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

China Daily European Weekly - - COVER STORY - An­ders Hove The au­thor is a pro­ject di­rec­tor at Ger­man Corp for In­ter­na­tional Co­op­er­a­tion GmbH. The views do not nec­es­sar­ily re­flect those of China Daily.

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.

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