People's Republic of China Energy: Breathing Easier with Natural Gas

ADB's financing and corporate governance training brings cleaner energy to municipalities across the People's Republic of China.

The People's Republic of China (PRC) faces serious environmental problems, a side effect of its rapid economic growth. Air pollution, acid rain, and greenhouse gas emissions threaten people and the environment, not only in the country, but also, as pollution knows no borders, across Asia and the world.

Taking action on coal

What is causing this environmental degradation? While there are myriad factors, industrial boilers and furnaces are the largest sources of urban air pollution, consuming almost half of the country's coal production.

The PRC government is working to rein in coal consumption and increase the use of cleaner fuels such as natural gas, which currently represents approximately 4% of the country's energy mix.

Among the steps being taken by the government is to restructure "upstream" companies - those that produce and import oil and gas - and , "downstream" companies - those that distribute fuel to businesses and individuals.

However, "downstream" companies are harder to reform. There are many small, inefficient municipal- and state-owned distributors in various cities.

Tapping the private sector with good governance

To solve the problem, the government encourages private companies to invest in the distribution process, so that these companies could deliver their know-how and efficiency to the gas distribution market at the city level.

In line with the government's initiatives, ADB has made an equity investment of up to $25 million in China Gas Holdings; and has arranged a $/CNY dual currency loan of up to $50 million, the commercial co-financing of a $75 million loan, and corporate governance improvement program under the Municipal Natural Gas Infrastructure Development Project.

The project supports the endeavors of China Gas Holdings to fund a series of new natural gas distribution projects in various municipalities in the PRC. ADB's investment and corporate governance improvement program helps the company expand its operations and addresses the PRC's growing demand for natural gas.

Clean energy for a prosperous future

Many municipalities offer residents very little in the way of clean energy, despite high demand. One inhibiting factor is the municipalities' inadequate natural gas infrastructure. An ADB project is looking at developing municipal infrastructure for natural gas.

The project corrects the problem, providing municipalities with a clean, reliable, and long-term energy source. This will have the effect of reducing air pollution, since the switch from coal energy to natural gas will reduce the amount of particulate matter and sulfur dioxide in the air. In turn, this will improve the health of urban population, which has been suffering from both indoor and outdoor pollution.

In Hohhot, the capital city of the Inner Mongolia Autonomous Region, Sarenna, a housewife in her 50s living in Zhuyuan Residential compound, pays about CNY2,000 ($310) for natural gas annually. Her family of three uses gas for cooking three meals a day and heating for 6 months of the year.

"Now I use natural gas to brew tea leaves and milk for hours to prepare the traditional Mongolian tea. It does not cause any indoor air pollution and keeps my pot clean," said Sarenna.

"Now I use natural gas to brew tea leaves and milk for hours to prepare the traditional Mongolian tea. It does not cause any indoor air pollution and keeps my pot clean," said Sarenna.

The change to natural gas will improve not only well-being, but also resource availability, and ultimately, the country's prosperity.

Delivering change

Today, after more than 3 years of successful operation, the project is delivering its economic and environmental promise. In 2011, natural gas was delivered to more than 3.7 million families in 110 cities across the PRC. Natural gas volume reached 2.3 billion cubic meters.

In addition, the project has provided job opportunities and investment for the local economy, with various training including operational safety and corporate governance.

The success of the project encourages further investment in the natural gas sector. The PRC is now exploring a much wider range of natural gas supply options and expanding its international and local pipeline networks.