China’s dash for gas leads to painful shortages
Thursday, Dec 14, 2017
China’s headlong dash for gas has turned into a logistical nightmare for central and local governments as well as the country’s state energy majors, which have been caught without enough of the fuel to meet soaring demand.

China’s southern province of Hunan issued a gas shortage warning this week, an unnamed local government official told Reuters on December 12. The official added that supply had fallen short of demand by about 10%. The so-called “yellow alert”, which is the third most serious warning on a four-grade scale, was confirmed by a Hunan Economic and Information Technology Commission official.

While northern China has been struggling to feed soaring gas demand as colder weather spells set in, Hunan’s warning is also a sign that warmer regions in the south are beginning to feel the gas supply crunch.

“Gas shortages are spreading to southern regions like Jiangsu and supplies to eastern cities could be curtailed as producers make northern regions a priority,” IHS Markit analyst Diao Zhouwei told Reuters.

State-owned Qingdao Energy Group warned this week that it would have to cut supplies to some industrial consumers in eastern China’s Qingdao City from December 12 on the back of a 200,000 cubic metre shortage.

The move came almost a week after China’s Ministry of Environment reportedly told the country’s northern cities to ease efforts to switch from coal to gas or electricity for heating. The project encompasses 28 cities, which have already installed gas-fired radiators in 4 million homes.
 
Cutbacks

Independent business magazine Caixin cited regulatory sources as saying official orders were issued in a document, the first sign that China may have erred in its efforts to adopt cleaner alternatives to coal.

“It is not wrong for Beijing to push the coal-to-gas switch, but the process was a bit too fast and outpaced the market’s capacity,” a researcher at CNPC’s Research Institute of Economics and Technology, Xu Bo, told the magazine.

The northern region of Beijing, Tianjin and Hebei Province is forecast to add 10 bcm of demand this winter. Underscoring northern supply woes, while China’s LNG import terminals were once running far below faceplate capacities, northern and eastern terminals are understood to be working at more than 130% of capacity.

The limited scope for LNG imports coupled with raging demand has left the central government anxious over the possibility of a freezing population this winter.

On December 7, the official China Daily said the Ministry of Education had demanded “immediate” action to ensure classrooms were appropriately heated. The edict came after local reports emerged that students in Hebei Province had displayed symptoms of frostbite.

Compounding the country’s supply woes has been Turkmenistan’s reported move to slash its gas exports to China in a bid to shore up its own winter supplies.
 
Turkmenistan talks

The Foreign Ministry was reportedly holding urgent talks with Turkmenistan after its state gas company, Turkmengaz, reduced cross-border pipeline deliveries as shortages threatened to engulf northern China following a government campaign to replace coal for heating purposes.

Monthly transmission had dropped to 1.7 million tonnes after supply averaged 2.1 million tonnes between January-September, Interfax said. It said Turkmengaz was holding back gas to ensure it could cover local demand this winter.

PetroChina has a long-term contract for Turkmenistan for 30-35 bcm per year of gas supply.

The Turkmengaz reduction has come as China National Offshore Oil Corp. (CNOOC) hired two LNG carriers to be kept loaded at anchor off the northeast port of Tianjin as part of a winter emergency stockpile.

The carriers will complement the floating storage and regasification unit (FSRU) which CNOOC has already chartered from France’s Engie for the winter and which is also located at Tianjin. The GDF Suez Cape Ann FSRU vessel has a capacity of 145,000 cubic metres and can reprocess 4 million tpy of LNG. Gas carriers can hold 120,000-210,000 cubic metres depending on their size.

The vessel hires are understood to be part of CNOOC’s plan to stock 20 bcm of gas as a winter emergency reserve.

PetroChina operates the 6.5 million tpy Caofeidian LNG at Tangshan near Tianjin, but the facility has limited tank storage space, Reuters quoted a company official as saying on December 5.

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