Gas is the way forward for cleaner energy
The transition to new fuel won’t always be easy, but planning could help China reap the benefits
Natural gas is an important element in China’s clean energy transition. Using gas is a way to diversify energy supplies. It produces a fraction of the emissions from coal. For this reason, energy planners project that meeting the Paris climate agreement goal of keeping the global temperature increase below 2 C will require China to boost its gas supplies, even as the use of coal and other fossil fuels declines. Managing the transition to cleaner energy sources such as gas is inherently challenging, requiring wise investments in infrastructure as well as policy reforms.
Natural gas currently provides about 7 percent of China’s energy, but this proportion is rising rapidly. Natural gas consumption surged by 19 percent in 2017, far faster than the production increase of 8.5 percent. As a result, imports have also grown, of liquefied natural gas as well as pipeline gas from Russia and other countries.
The dash for gas this past winter has not been without difficulty. LNG imports surged by 39 percent last year, straining import receiving capacity as well as domestic pipeline capacity, and hundreds of trucks were deployed to bring LNG into the interior. Due to heating shortages in Hebei province and the rushed implementation of the no-coal zone near Beijing, the Ministry of Environmental Protection was forced to allow the burning of coal in certain rural areas where coal-to-gas or coal-to-electricity projects had fallen behind.
These hiccups are likely to be temporary. Gas does require major new investment in infrastructure and the replacement of heating and industrial equipment. But the investment is worth it. Not only does the switch to gas help improve air quality in cities, but also gas ovens and heaters burn more cleanly, reducing air pollution inside homes — a major health concern often overlooked due to the attention paid to ambient haze in first-tier cities like Beijing.
Looking beyond pollution, natural gas is also crucial to improving the integration of renewable energy. China’s coal-based power grid has often struggled to back up the variable output from wind and solar plants, as well as meet demand during times of peak electricity demand. In the United States and Europe, natural gas peaking power plants are often the main solution for improving grid flexibility.
Energy transition is not just a matter of one fuel or one solution, however, and switching to gas should not be considered an end in itself. Policymakers and planners need to weigh the local circumstances and the economic situation for each investment. In many cases, such as for winter heating, other solutions such as energy efficiency, geothermal heat pumps or renewable energy may make more sense — on their own or in tandem with gas.
As China focuses on cleaning up its overall energy system, various organizations have suggested near-term measures that could help the market play a larger role in smoothing the transition.
One such measure concerns the topic of prices: Gas prices are generally higher than those for coal. Prices present policymakers with a paradox, because higher prices discourage adoption and hurt consumers, but they also encourage investment in the infrastructure and domestic production needed to ultimately bring costs down in the long term.
One area where prices could play a larger, beneficial role is in encouraging investment in storage. While China is currently mandating large increases in storage capacity, the same result could also be achieved by allowing prices to fluctuate upward in winter, when LNG receiving terminals and pipelines are stretched.
A second area where pricing could play a larger role is in giving large industrial users a signal when they should scale back or voluntarily interrupt gas consumption. In the winter months, instead of relying on forced curtailment of industrial demand, demand response programs could allow some users to interrupt consumption while others continue operations.
Ultimately, the development of China’s natural gas infrastructure and markets will take time, and will require a great deal of thought about how investments in developing the sector can be paired with related policies across the energy and environmental space. Other countries have shown how regions can transition toward cleaner fuels in the relatively short period of a few decades, through a combination of regulatory reforms and market forces. At its present rate of energy sector investment and development, China may find that in a few years it can enjoy cleaner energy — including gas and renewable energy — at a significantly lower cost than today.