中国天然气工业存在的问题及对策

Petroleum ScienceVol.2 No.3Problems and Strategies of China's Natural Gas IndustryLiu Chunxu and Li Hongxun(College of Economic Administration, China University of Petroleum,Dongying, Shandong 257061, China)Reeived April s, 2005Abstract: Although significant progress in China's natural gas industry has been made since the adoption of the“"EighthFive-Year Plan"(from 1991 to 1995), some problems still exist in the aspects of gas resources, exploitation, utilizationand macromanagement, and hinder a further development of the natural gas industry. A series of strategies for solving theproblems was put forward, including accurate orientation of the natural gas industry, strengthening the construction of gastransmission and distribution networks, comprehensive exploitation policies for "integration of up-and downstream”,govermment-supported gas-preferential policies, construction of the gas market frameworks and devoting strong effort tothe new market development.Key words: China, natural gas industry, problem, development, strategyAccording to the current evaluation, 80 percent of1. Introductionthe total natural gas reserves are distributed in Sichuan,Great progress in China's natural gas industry hasOrdos, Xinjiang, Qinghai and other midwest regions asbeen made since 1990.The proved natural gas reserveswell as offishore areas. In addition, 2/3 of thehave increased substantially each year, from 1,000recoverable reserves have been discovered in thesebillion cubic meters in 1990 to 2,600 billion cubicareas (Cheng, et al, 2001). On the other hand, most ofmeters in 2000. During this period, the natural gasthe developed cities are located in east and southeastproduction has increased by about ten percent annually,China. They are suffering from an energy shortage andfrom 15.2 billion to 27.73 billion cubic meters.the environmental pollution, so clean energy like naturalHowever, compared with that of the developedgas is in great demand there. The natural gas fromcountries, China's natural gas industry remainsoffshore areas cannot meet their need for clean energy.Thus,theinconsistency between the resourcebackward in such aspects as prospecting, exploitation,distribution and market demand distribution is obvious.utilization and macromanagement. Through an analysisPoor geographical condition and hostile environmentof the unfavorable factors inhibiting the development ofin natural gas ubundant areathe natural gas industry, this paper will discuss theMost of the natural gas reserves have beenstrategy for a further development of the natural gasdiscovered in poor geographical areas, 84 percent ofindustry.them in deserts (26%)， mountains (25%), the Loess2. Problems with China's natural gas industryPlateau (12%) and offshore (21%) areas. Moreover, thegas reservoir beds have some unfavorablecharacteristics like deep burial depth and poor2.1 Profiles of China's natural gas industryAbundance of natural gas reserves and low degree ofpetrophysical properties. About 32.5 percent of theresources are buried 3,500-4,500 meters deep and 24.8its explorationAccording to the statistics from the“Second Nationalpercent are found more than 4,500 meters underground.Oil/gas Resource Evaluation", the total natural gasDeep-layered gas resources are found mainly in Tarim,resources amount to 3,804 billion cubic meters.Junggar, Sichuan and Erdos basins. More than 50Mainland and offshore areas hold 2,990 billion and 814percent of them are deep-buried, low-permeable andbillion respectively (Zeng， et al, 1999)， while theultra-low-permeable resources (Zeng, et al, 1999), thuscumulative proved reserves are only 6% of the totalbringing more serious problems to the natural gasresources, which is much lower than the world averageexploitation and increasing the cost of gas production.(42.6%).2.2 Status of the natural gas exploitation anThe regional distribution of natural gas does notutilization in Chinamatch the market demand distributionVol.2 No.3Problems and Strategies for China's Natural Gas Industry81Large reserve-to-production ratio due to low gasenergy consumption (Zeng, et al, 1999). For theproductionworldwide gas consumption mix, the percentages usedAlthough the proved natural gas reserves haveby power plants, by industry, as chemical raw materials,increased significantly since the Eighth Five-Year Planfor cities and commerce are 13%, 34%, 4% and 39%(from 1991 to 1995), the increase of the natural gasrespectively in North America. Gas consurmptionoutput remains slow, partially due to limitations inaccounts for 27.2% in energy consumption structure. Instorage and transportation facilities and downstreamWestern Europe, the numbers are 17%, 24%, 4% andmarketing. Currently, the annual natural gas output is 45% respectively. Gas consumption is 19.2% of theonly about 27 billion cubic meters, namely 20 cubicwhole energy consumption structure (Li, et al, 2001).meters per person. There is a big gap compared with theApparently, compared with the worldwide consumptiondeveloped countries. For example, the annual naturalmixes, the share of natural gas used as chemical rawgas output in England is 1,300 cubic meters per person.materials is relatively huge and unreasonable. TheMeanwhile, residual recoverable reserves of natural gasstructure of gas consumption needs to be optimized soof about 1,000 billion cubic meters have not beenas to increase the