On 4 July 2017, the National Development and Reform Commission ("NDRC") published a "Notice on Opinion of Accelerating and Advancing the Utilization of Natural Gas" ("Circular 1217") on its website. This policy, jointly promulgated by NDRC and twelve other governmental agencies, had been under discussion for over a year before its final release. Circular 1217 establishes the principle of increasing the utilization of natural gas for town gas, industrial fuel, fuel gas power generation and transportation.
For this purpose, the NDRC has set forth the ground rules for this initiative, namely, (a) guidance for plans and policies, (b) reform and innovation through market openness, (c) advancement of the entire industry while focusing on key areas, and (d) cooperation between industries to promote healthy development. The target is that the consumption percentage of natural gas will constitute 10% in 2020 and 15% in 2030, while the underground effective work volume of natural gas will be 14.8 billion cubic meters in 2020 and 35 billion cubic meters in 2030. Circular 1217 also encourages participation of various entities through multiple ways such as pipeline gas, CNG, LNG, LPG, etc.
DRC also provided an outline of key policies, including but not limited to:
- The encouragement of the exploitation of domestic conventional gas, deep water and unconventional gas. Participation by private companies in overseas natural gas exploitation, LNG procurement, and the construction and development of LNG receiving terminals and pipelines will also be encouraged.
- The pricing mechanism for industrial gas and residential gas will become more market-oriented and improved to remove intermediate links and any unreasonable allocation of price on power transportation and distribution.
- The establishment of a mechanism to provide freedom to select source and means of supply.
- The provision of local government financial support to projects promoting pipeline construction, LNG filling stations, and increased capacity of existing LNG receiving terminals.
Circular 1217 provides a more detailed and practical framework for the development and utilization of natural gas. This new policy will likely have a positive impact on the transition of high-technology and its use in natural gas development. Also, this policy reiterates the market-oriented reform of natural gas price that may bring more revenues to enterprises that engage in the upstream natural gas activities.