A villager cycles past gas pipeline construction in Xiaozhangwan village of Tongzhou district, on the outskirts of Beijing, China June 28, 2017. (Reuters Photo/Jason Lee)

China's Bold Gas Plan May Threaten Winter Power Supplies


OCTOBER 20, 2017

Beijing. China has ordered state oil companies to speed up the construction of pipelines to move natural gas to homes and factories, underscoring worries that the country's insufficient infrastructure could cause power outages during the peak winter demand period.

This winter, millions of homes across the colder northern regions of the world's second-largest economy will be heated for the first time by gas rather than coal, as part of Beijing's effort to boost clean fuel use.

But with just a month before newly installed radiators get switched on, the National Development & Reform Commission (NDRC) warned on Thursday (19/10) that supply and demand conditions could be "serious" this winter.

The alert shows Beijing is trying to head off supply disruptions during the peak demand period from November until March. Residential users with their radiators will have supply priority over industrial users, increasing the possibility of power losses during gas shortages.

"We are all quite concerned with supply shortages this winter [...] as we may not have the infrastructure capacity to catch up with the demand growth," said Li Wei, a vice president of Kunlun Energy, which operates liquefied natural gas (LNG) terminals and gas production plants.

Wood Mackenzie estimates the heating needs alone will add 10 billion cubic meters (bcm) to China's gas demand, the equivalent of Vietnam's annual consumption. The country is expected to use about 230 bcm this year.

Small industrial users like hospitals have also had to switch to gas this winter.

China will either need to ramp up imports, offering a boon for major exporters like Russia, or big industrial consumers may get interrupted, warned Kerry Anne Shanks, head of Asia gas and LNG research at consultants Wood Mackenzie.

"This depends on weather. [But] we worry that China doesn't have enough storage," she said.

China has only 8 bcm of gas storage capacity, or about 4 percent of its demand. That is much lower than other gas-using regions like the United States and Europe, which typically store about 15 percent to 25 percent of their annual needs, she said.

It's All About the Weather

Winter weather will be the main factor for demand and forecast models are not yet clear.

While long-range forecasts point to a slightly warmer-than-average winter in the major cities of Beijing and Shanghai, the forecasts show that conditions until December are likely to be unusually cold.

Colder weather later in the season would be more challenging because it is harder to pull gas from storage when the tanks are emptier, Shanks said.

Specifically, the NDRC said on Thursday that Sinopec and PetroChina should be injecting gas into their storage facilities ahead of the peak demand season. Their facilities should be running at full capacity.

The government also called on Sinopec to speed up the construction of four pipeline projects: a Tianjin to Beijing pipeline; a Qingdao to Nanjing project; an Inner Mongolia to Hebei development and one from Xinjiang to other regions.

It has also urged top pipeline operator China National Petroleum Corp to complete the fourth leg of its Shaanxi to Beijing line by the end of October.

China expects that gas demand will rise to between 320 and 360 bcm per year by 2020, meaning more long-term infrastructure investment is needed.

The increase is the equivalent of the annual consumption of Japan, Asia's second-largest gas consumer after China.