By Ryan Landon Swanson
The role of natural gas (NYSEARCA:UNG) in China’s electricity system is a little known, yet highly significant piece of China’s energy future (NYSEARCA:CHIE). Through 2012, natural gas has been largely absent from China’s electricity generation mix, which has challenged the integration of wind (NYSEARCA:FAN) and solar (NYSEARCA:FAN) power and has left coal (NYSEARCA:KOL) as the principal fossil fuel. However, recent studies and investments in shale gas hydraulic fracturing, have given the Chinese (NYSEARCA:FXI) central government hope that new technologies could unleash huge reserves of shale gas (i.e., non-conventional gas that is trapped in fine-grained sedimentary rocks). A large expansion of China’s natural gas production would drive down China’s reliance on coal and facilitate the integration of renewable power sources (NYSEARCA:GEX).
Natural gas (NYSEARCA:UNG) currently accounts for less than 2 percent of China’s electricity output, but the Chinese central government aims to push that proportion to 10 percent by the end of the decade. China, now the largest electricity-consuming country in the world, currently accounts for only 3 percent of global conventional natural gas production and 1 percent of reserves. By contrast, the US accounts for 20 percent of production and 4 percent of reserves. But new studies on China’s shale gas reserves suggest that China has 50 percent more natural gas than the US, and, if successfully extracted, these new reserves could provide a critical source of flexible electricity generation for China.
Natural gas (NYSEARCA:UNG) plants are considered flexible because they are efficient at cycling; that is, they can quickly ramp up and down output to meet peak electricity demand and to accommodate for other demand and supply fluctuations. For example, if a wind farm suddenly begins to generate electricity, natural gas plants can quickly respond by ramping down their output to maintain stable supply across the whole system. When the wind dies down and the farm ceases to produce electricity, the natural gas plants can then ramp up output to make up for the loss of wind power.
In the US, natural gas plants do most of the cycling necessary to accommodate for intermittent power sources, such as wind (NYSEARCA:FAN) and solar (NYSEARCA:TAN). By contrast, in regions of China without hydropower resources, coal-fired power plants perform the cycling, which significantly reduces the efficiency of those plants. This reduced efficiency of coal-fired generation has significant implications for the environmental impact of wind power, as the integration of wind power, and the accommodation for its intermittency, make the rest of China‘s electricity generation pollute even more. A coal-fired power plant with reduced efficiency must burn more coal (NYSEARCA:KOL) and emit more pollution to produce the same amount of electricity as before. Furthermore, China’s coal-fired power plants, which were built to operate at full capacity, undergo accelerated wear and tear from the sudden changes in output.