Peiyang Chemical Equipment Co., Ltd.
User and Price Analysis of China's Downstream Natural Gas Market

Three types of regional markets for China's natural gas

According to regional considerations, China's natural gas consumption has three different markets. In the first category, the western economy is very underdeveloped, it is also the nearest region to natural gas sources, such as Xinjiang, Gansu, Guizhou, Qinghai, Inner Mongolia and Shanxi. They use the local natural gas resources, the short distance pipeline transport can reach the user, the gas price should be cheaper. The state has imposed a resource tax to curb the waste generated by low natural gas prices; The second category is southeast coast, Beijing and Tianjin, etc., the economy is relatively developed, the per capita GDP has reached several thousand dollars, and the natural gas price is strong; The environmental pollution caused by economic development is also very serious, and the pressure on clean energy is very high. In case of insufficient air transport, LNG is imported. Mr. Xu zeming, deputy director of the office of the national energy leadership group, said in a recent speech, the introduction of LNG has two modes: the Guangdong model mainly based on the company and the Shanghai model dominated by the local government. The latter mainly relies on the government's macro-control functions to bring in LNG projects and absorb the higher gas prices. For coastal areas such as the southeast coast, whether it is to bring in LNG or to use sea or east gas, it will be a higher price. The different costs and prices of these three gases need to be balanced by government macro-control. The third type of market is the transition region of geographical location and economic development, such as Henan, Hunan, Hubei and Jiangxi. They are not far from the sea, not far from the capital, the potential size of these markets and the affordability of gas prices fall somewhere between the first two. This is a geo-factor that must be taken into account in downstream market development and downstream user pricing.

The principle of substitution of LNG downstream market determined by China's energy strategy

In this sense, the fundamental goal of developing natural gas is to improve the environment by reducing coal pollution. But this is a paradox. Natural gas is not directly competitive with coal when the price of natural gas and coal is now between 2.5 and 3. Research shows that the introduction of LNG downstream of indirect replacement coal market, in addition to building natural gas combined cycle power plant must be appropriate, as the load of power grid unit, by higher electricity prices to get to the Internet, it can be summarized as the following five aspects.

1) Replace LPG

Many southeast coastal cities, in order to solve the air pollution problem, have already used LPG to make urban gas. China consumed about 20 million tons of LPG in 2005, of which about 7 million tons were imported, and the rest mainly processed by domestic refineries. Under high oil prices, LPG prices are very high, and the imported LNG alternative LPG is competitive.

2) Alternative to industrial or commercial steam boilers (oil or coal)

In big cities along the coast, the atmosphere is no longer allowed to burn coal, has changed fuel boilers, replaced with natural gas, and can be affordable. Users who still burn coal are too economically vulnerable to switch to natural gas. The fundamental solution is to develop distributed hot (cold) power supply system (DES/CCHP). Clean natural gas can be converted into electricity by gas turbine or internal combustion engine with a high efficiency of nearly 100%. The chemical energy of natural gas can be converted into electricity, and the exhaust fumes can be used to produce steam. This reduces the cost of steam to the same level as the coal-burning pot. It is also possible to further utilize the low-temperature thermal energy of clean natural gas to absorb refrigeration or produce hot water so as to achieve more than 80% of total energy utilization. At the same time, achieve three goals: economy, environmental protection and high energy efficiency.

3) Substitute inefficient electricity

The ministry of construction calculates that 80% of China's construction use can be used for heating, air conditioning and living hot water. Especially on the southeast coast, 80 percent of the building energy consumption is basically electricity (a small amount of gas, which is also unreasonable "high energy and low use"), and quite a lot of it is transported thousands of kilometers away, losing 10% of the western electricity. The end clay used for heating the east with coal from the west is only 20%. The use of the technology of the urban cold and heat electricity triplets (DES/CCHP), the economy, environmental protection and energy efficiency target can be reached, there are also contributions to relieve the stress of the urban summer grid. China's construction energy consumption can reach 600 million tons of coal/year, accounting for more than one quarter of total energy consumption, which is a large part of the replacement space potential.

4) Alternative petroleum processing (petroleum) petroleum processing (e) fuels light hydrocarbon and heavy oil

The petroleum processing of China has reached 300 million tons/year, and the light hydrocarbon and heavy oil of the subsidiary are used for the refinery and petrochemical plant boilers, and the heating furnace fuel is about 20 million tons/year. According to current and future international market prices, natural gas is cheaper than them. Because they can be directly cracked or lysed to make chemical raw materials; Natural gas is more suitable for fuel.

5) Alternative diesel fuel for vehicle use

Of all the clean alternatives, natural gas is the cheapest, environmentally friendly and well-sourced. But what's more troubling than other alcohols is that it requires different engines, gas stations, and fuel tanks. Thus, the development of the new industrial chain will be developed. It must be noted that all these industrial chains are technically mature and in general very economical. And it can lead to a new manufacturing industry and a new economic growth point. China now has the world's first heavy truck load, with tens of millions of tons of LNGV fuel replacement potential. China can also become the world's LNGV manufacturing base through the development of the LNGV industry chain.

The price strategy for downstream market users

The following four principles can be summarized for the pricing of the above market users and the most social benefits:

(1) The accounting principle: the gas cost is high and the price is high;
(2) The principle of energy utilization efficiency: high efficient use of gas users first and low price (social benefit principle);
(3) the principle of affordability in the price determination of substitutes: for example, customers who take gas instead of high prices for diesel and light hydrocarbons can withstand higher prices and directly replace low-priced coal;                                                   (4) the principle of market development orientation: the potential large users who are very sensitive to the price of natural gas and accelerate the market development with the strategy of "thin profit and multi-marketing".

According to these principles, each of the five downstream market users should enjoy different suitable prices.