After the Coal-to-Gas Switch: Costs, Livelihoods, and Why Going Back to Coal Brings Little Relief

For heating companies squeezed by high prices and short supply, and for residents who have already torn out their coal stoves, policy adjustments after the fact offer little remedy.

Six months ago, Wang Jianli was sure he had read the times correctly.

This retired soldier in his forties lives in Diaowo Township, Zhuozhou, in Hebei Province — about 60 kilometers southwest of Beijing. Right after the Lunar New Year, he dismantled his coal stove and began preparing for the "coal-to-gas" conversion, ready to welcome his first green winter.

Wang Jianli normally drives a heavy truck in downtown Zhuozhou, hauling cement to construction sites. Last year he noticed the city's work crews starting to lay natural gas pipelines. "I deal with this every day — last year the city converted, this year the countryside," he said. "Coal is definitely finished. This is the way of the times."

Wang Jianli had read it right. In May 2016, Baoding Party Secretary Nie Ruiping declared at a "Major Air Pollution Prevention Mobilization Conference" that he meant to change the fact that seven of Baoding's counties and districts ranked in the province's bottom ten for air quality — with Zhuozhou dead last. Four months later, Hebei Province designated the 7,148-square-kilometer area that includes Zhuozhou a coal-free zone.

By July of this year, Wang Jianli's village had natural gas pipelines running through it. One by one, neighbors tore out their coal stoves, and by November 15 — the day Hebei's heating season officially began — almost everyone had a new gas boiler installed.

But now, nearly three weeks into the heating season, Wang Jianli and most of his neighbors have the equipment but no gas flowing through it. Some households have not even had a gas meter or gas pipes fitted.

When we met Wang Jianli in Diaowo Township on December 5, he was indoors in a thick padded jacket, bundled up head to toe. Because of the coal-to-gas switch, he has already spent close to 10,000 yuan this year.

After government subsidies, Wang Jianli's gas boiler cost him 1,500 yuan. The price of radiator panels rose along with the coal-to-gas push — from 9 yuan a panel to 12 — and the four rooms came to 960 yuan. Add the piping, and all the preparations together cost him 4,500 yuan.

With an elderly parent at home and no gas coming, Wang Jianli spent almost his entire paycheck the day after he received it last month — 5,000 yuan on a floor-standing air conditioner.

As for why the gas had not arrived, the village committee and the gas company lobbed the question back and forth. When we tried to confirm with the gas company, the answer was: "Ask the brigade" — an old term for the village committee — "they definitely know. There's no point coming to us; tell them to contact the gas company."

"I won't make trouble for the government. First, I served in the military; second, I'm a Party member. Whatever I can solve on my own, I solve on my own." Wang Jianli said that after being stonewalled on one phone call, he never contacted the village committee again.

Where the Coal-to-Gas Switch Is Done, Hebei Rural Residents Pay Three Times as Much to Heat Their Homes

In the same township, Liu Yingxia, in a neighboring village, now has clean heat — but she cannot afford what it costs.

Liu Yingxia and her husband run a small convenience store in Diaowo Village 1. Their son is still in college, and the store brings the family about 2,000 yuan a month.

Three months ago, the more than 500 households in Diaowo Village 1 were chosen as a "coal-to-electricity demonstration village" — a decision Liu Yingxia understood as being like "drawing lots." The other villages — Diaowo 2, 3, and 4 — all switched to natural gas instead.

Over three months, crews from different construction teams came to the house to run wiring, install transformers, and set up electric heaters.

Villagers had three coal-to-electricity options: an air-source heat pump water heater (the village calls it an electric boiler) with an out-of-pocket cost of 2,000 yuan after subsidies, a 6,000-yuan version of the same, or a free three-phase electric heater that holds heat somewhat better than an ordinary one. Households that chose the electric heater would get a subsidy on their electricity bills — 0.50 yuan per kilowatt-hour during the day, and 0.30 yuan at night after the subsidy.

Liu Yingxia chose the free three-phase electric heaters. Each person had a quota of three units; she put them in the two bedrooms and the living room.

But now those heaters look more like decoration. Since they were installed, Liu Yingxia has never dared to plug them in. She did the math: running them nonstop would cost 1,600 yuan a month, eating up most of her income. "My monthly income is just over 2,000 yuan. If I burn 2,000 or 3,000 yuan's worth of electricity, I won't have a single yuan left."

