Two decades of natural gas development in Beijing

Tw o decades of natural gas development in Beiji ng

IGU’s Global Gas Award recognises industry efforts, innovations and approaches that aim to contribute to the progress of the gas industry. The theme of the award for 2018 was “The role of natural gas in enhancing the quality of life, today and in the future”. There were over 200 entries and here we present the winner – a review of the lessons learnt from Beijing’s transformational switch from coal to natural gas. By Qiao Jia

Beijing is a rapidly developing international metropolis. By the end of the 20th century, the total population was more than 12.5 million, with 1.1 million vehicles and 37.2 million tonnes of coal consumption. At that time, coal was the dominant energy source in Beijing, accounting for 50% of primary energy consumption. During the past 20 years, the city’s development picked up speed, with major events successfully held including the Olympic Games in 2008 and the APEC Summit in 2014.

As Beijing developed it also faced problems, suffering from what we call

“big city disease”. Rapid development, population growth and consequently more housing and vehicles resulted in growing energy demand, while burning more coal polluted the environment. Moreover, the mishandling of coal during transportation, storage and the disposal of cinders caused additional environmental pollution and created a potential safety hazard for workers. How could we create a better balance and meet increased energy demand while reducing environmental pollution? Natural gas, the clean energy, gave an answer.

c Jia Qiao is presented with IGU’s 2018 Global Gas Award by then IGU President David Carroll as IGU Secretary General Luis Bertrán Rafecas looks on. The presentation was made during the WGC 2018 Closing Ceremony on June 29.

The initial use of natural gas in Beijing dates back to 1987, following the construction of a transmission pipeline from the North China oil and gas field. But it was not until 1997 that the natural gas era really got underway, when the first natural gas pipeline from Shan’xi, Gansu and Ningxia provinces reached Beijing. Since then, the promotion and utilisation of natural gas has made a significant contribution to reducing air pollution (see Figure 1). The major indicators measuring air quality, such as levels of nitrogen oxide, sulphur dioxide and particulate matter, have all decreased significantly with the use of natural gas.

The most prominent trend during the last 20 years has been a restructuring of Beijing’s energy mix with clean energy taking a bigger share and the dominance of coal ending. Indeed, the area within the 5th Ring Road is now coal-free. During the period, natural gas sales increased 10% each year on average, with utilisation expanding to cover residential heating and cooking, combined heat and power, power generation and transportation. By the

end of 2017, natural gas had a 32% share in Beijing’s energy mix. We believe this trend will continue.

Analysis

So, how did natural gas become a dominant energy source in Beijing? We carried out both subjective and objective analyses. From the subjective analysis, we came to the conclusion that economic development, policy incentives, government-driven market reform and the internal motives of companies were the most important factors. Then we made an objective analysis, using mathematical methods to sift through tens of thousands of datasets relating to the economy, society, energy and population of Beijing for the previous 20 years. We carried out a wavelet analysis and by defining breakpoints we divided Beijing’s natural gas development into three phases: starting up, coming on track and fast-track growth. In this way we could better understand the process of natural gas development in Beijing.

The key policy was the replacement of coal-burning equipment and appliances with gas-burning ones based on resource availability and the capability of companies to upgrade their equipment. The replacement was carried out gradually, starting with the inner city and smaller boilers. Later on, the campaign was expanded to cover a wider area and to replace large boilers. That brought us to today, with a coal-free area achieved within the 5th Ring Road.

Major events hosted in Beijing include the 2008 Olympic Games for which the landmark Chinese National Stadium was built.

When the first Shan’xi-Beijing gas transmission pipeline opened in 1997, the Beijing municipal government designated a coal-free zone within which all small coal-burning facilities had to be replaced by gas or electric appliances. The need to control air pollution was underlined in 2001, when Beijing won the bid to host the 2008 Olympic Games. In this context, natural gas became the major energy source for improving air quality. Bulk coal-burning boilers and large stoves were replaced with natural gas ones, as were coal-burning boilers in the inner city with an output of less

Relationship between natural gas consumption and indices of air pollutants in Beijing (1999-2017)

µg/m ³ 200 20

bcm

150 15

100 10

50 5

0 1999 2001

Source: Beijing Gas Group

2003 2005 2007 2009

Natural gas consumption

PM 10 2011 2013 NO 2 SO 2

2015 0

2017

Figure 1.

than 0.7MW/h. With policy support, companies began to build pipelines and upgrade users’ facilities. With this, a market-based natural gas development took shape in Beijing, during which reliable supply and policy support played vital roles.

With urbanisation picking up speed and preparations for the Beijing Olympics underway, the coal-to-gas campaign was also moving forward to cover a wider range of boilers with outputs in the 0.7-7MW/h range. In addition, all large-to-medium heating systems and some small ones were included in the campaign. During the same period, more than 4,000 CNG buses entered service in Beijing and some distributed energy pilot projects such as Beijing Gas Group’s building were completed.

