Fiscal, tax subsidies for construction to boost sector's development

Fiscal and tax subsidies for the construction of underground gas storage facilities and improvements to the pricing mechanism for natural gas will help China achieve a more open gas market system, according to industry insiders.

Against increasing demand for natural gas, especially during the peak consumption period in winter, the government should step up construction of underground gas storage facilities with competent peak load regulation capacity to ensure a stable supply of natural gas, said Zhang Mingsen, former deputy chief engineer at the Beijing Research Institute of Chemical Industry under the State-owned oil giant China Petroleum and Chemical Corp.

The government needs to come up with fiscal and tax subsidies for the constructors at the initial phase, he said.

According to Zhang, underground gas storage has always been an important part of the natural gas industrial chain, serving as an indispensable mechanism to regulate and adjust the peak demand for natural gas.

Underground gas storage facilities see high capacity and high gas storage pressure, and their small land usage and the fact that they are less susceptible to extreme weather also enable a relatively lower cost compared with other storage facilities, said Li Li, research director at energy consulting company ICIS China.

As much as 66 percent of the world's 715 underground gas storage facilities are located in developed countries in North America and the European Union.

China currently has 26 underground gas storage facilities with a storage capacity of approximately 20 billion cubic meters as of the end of last year.

However, the effective working storage capacity is only around 10 billion cubic meters and only accounts for some 3 percent of the country's total gas consumption, far lower than the global average of 12 percent.

According to Li, as the country's reliance on gas imports has been climbing in recent years and reached 45 percent last year, it is urgent that China steps up construction of the facilities.

China's gas storage facilities, rather than operating independently, have long been auxiliary to the pipelines, which has substantially constrained development and is standing in the way of a more open and liberalized gas sector in the country, she said.

China's imports of natural gas surged 31.9 percent year-on-year to a record 90.4 million metric tons in 2018, according to statistics from the General Administration of Customs.

According to China National Petroleum Corp's Economics and Technology Research Institute, China imported 125.4 billion cubic meters of gas in 2018, climbing 31.7 percent compared with the previous year and reaching a foreign gas dependence ratio of 45.3 percent.