PRC Breathes Easier With Natural Gas

Article | 3 May 2010

Beijing, People's Republic of China - Despite, or because of, rapid economic growth, the People's Republic of China (PRC) faces serious environmental problems. The World Health Organization says that 7 of the 10 most polluted cities in the world are in the PRC. Acid rain falls on about 30% of the country's land mass.

Air pollution, acid rain, and greenhouse gas emissions threaten people and the environment, not only in the PRC but - because pollution knows no borders - also the rest of the world.

Taking Action on Coal

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

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

The government has taken a number of steps on it own, especially restructuring "upstream" companies - companies that produce and import oil and gas. But "downstream" companies - those that distribute fuel to businesses and individuals - were harder to reform. Many small, inefficient municipal- and state-owned distributors were in charge in various cities.

Tapping the Private Sector

To solve the problem, the government encouraged 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 a company called China Gas Holdings and has arranged a $/CNY dual currency loan up to $50 million to the company. It has also arranged for the commercial cofinancing of a $75 million loan for 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 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 little in the way of clean energy despite high demand. One inhibiting factor is the municipalities' inadequate natural gas infrastructure.

The project corrects the problem, providing nearby municipalities with a clean, reliable, and long-term energy source.

ADB's investment lowers the PRC's exposure to volatile oil prices by making greater use of the country's abundant, but underexploited, natural gas reserves.

It is also helping build a nascent natural gas distribution market by introducing international best practices in the PRC and by setting standards for other companies to follow.

Compounding these positive development effects, the project will reduce air pollution: the switch from coal energy to natural gas will reduce the amount of particulate matter and sulfur dioxide in the air. This will improve the health of the PRC's urban population, which has been suffering from both indoor and outdoor pollution.

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