China's natural gas policy to favour long-term demand-supply balance

China issued a new policy on natural gas utilization at the end of August, and analysts hail this as China's effort to maintain long-term balance in gas supply and demand.

The new policy bans the use of natural gas as raw material to produce methanol, the construction of gas-fuelled power plants at large coal production bases, and the use of natural gas produced by large and medium-sized gas fields as raw material for Greenfield LNC projects.

These prohibitions, as well as other limits stipulated by the new policy, are to curb gas demand, analysts say.

On the side of gas supply, China has signed contracts with its neighbours including Russia, Turkmenistan and Uzbekistan for at least 30 years of gas supply to its northeast and southern regions.

Domestically, China's gas output has increased by an average of 12.63 percent annually since 2001, to 49.3 billion cubic meters by 2005, and the figure tends to rise further in consideration of the three domestic oil giants' new discoveries in recent years.

Analysts believe that limit on demand and increasing supply will reduce its natural gas shortfall and favour the country in LNG import talks.

The next step, the analysts say, is to push gas price marketization, which is the final goal of China's natural gas reform.

The new policy issued by the National Development and Reform Commission classifies natural gas utilization into four categories: residential and urban gas use, industrial fuel, power generation and chemical feedstock, and labels them as categories of Given priority, Permitted, Limited and Banned respectively.