Before the switch, Liu Yingxia burned two and a half tons of coal each winter, at a total cost of around 1,200 yuan. Switching to electricity makes it three to four times as expensive.

As for the high-powered air-source heat pump that villagers had to buy themselves, QDaily learned from Changhong Electronic Group Co., Ltd. that the 6,000-yuan model draws up to 10 kilowatts, costing 120 yuan for a full day and night of operation.

Luckily, Liu Yingxia's living room faces south and stays reasonably warm during the day. On cold nights she and her husband huddle in the bedroom, relying on the air conditioner for warmth. They switch it on now and then — at 200 yuan a month in electricity, it is still within her means.

When the weather gets colder, she plans to switch back to coal.

Coal has now become a scarce commodity in the village. Only between one and two in the morning do coal vendors slip through the alleyways to make secret deliveries. And the price is no longer what it was. Last year a ton of coal cost 500 yuan; this year, when the coal-to-gas and coal-to-electricity push first got under way, it climbed to 800 yuan a ton. Since the heating season began, it has reached 1,000 yuan a ton.

Zhao Minhui, in the neighboring Mafang Village, also wants to burn coal, but he is afraid to.

Mafang Village switched entirely to natural gas heating back in November of last year, banning the burning of any polluting fuels. "They have satellite positioning — you start burning even a small kettle of water, and if there's smoke they'll know; you can't hide," Zhao Minhui said, recounting what he had heard. "You can't even burn dry leaves in the field. Get caught and you'll be detained."

Heating with natural gas last year, Zhao Minhui got through a winter that was not freezing but not particularly warm either. This year, just days into the heating season, the gas at home started cutting out on and off.

The only way he and his wife can tell whether there is gas is to light the kitchen stove. If it lights, there is gas. Once the gas cuts out, the wall-mounted gas boiler sounds a protective alarm — and all day long, relentless alarms fill their ears.

These past few days, even when gas does arrive, there is not enough to hold the indoor temperature. The water normally needs to reach 40 to 50 degrees Celsius to provide adequate warmth, but each time Zhao Minhui tries to light the gas boiler, the flame is barely a flicker. The water temperature in the heating boiler rises from 2 degrees to 14 and then stops. Intermittent gas supply and low pressure together make sustained heating extraordinarily hard.

The Binhai Gas Dongxing Road service center in Mafang Village told QDaily that this was because "Zhuozhou alone added 100,000 new users this year" — an outcome they had not anticipated.

The same scene is playing out across every city and district in Hebei Province. A supply-security plan issued by the Hebei Provincial Development and Reform Commission on October 23 stated that "each city has pursued the gas-for-coal program with great enthusiasm, and the number of planned conversion households reported by local governments exceeds the targets the province set by nearly 1 million households — far beyond the gas supply capacity that can be guaranteed."

The shortage is not limited to rural areas. We compiled every complaint filed on Hebei Province's online governance platform "Sunshine Administration" from November 15 — the first day of heating — onward. Natural gas complaints totaled 37, of which 10 came from Zhuozhou alone.

Wang Xiyue moved into the newly built Xiangyi Xigu residential compound in Guanzhuang Village, Zhuozhou, in February of this year. Starting November 15, the natural gas at home became unstable; cooking has now become a problem. She has called Binhai Gas Group Co., Ltd. several times, always getting the same reply: "The whole city is like this. There's nothing we can do."

Wang Xiyue and her neighbors in the compound have all bought induction cookers for cooking.

"Before, you'd walk in and be down to a shirt. Now it's not like that anymore," Wang Xiyue said. Over the three weeks she has been freezing, she has thought again and again about moving back to Beijing — but if no one is in the apartment, the natural gas pipes will freeze and burst, and draining the water would cost more money, so she just has to tough it out.

To buy this new apartment, Wang Xiyue sold her old work-unit flat, where a full winter of centralized heating had cost only around 1,000 yuan. Last year, the natural gas bill at the new place ran her 4,000 to 5,000 yuan. This year, even if she were willing to pay, there simply is not enough supply. "I sold that apartment, and now I regret it."

