China issued a new policy on natural gas utilization at the end of August to regulate the use of natural gas and alleviate a shortage of supply. The policy became effective on August 30, 2007, after approval by the State Council.

The new policy issued by the National Development and Reform Commission (NDRC) classifies natural gas utilization into four categories: residential and urban gas use, industrial fuel, power generation and chemical feedstock, and labels them as categories of Given priority, Permitted, Limited, and Banned respectively.

The new policy bans the use of natural gas as raw material to produce methanol, the construction of gas-fueled power plants at large coal production bases, and the use of natural gas produced by large and medium-sized gas fields as raw material for Greenfield LNC projects.

These prohibitions, as well as other limits stipulated by the new policy, are to curb gas demand and for better conservation and higher usage.

The guideline state that urban residential gas use is the most favored option. Beijing municipal government started from November 13, 2007 to provide subsidies to residential household natural gas users in Beijing.

Existing gas-based petrochemical projects, especially fertilizer production, will remain in operation. Approved and under-construction projects which have signed long-term gas-purchase contracts won’t be affected, the NDRC said.

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