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China prioritizes use of natural gas by vehicles, ships

Wednesday, 31 Oct 2012 | 10:34 AM ET

BEIJING, Oct 31 (Reuters) - China unveiled on Wednesday a natural gas policy designed to spur the transport sector's use of the cleaner-burning fuel, and particularly of liquefied natural gas (LNG), as the world's second-largest user of fuel reins in consumption of dirtier oil.

Besides homes, utilities and factories, the government for the first time targeted the transport sector, covering buses, taxis, trucks, and vessels as preferred users of natural gas, according to a document published on the website of the National Development & Reform Commission (www.ndrc.gov.cn).

``It's certainly a good policy that will see gas replacing quite a lot of diesel, which is the main fuel used in China's transport sector and is much more polluting,'' said analyst Yan Kefeng of Cambridge Energy Research Associates (CERA).

The world's top energy user is poised to triple natural gas use to meet about 10 percent of total energy demand by the end of this decade, to cut emissions from coal use, and dependence on oil imports.

The policy push would lead to the world's biggest fleet of LNG-fuel led vehicles, as it is both cheaper and more efficient than the conventional gasoline and diesel, experts have said.

To supply the fuel, leading energy firms CNOOC Ltd , PetroChina and Sinopec Corp are building a string of facilities along China's eastern shore to import LNG, gas super-cooled to liquid form for shipping in tankers.

Others are building smaller plants inland to liquefy natural gas from gas fields distant from the main pipeline networks. LNG tankers then truck them across the country to end-users.

In the eastern province of Jiangsu alone, the number of LNG-fuelled vehicles is expected to exceed 6,000 by 2015. Southern Guangdong province wants to replace LPG, a more costly refinery product, with LNG for buses.

In the NDRC statement, the government bans use of natural gas as feedstock for making methanol or the base-load gas-fuelled power generations in coal-rich regions.

It also curbs use of natural gas to produce fertilizer.

``Natural gas is still a precious resource in China, so the government wants to manage the demand side as well,'' said Yan.

The NDRC, China's top economic planning agency, also said it would push gas price reform and establish a better link between prices of natural gas and alternative fuels. A pricing link between gas production and consumption and a seasonal gas pricing system are also in the pipeline.

Beijing last revamped its gas pricing model in December 2011, freeing up wholesale prices for unconventional gas and launching a pilot scheme to link domestic gas prices to imported fuel.

(Reporting by Chen Aizhu and Judy Hua; Editing by Clarence Fernandez)