The shortage is also driving up prices at the city's CNG stations. Zhuozhou had three: one run by PetroChina's Kunlun Gas Co., Ltd. and two private ones. Last month one of the private stations went under; the remaining private station's price has risen from 3.5 yuan per cubic meter to 4.6 yuan.

At 6:35 in the evening, seven or eight taxis were lined up to refuel at the Kunlun station — now the only place in Zhuozhou where the city's 251 taxis can afford to fill up.

Residential Heating Is Price-Controlled, so Heating Companies Are Subsidizing Warmth Out of Their Own Pockets

Chen Yipeng owns a heating company in Hebei. He had spotted warning signs early this year: the Ministry of Environmental Protection had sent 6,500 people nationwide to conduct unannounced environmental inspections of heating companies. Chen Yipeng was receiving inspectors almost every week.

This year he had already fitted the coal furnaces at his company's operations in northern Hebei with environmental equipment, meeting the emissions standards. Because that equipment took a sizable investment, he had planned to renovate the southern operations the following year.

But on September 28, Hebei Governor Xu Qin convened the gas companies' representatives for a telephone conference. On that call, Chen Yipeng got a stern order: aggressively advance the coal-to-gas transition and ban coal combustion.

"They said it was a political task that had to be carried out," Chen Yipeng said. His reading: "Whether you do it or not, you do it."

With Hebei's heating season starting November 15, Chen Yipeng figured he had just over 40 days. The morning after the call, he ordered 1.68 million yuan worth of gas boilers from a boiler maker and began laying the foundations. When the boilers arrived on November 10, he launched installation and pipework at once. "There was no time to think — rush, rush, rush — and I had gas flowing on November 15," he said.

But by the time everything was in place, the natural gas was running short.

Chen Yipeng said this should have been foreseeable. "Everyone knew the gas supply was fundamentally insufficient, but the groundwork had already been laid." Hebei's localities had laid the natural gas pipelines in July and August; Chen Yipeng installed his gas boilers in October. The bridge between the two ends was built — all that was missing now was the gas itself.

The phrase "political task" had driven the process forward while pushing every contradiction onto the heating companies.

The shortage sent prices rising, but the gas companies were not prepared to absorb the cost. They turned instead to auctioning off natural gas, hoping to sell it at a premium. Chen Yipeng received several notices from gas companies asking him to accept price increases of "20 to 30 percent," and warning him that if he failed to win supply at auction and service was interrupted, the consequences would be his alone.

Heating companies on the hook for warmth cannot raise prices on residents, and they cannot stop heating — they can only charge 2.4 yuan per cubic meter (including a 1-yuan-per-cubic-meter government subsidy). But the gas companies are now selling them gas at 3.04 yuan per cubic meter.

Counting 200,000 yuan for boiler installation and 500,000 yuan for piping and equipment, the conversion cost Chen Yipeng 2.4 million yuan in all — and the bigger expense was still to come, in the heating season itself.

In a typical winter, Chen Yipeng's company would burn 3,000 tons of coal at 700 yuan a ton — a cost of roughly 2 million yuan.

Burning natural gas consumes 16,000 cubic meters a day. The total for the 120-day winter would be 6 million yuan — three times the cost of coal. And 50,000 yuan a day is only the early-season figure; when temperatures drop further over New Year's and Spring Festival, Chen Yipeng will have to run the boilers hotter, and costs could rise to about four times what they were under coal.

Higher costs have not necessarily bought better heating. As Chen Yipeng describes it, the upper drum of a coal boiler holds heat for a long time — when you relight it, the water is still warm. But a gas boiler works more like an ordinary household water heater: once the gas cuts out, the water goes cold again. Every time you start from scratch, and it is slower.

Government rules require urban heating to maintain a minimum indoor temperature of 18 degrees Celsius. Last year, heating with coal, Chen Yipeng held 22 degrees; now, to save money, he can only manage 20. Quite a few customers have already complained to him that this year's heating is not as good as before.

Tao Guangyuan, executive director of the Sino-German Center for Renewable Energy Cooperation, told QDaily that switching to new-generation coal furnaces with higher combustion efficiency could meet the same pollution-reduction goals without raising residents' living costs. He cited Germany as a country that cleaned up its air during the coal era. "We want to leap from the coal age to the renewable-energy age. Natural gas is only a transitional step. We should be using clean coal combustion."