ratio of natural gas consumption in theexploited. The reserve-to-production ratio is higher thanenergy consumption structure.70:1 (Li, et al, 2001). Therefore, the potential of naturalGas storage and transmission equipment not wellgas resources, especially proved reserves, is still great.constructedLack of a full understanding of natural gasAffected by the wrong thought that oil is superior toSome relevant officials and urban residents have notnatural gas and due to the insufficient investment inrealized the important role of natural gas in improvingChina's infrastructure, natural gas storage andtheir living conditions and in sustainable development.transmission equipment has not been well constructed.They prefer to choose coal as the main energy sourceUp to now, only 17 thousand kilometers of gas pipelinesbecause it is less expensive and more available in China.have been set up, most of which are regional, such asLess attention is paid to the environmental pollutionfrom Lunnan(Xinjiang) to Shanghai; from Jingbiancaused by burning coal. With a rapid economic(Shaanxi) to Beiing; from Jingbian (Shaanxi) to Xi'an;development and an increasing demand for energyfrom Jingbian (Shaanxi) to Yinchuan; from NanBaXiansupply, an excessive increase in the consumption of coal(Qinghai) to Dunhuang (Gansu); from Pinghu gas fieldwill cause serious problems for China's future economy.in east China Sea to Shanghai, and fromOn the other hand, due to a lack of communication, theNanhaiya12321 to Hongkong. All these gas pipelinesgasconsumption index， assigned byNationalrun from an individual gas field to specific end users,Development and Reform Commission, wasexcept in Sichuan and Chongqing regions wheremisunderstood in some cities, which hindered thepipelines are connected with gas supply network (Zeng,natural gas market development. For Jingbian-Xi'anet al, 1999). Meanwhile, no storage equipment hastransmission pipelines in Shaanxi Province, the gasbeen built for a peak shaving purpose to date. Althoughconsumption indices assigned to Xi'an, Xianyang,this issue has to be taken into consideration by theTongchuan and Yan'an are regarded as constantcentral government and the project “transmission ofamounts. The utilization of natural gas was confined innatural gas from the west to the cast" has started, it istheselimits. For instance,the proposed gasnot easy to achieve satisfactory economic benefitsconsumption index for Xianyang 0.15 billion cubicwithout proper gas pipeline networks linking Chinesemeters. The share of the IRICO color picture tube plantcities.alone is about 0.1 billion cubic meters in its fully loadedrunning, and the remaining 0.05 billion cubic meters2.3 Status of China's natural gas macromanagementcan be used by urban residents. Therefore, the localRelevant policies not favorable to the developmentmunicipal planning commission thought it unnecessaryof natural gas industryto enlarge the gas consumption market. Some otherIn China, the natural gas industry is still in itscities like Tongchuan have similar ideas about thisinfancy, so it needs strong support from the govermment.issue.However, there is no clear indication that theUnreasonable gas consumption mixdevelopment of gas industry is considered as importantIn China's gas consumption mix, 15% of gas is usedas it should be. No relevant legislative laws or policiesby power plants, 16.8% by industry, 50.8% as chemicalhave been established and no natural gas preferentialraw materials, and 17.4% for cities and commercialpolicies made for the development of natural gaspurposes. Gas consumption holds onlv 2. 1% in primarvindustry.82Petroleum Science2005Problems with the management system of naturalwork plan. The products are sold to the local gasgas projectscompany and then to the consumers. In this way, theIn the management system of natural gas projects,upstream producer is separated from direct contact withgas field exploitation and pipeline construction aretheir downstream users. On the other hand, due to a lacksubjected to the management of industrial constructionof professional administrative organizations and ofprojects, which need the approval from the centralpowerful coordination organizations, the natural gasgovernment. Projects of this kind are designed andmarketing development is suffering from a lack offulfilled as capital construction, while the gas utilizationcomprehensive consideration in the aspects of generalprojects for downstream cities are subjected to theplanning, developmentalstrategy, investment andmanagement of the local government and carried out inmarketing development, etc. So many different kinds oflight of the general city planning. Therefore, there areselling companies and complex selling pathwayssome conflicts to certain degree. Meanwhile, China'sbrought big problems to both the gas producers andThree Oil Giants need to strengthen and improve theirusers, both in gas production and in the implementationmanagement of natural gas projects. At present, theirof their contracts.functional departments do not cooperate well in dealingwith the natural gas affairs.3. Strategic proposals to speed u中 theThe unreasonable price of natural gasdevelopment of China's natural gas industryIn recent years, different voices have been heard onthe price of natural gas. Producers thought the price was3.1 Accurate orientation of the natural gas industrymuch too low