Caixin
Nov 29, 2013 04:44 PM

Gov't Grapples with Shortage of Natural Gas

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(Beijing) – Winter has only just started and China's is experiencing its biggest natural gas shortage ever.

At a shareholder's meeting in May, the chairman of China National Petroleum Co. (CNPC), Zhou Jiping, announced that "resources are extremely tight this year."

The company supplies nearly 70 percent of China's natural gas. Zhou said CNPC plans to supply 107 billion cubic meters of natural gas this year, 8 billion short of expected demand. Some research institutions predict the country's shortfall will hit 10 billion cubic meters.

Seasonal factors and sustained smog have both played a role in the shortage. A CNPC manager said that a great deal of the pressure to guarantee gas supplies came from state-level orders linked to energy restructuring, which stem largely from air pollution. In northern China, which is bedeviled by bad air, officials are trying to end large-scale use of coal for heating and power generation.

The country's domestic supply of natural gas cannot meet demand. Last year, the country had 3.1 trillion cubic meters of verified gas reserves, just 1.7 percent of the global total. Meanwhile, China's demand was 143.8 billion cubic meters, of which 40 billion had to be imported. It is estimated that China's dependence on imported natural gas will exceed 35 percent by 2015.

Urbanites are gradually becoming accustomed to using natural gas. So are electricity companies and manufacturers. The vice director of the National Reform and Development Commission (NDRC), Lian Weiliang, has said that consumption of natural gas in the first three quarters of 2013 had grown by 13.5 percent compared to the same period last year, much faster than the 9.2 percent growth of production.

Feeling the Pinch

The great difficulty in developing domestic natural gas reserves, the slow pace of negotiations for importing natural gas, and inadequate transportation and storage infrastructure have all contributed to the widening gap between supply and demand. Considering the need to meet winter heating needs, industry may face cuts.

From October 14 to November 4, the NDRC issued three notices on meet this winter's gas needs. On the upstream level, it imposed hard targets on production, demanding that major fields to produce at maximum capacity. The country's top economic planner also urged oil companies to add to production capacity.

In Beijing, both total gas consumption and daily average use at peak hours surged in 2012. Total consumption in the capital on the year was 9.2 billion cubic meters, year-on-year growth of about 1.6 billion cubic meters. Most of that growth was attributable to heating, which accounted for 6.8 billion cubic meters of consumption, year-on-year growth of 800 million cubic meters. Daily peak consumption was 64.4 million cubic meters, year-on-year growth of 12.7 million cubic meters, or 24 percent.

Official pressure to remedy Beijing's smog has propelled energy restructuring in surrounding areas, while also putting pressure on chemical manufacturers whose primary raw material is natural gas.

Natural gas is the mainstay of Cangzhou Dahua Co., which makes chemical fertilizers and other products in Cangshan, Hebei Province. On November 12, company officials announced that CNPC was temporarily suspending provision of natural gas to the company as northern China was entering the heating season and residential use of natural gas was rising. Without access to natural gas, and with product prices decreasing, Dahua's net profits fell 32.7 percent year on year during the first three quarters of the year.

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