Also on the September 28 call with Chen Yipeng were state-owned thermal companies. In the coal-to-gas process, these enterprises can at least look to local-government budget allocations for heating subsidies. But private companies like Chen Yipeng's are on their own — for now, there is no subsidy category that applies to them.

For the Oil Companies Supplying Natural Gas, the Greater the Winter Demand, the Deeper the Losses

The high-priced gas Chen Yipeng now burns originates mostly from PetroChina's Changqing Oilfield in the Shaanxi-Gansu-Ningxia Basin. The gas passes through several steps from the oilfield to the boiler room.

PetroChina is China's largest natural gas producer, supplying 70 to 80 percent of Hebei Province's gas. In November 2015, PetroChina restructured its natural gas business, setting up five regional sales subsidiaries: North, East, West, Southwest, and South.

The North Sales Company buys gas from Changqing Oilfield, then pays a fee to PetroChina Beijing Natural Gas Pipeline Co. to ship it through the Shaanxi-to-Beijing pipeline the company operates into Hebei Province, where it is sold to local gas companies.

Zhuozhou has two main local gas companies: Kunlun Gas Co., Ltd. and Binhai Gas Co., Ltd. — one affiliated with PetroChina, the other backed by Tianjin Binhai Investment and the Zhuozhou Construction Bureau.

Chen Yipeng's private heating company buys gas from these companies to heat residents' homes.

For PetroChina, extracting and selling natural gas is a profitable business — but domestic production has never been able to meet winter heating demand. Imports have become the way to fill the gap. In 2016, 35 percent of China's natural gas supply came from imports, including both pipeline gas and liquefied natural gas (LNG) carried by ship.

Whatever the form of import, PetroChina takes a loss. Every winter, the price at which it sells natural gas at home falls below the price at which it imports gas from abroad. Over the past five years, PetroChina's annual net loss on natural gas imports has reached as high as 41.9 billion yuan and never fallen below 14.9 billion yuan.

Last year, half of PetroChina's natural gas imports were LNG. LNG is easy to store, does not depend on pipelines, and can be moved by rail or truck — then turned back into gas at the destination through a gas company's liquefaction station. That flexibility has made LNG the main tool for bridging supply gaps. And last year, half of PetroChina's total import losses came from LNG.

But the losses do not stop the buying. For a state-owned enterprise, guaranteeing winter heat is a political task.

Natural gas imports and production are planned a year at a time. Oilfields in particular are constrained by technical progress — raising output is slow work.

Since the start of this year, environmental priorities have been raised steadily. In the first ten months, China's natural gas production had already grown 9.7 percent year on year.

Imports grew even faster. Through October of this year, before heating demand had even peaked, the equivalent of 74.7 billion cubic meters of natural gas had already been imported. Total imports for January through October were up 24.9 percent from a year earlier; in four of those months, the growth rate topped 50 percent.

Yet the coal-to-gas transition has been speeding up this year too.

Natural Gas Production Is Growing — but Not Fast Enough to Keep Pace with Coal-to-Gas Conversion

In March 2017, Premier Li Keqiang put forward the "Battle for Blue Skies" in the government work report delivered at the National People's Congress.

That same month, the Ministry of Environmental Protection, the National Development and Reform Commission, the Ministry of Finance, the National Energy Administration, and the six provinces and municipalities of Beijing, Tianjin, Hebei, Henan, Shandong, and Shanxi jointly issued the 2017 Air Pollution Prevention and Control Action Plan for the Beijing-Tianjin-Hebei Region and Surrounding Areas, requiring Beijing, Tianjin, Langfang, and Baoding to finish building "coal-free zones" and eliminate small coal-burning boilers by the end of October.

A Timeline of Hebei Province's Coal-to-Gas Push

2016.6

The Ministry of Environmental Protection issued the Strengthened Measures for Air Pollution Prevention and Control in the Beijing-Tianjin-Hebei Region (2016–2017), introducing the "2+26" transmission-corridor cities — Beijing and Tianjin plus 26 cities in Hebei, Shandong, and Henan. Beijing, Tianjin, and Hebei were required to begin early deployment of gas-for-coal and electricity-for-coal programs.

