas transportation are questionable sometimes, and the conflict between energy giants is also a problem. China’s gas supply is still unbalanced among different regions. One of the best solutions to deal with this problem under present technology is to integrate different pipelines.

To integrate pipelines which belong to different energy companies, the first plan is to spin off the pipeline divisions from energy companies to form a new independent National Pipeline Company. It’s not something new that people are requiring a National Pipeline Company. Such urge has already appeared when Beijing was preparing for the Oil & Gas Industry Reform Plan in 2015. Since 2016, NOCs has made multiple efforts about it: clarifying the relations with their pipeline subsidiaries, separating pipeline subsidiaries and sales activities, publishing piped transportation cost, pushing forward third parties’ entrance and etc. It seems like that the measure in the pipeline reform is that “dominating the middle stage by the government and opening the first and end stages to the third parties”. However, a state-owned independent pipeline company is needed to dominate the middle stage by the government. And Beijing never gave clear opinion on the formation of the National Pipeline Company. The only information from the top was the press release published by Xinhua News Agency on May 2017 about the Opinions About Deepening the Reform of the Petroleum and Gas System. The Opinions said that “…China will reform the operation system of oil and gas pipeline.

Since 2017 media agencies have reported multiple information about the National Pipeline Company. However, we only know that it will be formed but know about its responsibility scope, authority, assets, personnel situation, form of organization and etc. Sources in the industry said that National Development and Reform Committee (NDRC) and National Energy Administration (NEA) had called together related departments and companies to seminars. The Opinions About Ensuring Natural Gas Industry’s Stable Development which was published on September 4th said nothing about the formation of the National Pipeline Company. The 2018 China Gas Pipeline Seminar and multiple sources have already confirmed that the formation would be delayed from H2, 2018 to H1, 2019. Since the introduction of several policies (pushing forward interconnection, opening infrastructure to third parties, publishing piped transportation cost, forming storage facilities cost system and etc.), it seems like that the formation of a national pipeline company is not necessary now. However, the formation of an independent pipeline company is a major part in the Oil & Gas System Reform. For example, the interconnection linked resources between different companies. Yet some resources which have already achieved market-oriented pricing partly (such as shale gas, coal bed gas, syngas and etc.) can’t form prices directly, and they have to sell gas to the pipeline companies. Investors showed little interests to unconventional gas development when it can’t price following the market trend. New problems come one and another when old problems are still there. To form a professional pipeline enterprise is a possible way to push forward the Oil & Gas System Reform. However, it’s obviously that its formation is dragged by conflict of interest between different government departments and energy companies.

Another plan to integrate the pipeline is to build interconnection between different companies’ pipelines without spinning off. Comparing to Plan 1, this one is more moderate. Through linked pipelines energy companies could swap resources and send more gas to North China in the heating season. Interconnection projects solved the supply block problem and linked pipelines all over China physically.

February 2018, NDRC published Notice About Accelerating the Process of 2018 Natural Gas Infrastructure Interconnection Major Projects, asking NOCs to push forward the interconnection and carrying out ten major projects in 2018. According to the arrangement of NDRC and NEA, NOCs will cooperate to connect the CNOOC Guangdong Pipeline with West East Pipeline (WEP) II, connect the CNOOC Guangxi Pipeline with China-Myanmar Pipeline, and increase the transportation volume of Zhongwei-Guiyang Pipeline and Shaanxi-Beijing Pipeline IV. Through these projects the South North Pipeline (SNP) could send 30 million cbm gas per day from south to north by this year’s heating season and could send 60 million cbm gas per day by next year’s heating season. The Shaanxi-Beijing Pipeline IV could send 80 million cbm gas per day to North China. And the Dalian LNG Storage Output Project could send 7 million cbm gas per day from Northeast China to North China.

CNPC focused on building the interconnection facilities between WEP and other pipelines. WEP related interconnection projects contained 11 major projects, involving seven terminals and four lines in six provinces (Guangdong, Hunan, Jiangsu, Ningxia and etc.).