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Northern China is not expected to face a repeat of last year’s crippling heating shortages. Photo: Xinhua

Winter is here but this time China’s gas suppliers are ready for the big chill

  • Better-organised supplies and milder weather are helping the country’s north avoid the heating shortages of last year
Energy

China has gone all out to avoid a repeat of last winter’s crippling gas shortages. The early verdict: so far, so good.

China’s gas needs peak for its so-called winter heating season. It is a time of surging demand and firmer prices as the nation seeks to curb its reliance on dirty coal. The difference so far this year – none of the widespread shortages that froze northern cities as early as November, and forced the government to allow some parts to revert to coal.

Milder weather is surely helping. But so has better preparation, smarter policy and improved infrastructure. Demonstrating reliable supply of the cleaner-burning fuel would be a victory for Beijing, which is trying to quell complaints about urban air pollution without the embarrassing criticisms of last winter’s effort. It would also burnish the credentials – and profits – of the companies leading China’s switch to gas.

“Better preparation definitely makes a difference, even if demand is still running high,” Liu Ming-hui, chairman of China Gas Holdings, said in Hong Kong at the end of last month. “Upstream players have managed to secure more supplies, and industrial users knew what to expect, so all the surprise factors we saw last year have been completely taken away.”

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Policymakers are taking a more measured approach on their coal-to-gas campaign, prioritising supply for existing needs and scaling back the number of households that will make the switch from coal this year.

China National Petroleum Corporation, the country’s biggest gas producer supplying more than half of winter demand, is running its fields at full tilt and has made more storage available after promising to increase supply to customers. CNPC has also hooked up its pipelines with domestic rivals to help better distribute gas from the south and east to the chillier north. And, the nation is buying more from abroad, helping to soak up a global glut of the fuel, with imports surging 34 per cent in the first 11 months of the year.

China’s gas use has jumped more than a fifth this year to 226 billion cubic metres through October. Better-organised supply and warmer weather have so far helped avoid last year’s failures, even though China is a month into the heating season, according to Aaron Xiao, an energy analyst at Jefferies Hong Kong. “We estimate 2018 gas supply, which is in the range of 282 to 285 billion cubic metres, will fully cover the increased gas demands in China, barring extreme weather conditions,” he said.

Investors are rewarding expectations that distributors will pass this winter’s supply test. Names such as China Gas, ENN Energy Holdings, Kunlun Energy and China Resources Gas Group, which benefit from increased sales, have rallied in recent weeks and months. Producers like CNPC, meanwhile, also reap the benefit of the winter premium on prices.

China scrambles to avoid a repeat of last winter’s botched coal-to-gas conversion programme in highly polluting northern rural areas

Still, prices, while seasonally strong, are far below last year’s peaks – evidence that the feared gas crunch has not materialised.

Tanks at China’s import terminals are near full capacity, after buyers snatched up cargoes to avoid another winter of shortages, according to traders surveyed by Bloomberg. That has helped steady domestic prices after they more than doubled from September to December last year.

The brimming stockpiles and forecasts for a milder winter have affected gas markets beyond the country’s border, pushing the Japan/Korea LNG Marker, the benchmark for spot cargoes throughout northeast Asia, to the lowest since July.

This article appeared in the South China Morning Post print edition as: Winter is here but mainland gas firms are chilled out
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