2016.9

The Office of the Hebei Provincial Air Pollution Prevention and Control Leading Group issued the Implementation Plan for Strengthened Air Pollution Prevention and Control Measures in Hebei Province (2016–2017), designating a 7,148-square-kilometer coal-free zone across 18 counties and districts including Langfang and Baoding.

2017.3

Li Keqiang put forward the "Battle for Blue Skies" in the government work report at the National People's Congress.

2017.3

Four central ministries and the six provinces and municipalities of Beijing, Tianjin, Hebei, Henan, Shandong, and Shanxi published the 2017 Air Pollution Prevention and Control Action Plan for the Beijing-Tianjin-Hebei Region and Surrounding Areas: Beijing, Tianjin, Langfang, and Baoding to finish "coal-free zone" construction by the end of October.

2017.3

The Hebei Provincial Government issued its Opinions on Vigorously Advancing Comprehensive Air Pollution Control, planning to complete coal-to-electricity and coal-to-gas conversion for 1.8 million rural households across 134 counties by the end of 2017.

2017.9

PetroChina had already purchased about 70 percent of the volume stipulated in its annual natural gas contracts — compared with only 50 percent at the same point last year.

2017.10

The 19th National Congress of the Chinese Communist Party was held in Beijing. During the Congress, Beijing's average PM2.5 index was 62, with a single-day high of 98.

2017.10

The Hebei Provincial Environmental Protection Bureau reported that Hebei had held 1,563 officials accountable for inadequate air pollution control this year, including 697 at the section-chief level or above.

2017.11

The Tianjin Municipal Environmental Protection Bureau reported that Tianjin had held 1,414 people accountable for inadequate environmental protection performance this year, including 27 at the bureau-director level and 636 at the division level.

2017.11

The heating season began; Zhuozhou, Cangzhou, and other areas around Beijing began experiencing gas interruptions and shortages.

2017.11

CNOOC chartered two LNG carriers from the international market — the first time it used offshore emergency storage tanks to boost emergency natural gas supply capacity.

2017.11

Multiple regions across China announced gas-restriction policies. Shortages were concentrated in northern areas including Shaanxi, Hebei, Shandong, and Henan. Natural gas prices rose by about 10 percent, with some regions seeing increases of up to 15 percent. LNG prices in northern China exceeded 8,000 yuan a ton.

2017.12

Daqing Zhongrui Gas Co., Ltd. in Heilongjiang posted a record LNG listed price of 9,400 yuan a ton.

2017.12

The National Development and Reform Commission issued a notice calling on LNG companies to exercise price self-discipline. By this point, the average ex-works price of LNG in many regions had passed 7,000 yuan a ton — a sharp jump from the average reference price of 4,000 yuan.

2017.12

The Ministry of Environmental Protection issued a circular stating that inspections had found some regions had not completed their coal-to-electricity and coal-to-gas projects on schedule. To keep residents warm over winter, areas that had not yet finished the transition were allowed to continue heating with coal or other alternative methods.

Starting in April of this year, Hebei Province had already entered negotiations with Sinopec, PetroChina, and CNOOC over natural gas supply — signing planned contract volumes in June, three months earlier than in past years.

After that, the coal-to-gas push kept accelerating. Local officials clearly did not dare drag their feet. In August 2017, Wei Honghai, deputy head of Qingyuan District in Baoding, Wang Huijun, head of the Qingyuan District Environmental Protection Bureau, and 11 others were dismissed or formally warned for inadequately implementing corporate environmental reforms.

In late October — the first week after the close of the 19th National Congress — the Hebei Provincial Environmental Protection Bureau reported that Hebei had held 1,563 people accountable for inadequate air pollution control, including 697 at the section-chief level or above. Soon afterward, the Tianjin Municipal Environmental Protection Bureau reported that Tianjin had held 1,414 people accountable for inadequate environmental protection performance, including 27 at the bureau-director level and 636 at the division level.

Hebei had originally planned to add 2.2 million coal-to-gas households this year (including 400,000 left over from the previous year), projecting provincial winter natural gas demand of about 6.5 billion cubic meters — an increase of 3 billion cubic meters year on year. But by October, the number of planned conversion households reported by local governments exceeded the provincial target of 1.8 million by a full 1 million.

Energy companies then scrambled to increase imports, but imports face heavy constraints. For overseas natural gas, from the time an order is placed to delivery, pipeline transport takes two to three days; tankers need at least two to three weeks. Whether imported gas can reach gas-short cities in time also depends on the receiving capacity of local ports and long-distance transport infrastructure.