while the consumer complained the priceThe increasing important role of natural gas in thewas too high. Both sides seem right. At present, fourenvironmental protection, optimization of the energy-principal parts are related to the production andmix structure and in the sustainable development shouldconsumption of natural gas include oil/gas fieldsbe clearly acknowledged. Furthermore, the rapid growthcompanies, gas transmission companies, local gasof the natural gas market is a worldwide trend.marketing development companies and consumers.Preexisting and emerging problems in natural gasEconomic profits for the first three parts are obtainedindustry should be fully investigated and solved.from the last. The consumer or end user is the onlyNatural gas industry is crucial to the entire nationalfinal stage of the natural gas market, In addition, botheconomy and should be taken into consideration on thethe production and sale of natural gas are monopolizedpart of the central government. In view of this, weby govermment-owned enterprises. "Individual cost plussuggest that the National Development and Reforminterest" protocol is used to make the price of naturalCommission should organize and coordinate petroleum,gas, which gives rise to some extra burden on thepetrochemical, power, construction, metallurgy, foreignconsumers, so this practice is harmful to the consumer'strade and finance, etc. state-owned big companies andbenefits. This method is contrary to the normal price-departments work together for a comprehensivemaking mechanism and harmful to the progress 0development program to strengthen the support in thetechnology and will damage the company's profits as aaspect of policies, tax and capitals and exploitation andresult. A highly efficient administration and controlpipeline construction. At the same time, we shouldsystem fit for the economic market demands needs to beexecute a mandatory environmental protection policy,further strengthened. On the one hand, thepush on the uilization of natural gas to replace the coaladministrative management of China's natural gas wasor oil and actively carry forward the use of compressedreformed from a planned economy. Although significantnatural gas-burming vehicles and industrial boilers, so asprogress has been made, it still cannot meet the need forto develop the gas market and speed up thethe development of a market economy. Due to a lack ofdevelopment of gas industry.the corresponding running systems, the related up-and-downstream participants were connected together by3.2 Strengthening the construction of gas transmissiongovermment administration. There are no commonand distribution pipeline networksbenefits and thus no cooperation. In selling the naturalChina's gas resources are mainly distributed in thegas, protocols from the planned economy were adoptedmidwest areas, while the gas market is located mainly into distribute the resources, with its production plannedne southeast coastal areas. Thus, to develop the gasand the price set by the National Development andindustry, a well-organized network, which consists ofReform Commission. Oil & gas fields companies aremain pipelines, branch pipelines and local gasresponsible only for their production according to thetransmission and distribution network, must be set up.Vol.2 No.3Problems and Strategies for China's Natural Gas Industry83Currently, the construction of a gas transmission and3.4 Enforcement of gas-preferential policiesdistribution pipeline networkfalls behindtheIn the early stage of the gas industry development,development of the gas industry. It is of greatRussia, England and South Korea all adopted “gas-significance to strengthen the construction of gaspreferential” policies in the aspect of investment anddistribution networks. Not only the main gas pipelines,price regulations, to boost the development of industry.but also the branch gas pipelines and city distributionPresently, the gas price is at a relative low level ingas networks should be included in the State basicChina and less likely to rise again in the near future.construction plan. Investment in gas transmission andGovermment departments should change their financialdistribution networks should be further increased.and tax policies according to the actual situation andFurthermore, preferential policies and regulations onreduce taxes on gas industry. Meanwhile, governmentnatural gas should be made so as to introduce andshould reform its fiscal and tax regulations. Flexibleencourage foreign and nongovernmental capitals intoregulations should be carried out in different districtsthe gas network construction.and projects. The Sichuan Basin, which contains thelargest gas field in China, is facing the increasing3.3 Improvement of the comprehensive developmentdifculty as the exploitation is extended to its peripheralpolicy for the up-and-downstream integrationand deep areas. An obviously further development ofThe upstream, midstream and downstream sectionsthe gas industry in this district needs new prospectingof the gas industry are tightly connected. Malfunction ofand exploitation technologies. A financial investment,any the three will affect the entire development. Theworth more than 500 million (RMB) including a largediscovery of additional natural gas reserves is relativelyportion of foreign exchange, is expected for modernfast. As it usually takes more