Thanks to government support, gas companies in China came a long way, from following orders to engaging in the policymaking process, from just being involved in downstream services to also participating in pipeline build

c Greater use of natural gas has made a significant contribution to reducing Beijing’s air pollution.

ing in the upstream sector. In this context, companies were developing corporate strategies to better serve their own growth. Beijing Gas Group was the first among public utility companies in Beijing to formulate its culture and strategy. We analysed which factors influenced natural gas development the most during this period with a mathematical model, and came to the conclusion that government policy, infrastructure building and pipeline investment were at the top of the list, and these would not have been possible without the inner motivation of the company itself.

In 2011, the post-Olympics period, a new “Blue Sky Protection Drive” was unveiled in Beijing with even more attention being paid to air pollution control and the reduction of GHG emissions. The government launched multiple campaigns including the “Green Beijing Action Plan”, “Clean Air Action Plan 2013-2017” and “Working Plan for Accelerating Central Heating and Replacing Bulk Coal with Clean Alternatives in the Urban Area, 2016- 2020”. Large-scale infrastructure building has enhanced the system’s ability to ensure supply security. Major upstream projects include the fourth Shan’xi-Beijing gas pipeline, Tangshan LNG terminal on Bohai Bay and Datang substitute natural gas (SNG) facility in Keshiketeng (which converts coalderived synthesis gas into methane).

During this period, the priorities of downstream users were: replacing coal with gas for large boilers (those with outputs greater than 14MW/h); replacing coal with gas for the four major thermal power plants; developing gas markets in suburban districts and rural areas; promoting natural gas vehicles and distributed energy projects. As fighting against smog and haze become a major priority, natural gas was given huge importance. Thanks to some productive deliverables, gas companies were playing a bigger role in engaging in policymaking and execution. With the help of new technology, gas supply security was ensured in Beijing. Moreover, with government support, gas companies were developing a presence in the international arena. Again, inner motivation was the key for fast-track development of natural gas during this period.

By reviewing Beijing’s natural gas development over the last 20 years, we see that policy incentives pointed the way for Beijing’s natural gas development, providing support for gradual growth of the market by expanding

the range of coal-burning boilers to be replaced by gas-burning ones. After the policy was introduced, a sound market environment was created to promote the further development of natural gas. When a company reached a certain stage, the focus of policy support shifted to building an international presence and going global.

I have to say that, as the largest gas supply company in Beijing, Beijing Gas Group has played a vital role in the city’s natural gas development. From introducing a coal-free zone in the main central area to extending it to cover all urban areas and even the suburban district, as it does today, Beijing’s natural gas market has come a long way. While expanding the downstream market, the supply side has also been developed. To ensure Beijing’s supply security, Beijing Gas Group not only engaged in transmission pipeline investment, but also developed upstream resources. In 2015, Beijing Gas began to purchase LNG in the global market independently. In 2016, we successfully made LNG spot purchases on a large scale. Beijing Gas Group, from its inception to becoming a high-tech company and supporting China’s successful bid for the IGU Presidency, has expanded its role from a gas supply company to become an integrated clean energy supplier, focusing on gas and extending its business activities to cover the whole gas value chain. Beijing Gas is playing an increasingly important role in the global energy sector.

Beijing Gas Group has extended its business to cover the whole gas value chain.

Looking at the whole process, we find that government policy, resource support, a sound market and the company’s inner motivation to develop constituted a whole set of engines, together empowering the fast development of Beijing’s natural gas market.

Lessons

There is a lot we can learn from Beijing’s natural gas development. First, government support is essential. Beijing’s municipal government adopted targeted policies according to economic and resource conditions prevalent at the time to promote natural gas development.

Second, adequate resources are key. Beijing does not produce natural gas locally. When resources are in short supply, we have to coordinate with upstream companies to ensure the city’s supply.

Third, the company must be managed according to market mechanisms. As it is natural for city gas companies to monopolise the local market, Beijing’s municipal government on the one hand granted a franchise to Beijing Gas while strengthening supervision, and on the other hand set proper mechanisms to ensure the company earns decent profits and achieves economies of scale, so that it can continue to invest and improve operational performance.

Fourth, the company should react to market signals and adapt its procedures so as to add a more competitive edge and inject more vitality into the market by reducing costs and enhancing management efficiency.

It has to be clarified that even though economic development and urban progress provided opportunities for natural gas development, they are not indispensable. We believe that natural gas is the dominant energy and we remain confident in the natural gas market.

Qiao Jia is Senior Engineer at the Beijing Gas Group Research Institute.