LNG macro analysis, page-1570

Burgeoning demand for natural gas in the People's Republic is driven by a number of factors, not least of which is the country’s still impressive economic growth. But popular demand for better air quality has spurred an aggressive national ‘fuel-switching’ policy, which favors cleaner burning gas over ‘king coal’ in China’s power sector.

Roughly 7 percent of China’s energy comes from natural gas (up from 0.5 percent in 2010). That’s low. Compare that to 55 percent for dirty coal.

Coal’s dominance of the power sector means that Chinese urban areas suffer from chronic air quality issues, ranging from ‘moderate’ danger in Beijing to “hazardous” in cities like Shanghai, according to official measurements. China’s latest five-year plan requires cities to meet ‘good’ or ‘excellent’ air quality standards by 2020. Renewable energy is rightly being incorporated into the fuel-mix to achieve this goal, but solar and wind alone are not sufficient to meet rising energy demand.

That means using more natural gas.

On July 3, China’s State Council released the full text of a three-year action plan to curb air pollution by 2020.

Air pollution in China is now affecting 37 percent of China's population, and measures taken so far are falling short of government goals and public expectations. The new plan offers tougher limits and proposes a quicker shift to cleaner fuels such as LNG and electricity, and high grade iron ore, coal and metals.

The challenge is many of these commodities are not produced competitively locally and need to be imported. Additionally, a large portion of existing capacity will now require stricter supervision and environmental compliance. As a result, Prakash Sharma, Head of China Research at Wood Mackenzie, expects domestic costs to rise and production curbs to increase. A proposed ban on trucking to move raw materials from port to plant could also be a game changer, as it creates more competition between domestic supply and imports.

The plan extends its reach to cities in the Fenwei plain in Shanxi, Shaanxi and Henan provinces, where air pollution is worsening. It calls for prioritizing district heating with coal-based combined heat and power plants and more switching from coal to gas or electricity. Henan province has said it will switch a further one million households by October 2018.

China has cut thermal coal consumption by 350Mt in the heating and cement sectors since 2013. “Further reductions will come,” says Sharma. “But it will be a challenge to switch to gas completely because it is more expensive and domestic supply is short. Heating demand in northern China is 300 bcm gas equivalent but actual consumption is only 30 bcm. One can imagine the potential impact on global gas markets if China were to switch fully, or quickly.” Sharma expects gas supply prioritization and rationing to continue to serve heavily polluted residential areas of the Beijing-Tianjin-Hebei cluster and the Fenwei plain.

Most of the policy measures in this new plan follow through previous ones. The action plan looks to continue to retire inefficient coal-fired power units under 300MW, or build high efficiency, low emission units as replacements. Henan and Guangdong provinces have announced they will close one GW each this year. “This doesn’t mean China is going to ease its pressure on coal-fired power construction. It already aimed to cancel or defer around 150GW of proposed coal-fired power projects last year, and this trend will continue,” says Sharma.

www.maritime-executive.com/article/china-to-expand-air-pollution-measures


It's articles like these above that make me think No Wonder IDG got onboard the Magnolia Train last year when they had the opportunity, it also gives me a great deal of confidence for LNG moving forward in the Not too distant Future imo.

Cheers

Frank

p.s - Thanks go out to @ramtek57 for the contribution here, good job, keep it up