than 5 years to go fortechnology and equipments. Sichuan Petroleumresources from discovery to exploitation, theirAdministrative Bureau cannot afford such a big fundutilization even needs more time as far as some factors(Zeng，et al， 1999). Financial support from thelike the distance between the reservoir and the end usergovernment through domestic or international mid- orand lag downstream pipeline network infrastructure arelong-term loans is_ greatly needed. Natural gasconcerned. As a result, the reserve-to-production ratioprospecting and exploitation projects also meet someincreased rapidly, whereas the production increasedproblems in areas where gas is buried over 3500 meterslowly. The situation of underdeveloped marketing willdeep, making up 57.3% of the total natural gasin turm impede the development of the upstream andresources, as well as in areas with unfavorable naturalhave the proved reserves overstocked. Therefore, it isenvironments such as the Loess Plateau, mountain,very clear that consumers and marketing are a key to thedesert and offshore areas, constituting 84% of the gasexploitation and utilization of natural gas. Once theresources (Kong, et al, 1998). To encourage the gasproved reserves are given, how and where the market is,prospecting and exploitation, the central govermmentwhen and to what degree the market is developed willshould make gas-preferential policies, like “oil and gasin parallel with emphasis on natural gas".become the main point of natural gas utilization. Apresent, natural gas industry should be further3.5 Setting up a natural gas market frameworkdeveloped in west China's natural gas-producing areas.First, all production factors including funding, labor,In addition, a prosperous gas market can be alsotechnology, information and natural gas resourcesdeveloped in the east and southeast coastal areas, whereshould be commercialized and go into the market, as isthe economy is well developed. As the gas pipelines area prerequisite for running the gas market. Second, alinked together, coordinated management needs tightresource optimization system should be set up. Naturalcooperation among all related producing, transmissiongas and some other production factors should be noand selling departments. In order to accelerate gaslonger under the full control of the government plan,prospecting，exploitation and utilization and avoidand the allocation of resources should go into theunnecessary resource waste and capital overstocking,market. Third, enterprises should be responsible forthe characteristics of natural gas industry must betheir own behaviors. Enterprises participating in theunderstood. A practical and united program andmarket competition need to set up a modermarrangement should be carried out from the selection ofmanagement system of their own, reform themselvesthe prospecting area, production capability andinto real companies and make their actions meet thecollecting and transmission network to the downstreambusiness standards, thereby enabled to obtain the fuliycomprehensive utilization,right of decision-making in their production process,34Petroleum Science2005and act in the patterns like fair play, self managementconditioner market accounts for 12 percent of the worldand responsibility for profits or losses. Fourth, a naturaltotal. Total sales of domestic air conditioner productsgas marketing system should be set up and perfectedare about￥30 billion (RMB), and that of central airgradually. The efficiency of running the market shouldconditioner products nearly￥10 billion (RMB) in 1998.be maintained at a high level and the cost of tradingThe average annual increasing rate is 20 percent in thereduced. Meanwhile, positive relationships with other1990s, much higher than the growth rate of the nationalrelated energy product markets also need to be managed.ecohomy of China. In the aspect of energy consumption,Fifth, laws and regulations to ensure the natural gasall domestic air conditioners use electricity; seventymarket running in order and to regulate the marketpercent of central air conditioners use electricity, whilebehaviors need to be established. As the development of30 percent of them use natural gas or steam (Nooij, ethe gas market possibly transfers from a short-termal, 2003). Compared with electrical *air conditioners,“perfect monopoly market” to an “imperfectgas-fired air conditioners have such advantages ascompetition market" and then to a“perfect competitioncapable of shaving the summer electricity peak, usingmarket", the situation of monopoly by a few enterprisesthe summer gas surplus, protecting our environment andavoiding damaging the ozonosphere, and reducing thewill disappear gradually (Gordon, et al, 2003). Lawsrunning costs. In Japan, the advantage of gas-fired airand regulations, including "regulations of marketconditioners was well recognized at their early stage.admittance",“regulations of market competition” andEfforts were made by the government and the public to“regulations of trade", are needed to ensure fare playdevelop gas-fired air conditioners. In about ten years, 85and legal trading among gas enterprises. In accordancepercent of the central air conditioner markets werewith the natural gas industry development status and theoccupied by gas-fired air conditioners. Research andeconomic development level of different districts, wemanufacturing of small