Key Highlights:
- China has revised its natural gas utilization policy for the first time in 12 years, with new regulations taking effect on August 1, 2024. Significant changes are noted in transportation, industrial, and power generation sectors.
- Transportation: The policy continues to encourage natural gas use in the transportation sector but narrows its focus to LNG trucks, intercity buses, and urban transit, removing support for taxis and logistics.
- Industrial Use: The approval process for natural gas-based hydrogen, methanol, and ammonia production projects has moved from strict regulation to a ban on new construction or expansion. However, other sectors will benefit from relaxed entry requirements to broaden natural gas applications.
- Natural Gas Power Generation: The new regulations encourage the development of natural gas peak-shaving power plants, highlighting the necessity for secure gas supplies and economic sustainability.
Source: Compiled by GL Consulting
Source: Compiled by GL Consulting
Natural Gas Commercial Vehicles Show High Economic Viability
Despite advancements in electric vehicle technology, natural gas remains advantageous for heavy-duty trucks and long-distance buses due to superior power performance and range. The new regulations continue to support LNG trucks, intercity buses, and urban transit, while removing incentives for taxis and logistics vehicles.
Since 2023, thanks to a more balanced global gas market, gas prices have dropped significantly from their peak, leading to increased sales of natural gas heavy-duty trucks in China. By June 2024, the price ratio of LNG to diesel for the same mileage is 0.63, falling within the high-cost-efficiency range (≤0.75), suggesting LNG could further replace diesel. From January to July 2024, a total of 126,700 natural gas heavy-duty trucks were sold nationwide, a year-on-year increase of 98%.
Expanded Access for Industrial Use, Ban on New Methanol/Ammonia Projects
The policy continues to encourage the use of natural gas as interruptible industrial fuel and relaxes restrictions across various sectors, previously limited to building materials, mechanical and electrical manufacturing, textiles, petrochemicals and metallurgy. It also eases entry requirements for industrial natural gas use (excluding bans on new construction or expansions and mandates for phasing out certain projects) to broaden natural gas applications.
New hydrogen production projects using natural gas are limited, only supporting those associated with hydrogenation facilities in refining and petrochemical enterprises. This is primarily due to cost effectiveness consideration. The carbon emissions from natural gas-based hydrogen production in the chemical industry are lower than those from gray hydrogen production using coal, and the costs are lower than those for electrolysis-based green hydrogen production.
Additionally, the new policy bans the construction of new natura gas-based methanol and ammonia projects. Restrictions on coal-to-methanol and natural gas-based methanol projects under one million tonnes per year will likely push the industry towards larger, greener production methods. As of the end of 2023, only 55.1% of domestic methanol production is from large plants with capacities exceeding one million tonnes per year.
Strengthening Peak Shaving Role for Gas Power with Localized Development
The new policy explicitly promotes natural gas peak-shaving power plants, encouraging local government support and enhancing grid stability. With gas power's flexible and rapid response capabilities, it plays a vital role in electricity regulation. During peak summer demand periods in 2023, daily natural gas consumption for power generation in China exceeded 250 million cbm, equivalent to over 1 billion kWh of electricity generation, comparable to the highest daily output from renewable energy sources (1.04 billion kWh).
However, due to a high dependency on natural gas imports, natural gas peak-shaving power plants must ensure a reliable gas supply and economic viability. These projects are anticipated to concentrate in resource-rich western regions and heavily subsidized eastern areas with high power demand. By July 2024, economically developed provinces and cities such as Guangdong, Jiangsu, Zhejiang, Beijing, and Shanghai lead in gas-fired power installed capacity.
To get detailed full text, send an email to glconsulting@mysteel.com
Edited by Jade Yu, yujiajun@mysteel.com
