Coal bites back in China amid supply worry as pause seen in switch to gas
China is besieged with coal problems, as power producers struggle to obtain supplies and an entire province has decided to pause switching homes and industries to natural gas over fear of heating stoppages, it has emerged.
Four of China’s biggest generators sent an “emergency report” dated January 22 to the National Development & Reform Commission, the top economic planner, requesting help with thermal coal supply, according to China Business News.
Meanwhile, the province of Hebei, which surrounds Beijing, will stop approving coal-to-gas conversions in rural areas until new natural gas supply can be secured.
China has struggled for two years with President Xi Jinping’s drive to reform the country’s coal industry and use cleaner fuels.
Efforts to limit coal supply in 2016 and encourage gas use last year overshot goals, causing price spikes and supply squeezes that sent regulators scrambling to restore balance.
Thermal coal futures on the Zhengzhou Commodity Exchange traded as high as 679.8 yuan (US$107, HK$836) a tonne, the most for front-month price in more than six weeks.
“With or without the urgent call from the power utility companies, the government is already doing what it can to ensure coal supply, including relaxing limits on imports and asking miners to take fewer days off around Lunar New Year,” said Zeng Hao, an analyst with Shanxi-based Fenwei Energy, referring to the week-long holiday that starts around February 16.
“Coal prices will likely increase in the near term and will remain strong through the first quarter.”
The report to the NDRC from the four generators – China Huaneng Group, China Datang Corp, China Huadian Corp and State Power Investment Corp – urged regulators to allow miners to operate at full capacity before the Lunar New Year and increase imports.
They also sought greater government control on prices and a cap on transport fees. China Guodian Corp, which merged with Shenhua’s parent company last year, was not included in the letter.
While the National Bureau of Statistics said this month that coal’s role in total energy consumption inched lower last year, the world’s biggest producer and user of the fuel is targeting reducing its share to 58 per cent, by far still the biggest source.
Meanwhile, the pause in approving new coal-to-gas conversions in Hebei is “mainly to digest” unfinished projects still in the works, Lin Chen, an analyst with Nomura, wrote in a research note.
“After the gas shortage that occurred last year, we believe that central and provincial governments are reviewing their coal-to-gas replacement policies,” Chen wrote.
“That means that although long-term growth remains intact, short-term risks might be inevitable for gas distributors.”
Hebei, China’s sixth-largest province by population, overshot its goal last year of converting customers to gas, switching more than 2.5 million households compared with a target of 1.8 million.
Such conversions led to shortages of natural gas and forced the government to reverse course and let residents burn coal for heating.
The freeze on new coal-to-gas conversion projects in rural areas in Hebei excludes developments that started construction last year and are not finished, said an official from the province’s energy bureau who asked not to be identified because they are not authorised to speak publicly.
The project freeze creates short-term risks for natural gas distributors like China Gas Holdings Ltd, which have benefited as government support for the cleaner-burning fuel has propelled demand, according to Nomura.
China Gas said in an emailed statement Hebei’s announcement “has no impact on us since we have already secured the conversion projects in the rural Hebei area for construction in 2018, and all related conversion work will proceed as scheduled.”