CHINA has enacted a new industry policy on natural gas use to address the supply shortage and optimize usage, the nation's planning agency said yesterday.

The guideline says residential gas use is a top priority, while usage in petrochemical plants is discouraged, the National Development and Reform Commission said on its Website.

The policy, described by the NDRC as of "strategic importance," became effective on August 30 after approval by the State Council.

New methanol projects that use gas as a base will be barred. Methanol, which can also be derived from coal or crude oil, is an industrial chemical and a fuel that can be mixed with gasoline and diesel to cut pollution.

The use of natural gas in other petrochemical projects and power-generation plants will also be limited or outlawed. For example, gas-fired power plants will be banned in certain coal-rich regions.

The guideline said urban residential gas use is the most favored option.

"We have to ensure gas will be first used in the residential sector," the planning body said.

"We should consider social benefits, environmental benefits and economic benefits" while deciding where the gas resources should be used first.

The NDRC said gas use should be well planned for better conservation and higher usage.

Existing gas-based petrochemical projects, especially fertilizers, will remain in operation. Those approved and under-construction projects, which have signed long-term gas-purchase contracts, also won't be affected, the NDRC said.

China wants cleaner-burning natural gas to account for 5.3 percent of total primary energy consumption by 2010, up from 2.8 percent in 2005.

But supply may not catch up with the strong demand, typically in booming coastal regions.

Several major gas-transport projects have lately been announced or launched.