Rosy Future for West-to-East Pipeline
3 min readFour years ago，the gigantic west-to-east gas pipeline project was overwhelmed with doubts over whether there was enough demand for gas.
Now，the project，which delivers gas from the deserts of western China’s Xinjiang Uygur Autonomous Region to East China’s Shanghai through a 4000-kilometre pipeline，has become a hot issue in the market.
As oil and coal prices continued to surge over the past three years，gas demand quickly rose to the same level as the project’s designated production capacity.
Three years ago，PetroChina，the operator of the project，was saddled with the problem of how to find more customers. Now，the company is happy to find itself with the opposite“problem”of how to increase its production capacity to meet robust demand. It seems to be a happy ending for everyone involved.
Customers，including chemical plants，power firms，gas distributors and residents，get clean and efficient natural gas；the better-than-expected gas demand helps the project make a profit this year，far ahead of PetroChina’s schedule.For the government，the project contributes to its western development strategy.It also fulfills the government’s plan to increase natural gas consumption to reduce heav reliance on oil imports and help protect the environment.
But analysts warn that the champagne corks should not start popping yet，as daunting challenges lie ahead，analysts said.
Above all，it remains questionable whether customers would observe long-term gas purchase contracts once the prices of alternative energy fall，analysts said.
In particular，power plants，which account for one-third of the total gas consumption of the project，have not yet received prime-pumps to support them to replace the cheap coal with the natural gas for fuel.
Prices of natural gas are twice as much expensive as that of coal.Without incentives，such as favourable electricity tariffs，power plants may have to face fat losses，analysts said.
The Projects’Challenges
For one thing，the power plants，which account for one-third of the total consumption of the project，have not secured long-term power purchase agreements （PPAs）.
While the power plants have to commit to a certain amount of gas consumption，they could not lock the electricity sales.
Without PPAs，the power plants may find it difficult to sell the electricity togrids as the government is encouraging generating firms to compete to sell the electricity，analysts said.
Typically，the price of natural gas is as much as double coal prices for power generation. As the result，the gas-fired power plants may suffer from high costs in the competition，if the government does not grant favourable policies.
“Certainly，the government would give incentives for power plants.But the problem is when and how，”said an industry observer who refused to be identified.
“Now the risks are all on the side of the power plants.”The analyst said the ideal PPA should guarantee the amount of power generation，and ensure the proportion of power generation during peak and low consumption period.
The price of electricity in peak consumption period is much higher than in the low consumption period. The electricity prices should also be allowed to float in line with the gas price changes，the analyst added.
