CNPC Launches Commercial Operations on Western Section of China's Second West-East Gas Pipeline

Pipeline Launches

On 20 January CNPC launched commercial operations on the 2,745.9-km western segment of the massive Second West-East gas pipeline, marking a significant milestone in the project, which when fully completed will be the longest pipeline transmission network in the world. The western segment runs from Xinjiang's Horgos region to Zhongwei in Ningxia Hui Autonomous Region, where it will link to the eastern section still under construction. The pipeline was initially put into operation on 31 December, although the 20 days required for boosting pressure in the pipe meant commercial operations only launched on 20 January. Although gas fields in Xinjiang will provide back-up supplies, the Second West-East pipeline is mainly supplied with gas from the Central Asia gas pipeline, which was put into operation on 14 December and runs from gas fields in Turkmenistan all the way across Central Asia to China's Xinjiang region (see China: 14 December 2009: Chinese, Central Asian Leaders Celebrate Historic Launch of Gas Pipeline). According to a statement by CNPC, the western section of the Second West-East pipeline has begun to distribute gas to the city of Urumqi in Xinjiang province, where gas shortages have been dramatically reduced given that the Horgos pumping station is now supplying around 6.6 bcm of gas into the pipeline from Central Asia.

The completion of the western section also includes the Zhongwei-Jingbian branch, which connects the pipeline to other major gas trunk lines in China, helping to provide supplies to commercial centres on the eastern seaboard. The western section has been connected to two other major trunk lines. By connecting to the 17-bcm/y First West-East pipeline via the Jingbian cross-link station, supplies can be transported through areas in central and eastern China to the major consuming city of Shanghai on the eastern seaboard. The western link of the Second West-East pipeline will also connect to the Second Shaan-Jing gas pipeline through the Jingbian cross-link station. The Second Shaan Jing gas pipeline became operational in July 2005 and runs from Jingbian in Shaanxi province to Beijing via Shanxi and Hebei provinces. Given its design capacity of 12 bcm the connection with the western section of the Second West East pipeline paves the way for a reduction in gas shortages in Beijing, where supplies were under strain following a surge in demand, which was up to 53 mmcm on 4 January, much higher than routine volumes. However, the ability of the Central Asia Gas pipeline and the western section of the Second West-East pipeline to counter China's gas shortages in the near term will remain relatively limited, given that supplies from Central Asia are only expected to incrementally increase to full capacity by 2015. In addition CNPC is only expected to complete construction of the eastern section of the Second West East Gas pipeline, due to transport gas from Zhongwei in Ningxia region to Guangzhou and Hong Kong in southern China, by 2011, so supplies from Central Asia to southern China cannot yet commence. To date CNPC has wielded around 1,560 kilometres of the eastern section of the Second West-East pipeline, marking good progress, although given that the total length of the eastern section of the pipeline is 2,477 kilometres, there is still a lot of construction work to complete.

Outlook and Implications

More broadly, the launch of the western section of the Second West-East pipeline reflects the government's efforts to put in place a national gas pipeline network to boost gas supplies to commercial and industrial consumers in China. Creating a national network has partially been prompted by a successful domestic gas exploration programme. China added net proven and probable gas reserves of more than 2 tcm between 1998 and 2008, one of the highest levels in the world. This has made viable the government's plan to promote the share of gas in China's energy mix, which remains highly reliant on coal. The emphasis on construction of huge trunk-lines running from the west of the country to major consuming centres in coastal areas is partially due to a successful gas exploration programme in Xinjiang, which has risen to become one of the largest gas producing provinces in the country. The creation of a national pipeline network has also been prompted by a surge in gas demand in recent years, which has been rising at over 10% per annum. Following the financial crisis China's gas demand was hardly dented and the demand increase has grown more acute in recent months as freezing weather has boosted residential consumption. This has led to severe shortages in many areas of the country (see China: 24 November 2009: NOCs Criticised by State Media over Natural Gas Shortages in China). A lack of pipeline infrastructure has hindered the ability of China's gas producers to get supplies to markets, which has been worsened by a lack of gas storage capacity to cope with fluctuations in demand in the domestic market.

With China's General Administration of Customs warning that the gap between demand and supply could be as wide as 30 bcm in 2010, (despite the increase in supplies from the Central Asia gas pipeline and China's ability to import LNG through its three operational terminals at Guangdong, Fujian, and Shanghai), investments in domestic gas pipeline infrastructure are due to increase. Media reports quote Wang Bin, deputy chief economist of PetroChina Natural Gas & Pipeline Company, as saying that the state plans to build 24,000 km of gas trunk lines to help improve the internal supply network between 2009 and 2015, with a further 8,000 km of branch pipelines in four key markets; the south-east, the Yangtze River Delta, the Bohai Rim, and the central south region to support sales by linking trunklines to consumers. China is also moving ahead with construction of additional LNG receiving capacity to help meet expected shortages, given forecasts by the General Administration of Customs that shortages could rise to as much as 40 bcm by 2015. The need for additional gas infrastructure to meet surging demand coupled with the favourable gas reserve potential in Xinjiang could push forward plans for constructing another two West-East gas pipelines, which could tentatively be supplied from new discoveries in the Tarim Basin as well as from increased supplies from Turkmenistan (see China: 26 June 2009: Chinese Government Mulls Fourth West-East Gas Pipeline).

The increased emphasis on natural gas development in China is positive from an environmental perspective, as it stands to diversify the country’s energy mix away from reliance on inefficient and high-carbon-emitting coal. The Second West-East pipeline network alone will replace an estimated 76.8 million tonnes of coal and reduce emissions of sulphur dioxide by 1.66 million tones, and carbon dioxide emissions by 150 million tonnes. However, with supplies outpacing development of new gas fields, it appears that the many gas hungry residential and industrial consumers will continue to be hit by supply shortages over the coming years as China struggles to resolve its gas supply demand imbalance.