gas-fired air conditioners (370-suggest setting up five trade centers respectively in740 W) for domestic use are in progress. Based on theXi'an, Chengdu, Wuhan, Shanghai and Beijing. TheJapanese experience, South Korea begins to develop itsrelated energy products like coal, fuel oil, liquidgas-fired air conditioner. The share of its gas-fired airpetroleum gas and electricity, etc. can be included in theconditioners holds even a higher percentage in itssame trade center. In such a way, the resources can benational air condition market. China also should adoptoptimized and the cost of trade reduced. Ways of tradetheir experience to boost the gas -fired air conditionercan be flexible. Spot transaction, futures trading, short-market (Li, et al, 2001), and increase the share ofterm contracts, long-term contracts and so on can begas-fired air conditioners. This will be beneficial to theadopted. Considering the characteristics of natural gas,development of the national economy and to thea long-term contract is more suitable to stable and safeenvironmental protection. In addition, this will begas supply. New“laws of contract” have furtherhelpful to boosting the natural gas market.clarified the regulation on electricity, water, gas andReferencesheat contracts. Thus, we suggest that the departmentsconcerned make detailed rules to fulfill the new law andCheng, G (2001) The Chinese Petroleum Industry: Achievementsregulate both the dealer and the vendor's behaviors.during 1996-2000 and Targets for the Next Five Years,Rules like “Failure to provide results in punishment"International Petroleum Economics, 9(1), 7-8 (in Chinese)and“fixed price contracts" adopted in the internationalGordon, D. V; Gunsch, K. and Pawluk C. V. (2003) A NaturalMonopoly in Natural Gas Transmission, Energy Economics,natural gas trade need to be standardized as law or25(5), 478-479regulations, to protect the right and profits for vendersKong, Z, P. and Wu, Z, Q.(1998) Present Situation and Futureand buyers.Trend of the Exploration and Development of Nature Gas inChina, Natural Gas Industry, 18(2),1-3 (in Chinese)3.6 Great efforts to be devoted to the development ofLi, H. x. (2001) Experiences in Cultivating Natural Gas Marketnew gas marketAbroad and Their Inspiration to China, Natural Gas Industry,Use of natural gas as energy sources for gas-burning21(4), 103-105 (in Chinese)power generators, vehicles and air conditioners can beNooij, Michiel de; Kruk, Rene Van der and Soest, Daan P. vanan important measure. Many reports deal with the use of(2003) International Comparisons of Domestic Energynatural gas on power generators and vehicles. Here weConsumption, Energy Economics 25(4), 359 -361would like to talk about gas-fired air conditioners. AirZeng, P. (1999) Present Situation and Prospect of the Explorationconditioning is an important energy-consuming sector.and Development of Nature Gas in China, Natural GasNow China is the third largest air conditioner market,Industry, 19(4), 88-89 (in Chinese)next only to the U.S and Japan. China's share in the air(To be continued on page 92)9Petroleum Science2005basis, countermeasures should be put forward in time.equipment and materials, such as automobiles,For an economical and rational use of oil and gasconditioners, refrigerators, fans and building materials,resources, some effective economic leverage or marketso that they all have energy saving characters. Thesemechanism should be introduced, technological meanskinds of technologies for saving energy should betaken and scientific management conduted to controlapplied to every link of production process and to everythe oil and gas consumption. Every industry and everyaspect of daily life.sector of the society should lay down concrete goals andmeasures for oil and gas saving. Energy development,Referencesespecially energy-saving, should be taken as the mostJiang, Xiaojuan (2004) Chinese Economy Steps into a New Stage:important item in the mid-term and long-term plan for theThe Challenge and Strategy. Economy Research Journal, 39national economic and social development. Effective(10), 4-13 (in Chinese)measures should be taken for quickly establishing a newmode of production and consumption of oil and a newAbout the first authoreconomic structure wit energy-saving characteristics, andWang Baoyi, born in 1976,for energy-saving construction.received his B.S degree inWe should accelerate the building of a newpetroleum engineering from Chinaproduction mode beneficial to saving petroleum andUniversity of Petroleum (Eastnatural gas.. In the following 10 years, we should takeChina) in 1998. Now, he is studyingmeasures to cut down the oil and gas resourcesfor an academic degree of doctor inconsumption and waste in the process of the oil and gasmanagement engineering in Chinaproduction in the petroleum companies.University of Petroleum (Beijing).Furthermore, we should accelerate the setting up of aE-mail: baoyiwang2003@ 163.comnew consumption mode beneficial to saving oil and gas.For instance, we should develop new types of electrical(Edited by Sun Yanhua)(Continued from page 84)Liu Chunxu, borm in 1964, is anassociateprofessorthDepartment of Economics andManagementChinaChina). Now as a postgraduate hestudies in the University ofIntermnationalBusinessandEconomics. His research is focusedmainly on oil economics and venture capital. E-mail:chunxuliu@sina.com(Edited by Zhu Xiuqin)