Once Supply and Demand Fell Out of Balance, the Price Increases Began

Tong Xiaobo, a reporter for China Energy News — a publication under People's Daily — believes the signs of a shortage were visible as early as September. That month, PetroChina held a competitive bidding auction for western pipeline gas in Shaanxi Province, raising the benchmark price from 1.34 yuan per cubic meter to 1.61 yuan — a move that drew pushback from local liquefaction stations and regional gas associations.

A month later, PetroChina raised the price again, to 1.88 yuan per cubic meter — a 38 percent increase. "At that point the gas was definitely in short supply," Tong Xiaobo said.

From mid-to-late September on, multiple gas companies across North, Central, and East China raised their ex-works prices, citing reduced supply from upstream. Northern regions including Shaanxi, Hebei, Shandong, and Henan also announced gas-restriction policies one after another.

On November 15, northern China's heating season began. On December 1, Daqing Zhongrui Gas's LNG listed price hit a record 9,400 yuan a ton; the final transaction price reached 9,600 yuan a ton. That same day, the National Development and Reform Commission issued a notice calling for corporate price self-discipline.

"In fact, that Saturday" — December 2 — "prices were still rising; one agency quoted a high of 9,600 yuan a ton. On Sunday" — December 3 — "it dropped slightly to 9,030 yuan a ton," Tong Xiaobo recalled.

But to Tong Xiaobo, capping prices at this point was treating the symptoms, not the disease. "Even if prices stop rising, it won't stop the shortage — you can only say it temporarily restrains the worst of the social fallout."

On November 28, Hebei Province announced a provincial orange alert for natural gas supply, declaring the supply in a state of severe strain, with a shortfall of 10 to 20 percent.

December 4: The Ministry of Environmental Protection Issued a Conciliatory Notice — but the Problems in Completed Areas Remain

On December 4, the Ministry of Environmental Protection issued an urgent document stating that inspections had found some regions had not completed their coal-to-electricity and coal-to-gas projects on schedule. To keep residents warm over winter, regions that had not yet finished the transition were allowed to continue heating with coal.

For areas and projects already completed, the Ministry required that gas and electricity supply be kept stable and prices steady. It also required industry to yield to residential needs.

But in practice, industrial gas users had already been yielding to residential heating at the start of every winter. Under Hebei's emergency response plan, activated this year, during a shortage gas supply to chemical, industrial-fuel, transportation, and public-service users would be cut in sequence to guarantee heating for cities and residential use (including hospitals, schools, and the like).

This winter, the oil companies still had to keep importing more natural gas at a loss to guarantee supply in areas that had already converted. Heating companies that had finished the coal-to-gas switch could not very well tear out their multi-million-yuan gas boilers and reinstall coal ones; with import costs stubbornly high, they had no choice but to keep subsidizing the heating season out of their own pockets.

Households like Wang Jianli's, which completed the coal-to-gas switch this year, number more than 2 million in Hebei alone. For all of them, the notice came too late.

Both the coal-to-gas and coal-to-electricity programs required tearing out coal stoves first, then installing clean-energy equipment. Now, anyone who wants to burn coal again has to spend money reinstalling a coal stove — and live with the uncertainty of whether it will have to come out again next year.

Because the house is so cold, and he cannot afford to run the air conditioner around the clock, Wang Jianli sent his 70-year-old mother to his younger brother's home in Xinjiang. The train from Beijing to Urumqi takes 39 hours. "She had never been away before. These past few days she says she wants to come back." Wang Jianli paused. "People say: fallen leaves return to their roots."

Wang Jianli said that even if gas arrives this year, he does not plan to use it. From what he has seen at neighbors' homes where the gas is flowing, he reckoned that before the switch he spent about 1,000 yuan on coal over three winter months — now, switching to gas, 300 yuan is gone in ten days, making the whole winter three times as expensive.

"So I'll just wear more layers. Buy a padded jacket and be done with it," Wang Jianli said.

Photos / QDaily

Charts: Feng Xiuxia

At the request of those interviewed, Wang Jianli, Zhao Minhui, Liu Yingxia, and Chen Yipeng are pseudonyms.